MARCONI CORPORATION Plc MARCONI

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As ﬁled with the Securities and Exchange Commission on September ▲15▲, 2000. Registration No. 333-12430 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

AMENDMENT NO. ▲2 TO FORM F-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 MARCONI CORPORATION plc MARCONI plc (Exact name of Registrant as specified in its charter) England and Wales 4813 Not Applicable (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number) One Bruton Street London W1J 6AQ England 011-44-20-7493-8484 (Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices) Patricia A. Hoffman Marconi Inc. 1500 Mittel Boulevard Wood Dale, Illinois 60191-1073 U.S.A. 630-238-3995 (Name, address, including zip code, and telephone number, including area code, of agent for service) Copies to: David O. Brownwood, Esq. Edward F. Greene, Esq. Cravath, Swaine & Moore Cleary, Gottlieb, Steen & Hamilton 33 King William Street Level 5 City Place House London EC4R 9DU 55 Basinghall Street England London EC2V 5EH England Approximate date of commencement of proposed sale to the public: As soon as practicable on or after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, please check the following box. □ If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. □ If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. □ If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act of 1933, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. □ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. □ CALCULATION OF REGISTRATION FEE

Proposed Proposed Amount maximum maximum Title of each class of to be offering price aggregate Amount of securities to be registered registered per unit(1) offering price(1) registration fee Bonds $1,800,000,000 $1,800,000,000 $1,800,000,000 $475,200(2) Guarantee of the bonds by Marconi plc $1,800,000,000 $1,800,000,000 $1,800,000,000 —(3) (1) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933. (2) ▲Of this total registration fee, $396,000 was previously paid. (3) No separate registration fee is required for the guarantee of the bonds. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall ﬁle a further amendment which speciﬁcally states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. 3.8.7 29025 COV 1 Project Marlin Prospectus p15 AOGps 14 SEP 00 21:06 R. R. DONNELLEY LON(•• ) ATL74600/20000 (LOGO) 011 44 20 7330 1600 CB 01 SEP 00 22:30

PROSPECTUS▲ ▲ $1 ▲800 000 000

Marconi Corporation plc 3 $▲900 000 000 7 ⁄4% BONDS DUE 2010 3 $▲900 000 000 8 ⁄8% BONDS DUE 2030

Interest payable on ▲March 15 and ▲September 15

We may redeem any of the bonds at any time at the redemption price described in this prospectus plus accrued interest In addition we may in the event of changes in the tax laws of the United Kingdom or in other circumstances that we describe in this prospectus redeem all of the bonds of any series at 100% of their principal amount plus accrued interest Marconi plc which indirectly owns 100% of us and is the top company of the Marconi group will guarantee the bonds The guarantee may terminate at any time

We have applied to list the bonds on the Luxembourg Stock Exchange in accordance with its rules

Investing in the bonds involves risks. See ‘‘Risk Factors’’ beginning on page 9.

3 ▲7 ⁄4% BONDS—PRICE ▲99.264% AND ACCRUED INTEREST, IF ANY 3 ▲8 ⁄8% BONDS—PRICE ▲99.178% AND ACCRUED INTEREST, IF ANY

Underwriting Proceeds to Discounts and Marconi Price to Public Commissions Corporation plc Per 2010 bond ...... 99264% 650% 98614% Total ...... $893376000 $5850000 $887526000 Per 2030 bond ...... 99178% 875% 98303% Total ...... $892602000 $7875000 $884727000 The Securities and Exchange Commission and state securities regulators have not approved or disapproved these securities or determined if this prospectus is truthful or complete Any representation to the contrary is a criminal offense

▲Morgan Stanley & Co. Incorporated expect▲s to deliver the bonds to purchasers on September ▲19, 2000.

MORGAN STANLEY DEAN WITTER CREDIT SUISSE FIRST BOSTON J)P) MORGAN * CO) MERRILL LYNCH * CO) SALOMON SMITH BARNEY UBS WARBURG LLC

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TABLE OF CONTENTS

Page Page Prospectus Summary ...... 2 Our Systems Businesses ...... 65 Risk Factors ...... 9 Our Other Businesses ...... 75 Cautionary Note Regarding Forward- Facilities ...... 78 Looking Statements ...... 11 Employees ...... 79 Presentation of Financial and Other Intellectual Property ...... 80 Information ...... 12 Environmental and Other Regulation ... 81 Use of Proceeds ...... 13 Legal Proceedings ...... 83 Capitalization ...... 14 Management ...... 85 Ratio of Earnings to Fixed Charges ..... 15 Share Ownership ...... 97 Exchange Rate Information ...... 16 Certain Relationships and Related Selected Consolidated Financial Transactions ...... 98 Information ...... 17 Description of Other Indebtedness ...... 100 Pro Forma Combined Statement of Description of the Bonds ...... 102 Operations for the year ended March Taxation ...... 125 31, 2000 ...... 20 Underwriting ...... 131 Management’s Discussion and Analysis Notice to Canadian Residents ...... 133 of Financial Condition and Results of Legal Matters ...... 134 Operations ...... 23 Experts ...... 134 Overview of Our Businesses ...... 41 Service of Process and Enforcement of History and Recent Developments ...... 44 Civil Liabilities ...... 134 Our Communications Networks Where You Can Find More Business...... 47 Information...... 135 Our Communications Services Index to Consolidated Financial Business...... 54 Information ...... F-1 Our Mobile Communications Business .. 58

You should rely only on the information contained in this document. We have not authorized anyone to provide you with information that is different. This document may be used only where it is legal to sell these securities. The information in this document may only be accurate on the date of this document.

We have not taken any action that would permit a public offering to occur in any jurisdiction other than the United States. Persons who possess this prospectus should learn about and observe any restrictions as to the offering of the bonds and the distribution of this prospectus.

Dealer prospectus delivery obligation

Until ▲October 9, 2000 (25 days after the commencement of the offering), all dealers that effect transactions in these securities in the United States, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as an underwriter and with respect to unsold allotments or subscriptions.

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PROSPECTUS SUMMARY

We are a global group focused primarily on the communications market. Our communications business activities include developing and supplying communications and data networking equipment and services. In addition, we have businesses that focus on medical, commerce and data systems markets for high technology products and services.

Our businesses

We operate three communications businesses: communications networks, a U.S.-based business that designs and supplies communications systems comprising a broad range of products including: • optical networks systems, which use optical fiber as the medium to transport data; • access systems, which connect consumers and businesses to communications networks; • broadband switches, which are very high capacity devices that direct communications traffic; and • software management systems that monitor and control communications traffic flow over communications networks and are sold along with our communications networks products.

communications services, a U.K.-based business that: • installs networks; • supports the communications equipment of our communications customers; and • offers a broad range of services in planning, building and operating networks to meet the increasing outsourcing requirements of existing operators and the needs of those operators who require complete networks.

mobile communications, an Italian-based business that: • designs, develops and integrates communications and information technologies into wireless communications systems for security forces and other uses; and • is in the early stages of developing a product offering for the next generation of public mobile networks. These networks will provide high capacity wireless communications to and from mobile phones with ﬁxed-line quality sound, fast data transmission and video capability.

We operate three U.S.-based systems businesses: • medical systems, which includes medical imaging equipment, radiology support and an emerging business, Healthcare Information Systems; • commerce systems, which includes retail automation systems, petroleum equipment, systems integration and service management and an emerging business, Marconi Online; and • data systems, which includes digital imaging systems and supplies and an emerging business, Marconi InfoChain.

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In addition to our principal businesses, we invest in technology start-up and early stage businesses that may have growth potential or technology that is complementary to our principal businesses. We also retain other businesses with a view to development or disposal.

Our group strategy

The increase in data trafﬁc and the demand for greater network capacity, or bandwidth, has created growth opportunities in the communications and information technology markets. Our strategy is to build on our experience in developing and supplying very high capacity communications networks and information technology products and services to offer complete differentiated network solutions on a global basis.

In implementing our strategy, the initial priority will be the continuing development of our communications businesses and the pursuit of other proﬁtable development opportunities throughout the Marconi group, particularly those which may offer cross-selling opportunities with our communications businesses.

Formation of Marconi plc

Marconi plc was incorporated as a public limited company under the laws of England and Wales on September 17, 1999. It is a recently formed holding company with a limited operating history in its current form. Marconi plc was formed as the result of a reorganization of The General Electric Company, p.l.c. (GEC), a U.K.-based company, which divested its defense electronics and defense systems businesses and retained its communications and intelligent electronics businesses under a new holding company named Marconi plc. In connection with the reorganization, on November 26, 1999 Marconi plc issued ordinary shares to each of the former shareholders of GEC. As a result of the issuance of shares, shareholders of GEC became shareholders of Marconi plc and GEC became an indirect wholly owned subsidiary of Marconi plc. GEC was subsequently renamed Marconi Corporation plc.

Our principal executive ofﬁces and the principal executive ofﬁces of Marconi plc are located at One Bruton Street, London W1J 6AQ, England (telephone: ++44-20-7493-8484).

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The offering

3 Bonds offered $▲900,000,000 principal amount of ▲7 ⁄4% bonds due 3 2010 and $▲900,000,000 principal amount of ▲8 ⁄8% bonds due 2030.

3 Maturity The ▲7 ⁄4% bonds will mature on ▲September 15,2010 3 and the ▲8 ⁄8% bonds will mature on ▲September 15, 2030.

3 Interest rate and payment dates We will pay interest on the ▲7 ⁄4% bonds at the rate of 3 3 ▲7 ⁄4% per year and on the ▲8 ⁄8% bonds at the rate of 3 ▲8 ⁄8% per year, in each case on ▲March 15 and ▲September 15 of each year, beginning on ▲March 15, 2001. Optional redemption We may redeem the bonds in whole or in part at any time at a redemption price described in this prospectus plus accrued interest to the date of redemption. Covenants The indenture includes the following provisions: • the indenture limits our ability to merge or consolidate with another company, or transfer or sell all or substantially all of our assets. • the indenture limits our ability to create liens. • the indenture limits the ability of Marconi plc to guarantee debt securities which we may issue in the future. • the indenture limits our ability to enter into sale and leaseback transactions. • the indenture does not, however, limit the amount of debt we may issue and does not provide you as holders with any protection should there be a highly leveraged transaction involving us. Ranking The bonds will rank at least equal to all of the other existing and future senior unsecured debt of Marconi Corporation plc. Form of bonds and book-entry system The bonds will be represented by one or more global bearer securities that are deposited with The Bank of New York, as depositary. As investors, you will hold beneficial interests in the bonds through The Depository Trust Company (DTC) and DTC and its direct and indirect participants will record ownership of the beneficial interests on their books. We will not issue certificated bonds except in limited circumstances that we explain in this prospectus. Settlement of the bonds will occur through DTC in same-day funds.

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Taxation Except in limited circumstances that we explain in this prospectus, if the U.K. tax authorities require us to make a deduction on a payment made on the bonds, we will make an increased payment so that you will receive the same amount as the original payment before the deduction. If we are required to make such an increased payment, we may redeem all of the bonds at a price equal to 100% of the principal amount of the bonds plus accrued interest.

Governing law The bonds will be governed by the laws of the State of New York.

Listing and trading We have applied to list the bonds on the Luxembourg Stock Exchange.

Guarantee Marconi plc, of which we are a wholly owned subsidiary, will guarantee the bonds. The guarantee will terminate if Marconi plc no longer guarantees our bank loans, which may occur at any time. See ‘‘Description of the Bonds—The guarantee’’.

Ratio of earnings to ﬁxed charges

The following table sets forth the ratio of earnings to fixed charges for each of the last five fiscal years:

1996 1997 1998 1999 2000 21.4 12.0 16.9 28.0 (0.4)

The consolidated ratios of earnings to fixed charges of Marconi Corporation plc were computed by dividing earnings by fixed charges. For this purpose, earnings are the sum of income (loss) from continuing operations, before adjustment for minority interests in consolidated subsidiaries or income or loss from equity investees, fixed charges and distributed income of equity investors. Fixed charges are interest, whether expensed or capitalized, and such portion of rental expense that can be demonstrated to be representative of the interest factor in the particular case.

For the year ended March 31, 2000 earnings were insufficient to cover fixed charges as evidenced by a less than one-to-one coverage ratio as shown above. Additional earnings of £318 million were necessary for the year ended March 31, 2000 to provide a one-to-one coverage ratio. The ratio of earnings to fixed charges before adjusting earnings for amortization charges and purchased in-process research and development would have been 3.0 for the year ended March 31, 2000 and 29.4 for the year ended March 31, 1999.

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Summary consolidated ﬁnancial information

The following summary consolidated income statement data for each of the fiscal years ended March 31, 2000 and 1999, and the consolidated balance sheet data as of March 31, 2000 and 1999, have been derived from the audited consolidated financial statements, prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP), that are included elsewhere in this prospectus. The summary consolidated financial information for the fiscal years ended March 31, 1998, 1997 and 1996 has been derived from other Marconi information. The information set forth below is not necessarily indicative of future operations and should be read in conjunction with ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ and the consolidated financial statements, related notes and other financial information included elsewhere in this prospectus. Amounts are presented in accordance with U.S. GAAP.

The data for each of the five fiscal years ended March 31, 2000 excludes discontinued operations. During the fiscal year ended March 31, 2000 the international aerospace, naval shipbuilding, defense electronics and defense systems business was separated and was subsequently merged with BAE Systems.

We have not presented separate ﬁnancial statements or other ﬁnancial disclosures regarding Marconi Corporation plc. There is no difference between the consolidated assets, liabilities and results of operations of Marconi plc and the consolidated assets, liabilities and results of operations of Marconi Corporation plc, except for non-interest bearing intercompany loans totalling £304 million payable by Marconi Corporation plc group companies to other companies in the Marconi plc group which are not subsidiaries of Marconi Corporation plc. These differences are not material.

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Summary consolidated ﬁnancial information—(continued)

Fiscal year ended March 31, 1996 £ 1997 £ 1998 £ 1999 £ 2000 £ 2000 $ (In millions, except share data) Consolidated income statement data Revenues (1) Communications networks ...... * * 1,232 1,343 2,535 4,036 Communications services ...... * * 221 244 543 865 Mobile communications ...... * * 262 271 295 470 Medical systems ...... * * 755 898 1,010 1,608 Commerce systems ...... * * 336 385 388 618 Data systems...... * * 186 218 235 374 Other ...... * * 842 430 431 686 Total Marconi group ...... 4,155 4,247 3,834 3,789 5,437 8,657 Gross proﬁt ...... 1,371 1,403 1,199 1,279 1,940 3,089 Operating income/(loss) ...... 378 269 375 376 (282) (448) Income/(loss) from continuing operations before income taxes and minority interests ...... 733 346 571 1,351 (303) (482) Earnings per share—basic Income/(loss) from continuing operations (£ per share) ...... £0.17 £0.06 £0.15 £0.32 £(0.14) $(0.23) Earnings per share—diluted Income/(loss) from continuing operations (£ per share) ...... £0.16 £0.06 £0.15 £0.32 £(0.14) $(0.23) Cash dividends declared per common share(2) (£ per share) ...... £0.11 £0.13 £0.13 £0.12 £ 0.11 n/a ($ equivalent per share) ...... $0.18 $0.21 $0.21 $0.20 $ 0.17 n/a

Other information (3,4) Operating income before non-recurring items, purchased in-process research and development and amortization of goodwill and other intangibles ...... 410 367 433 512 691 1,100 Cash provided by/(used for) operating activities ...... * * * (149) 431 686 Cash provided by/(used for) investing activities ...... * * * 503 (2,980) (4,745) Cash provided by ﬁnancing activities ...... * * * 189 1,676 2,669

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Summary consolidated ﬁnancial information—(continued)

March 31, 1996 1997 1998 1999 2000 2000 £££££ $ (In millions) Consolidated balance sheet data Total assets ...... 6,989 6,876 7,058 8,292 9,999 15,919 Long-term debt (excluding current maturities) ... — — 49 53 939 1,495 Total shareholders’ equity ...... 5,299 5,097 4,975 5,547 4,061 6,466 (1) The analysis of revenues by segment presented reflects the reportable segments of the Marconi group for the fiscal year ended March 31, 2000, identified in accordance with Statement of Financial Accounting Standards (‘‘SFAS’’) No. 131: ‘‘Disclosures about Segments of an Enterprise and Related Information’’. The information necessary to present an analysis of revenues by these reportable segments for fiscal years 1996 and 1997 is not available and, accordingly, is not presented. (2) Dividend payments were made out of profits which included profits from discontinued operations. (3) We believe that the other information provides useful information regarding our ongoing profitability. Operating income before non-recurring items, purchased in-process research and development and amortization of goodwill and other intangibles should not be considered in isolation or as a substitute for operating income/(loss) prepared in accordance with U.S. GAAP. (4) The information necessary to present an analysis of cash flow activities for fiscal years 1996, 1997 and 1998 is not available and, accordingly, is not presented.

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RISK FACTORS

You should consider the following risks and uncertainties described below and other information in this prospectus before deciding to invest in the bonds.

We face intense competition from larger organizations in acquiring and developing technology and this may limit our ability to grow proﬁtably We produce substantially all of our products for highly competitive markets, most importantly the telecommunications and intelligent electronics systems industries. Larger competitors with greater resources than us may be able to spend more time and money on research and development and may be in a better position to acquire or develop proprietary technology. For example, our competitors include Nortel and Lucent Technologies in communications and GE in medical systems. This may limit our ability to develop competitive new products which may reduce our revenues and proﬁts.

We face fierce competition to hire and retain high technology workers in the communications industry, which may result in delays or an inability to develop new products Our continued success depends substantially on our ability to hire, retain and motivate a number of highly skilled technology specialists, including those with expertise in important emerging technologies. Because the number of people with key high technology skills is limited, suppliers compete vigorously for their services and frequently attempt to lure them away from their competitors. A number of our competitors in the communications industry (Lucent, Nortel, Alcatel) have greater financial and technological resources, are better known and are more established in the industry than we are and, accordingly, may be in a better position to attract such employees. The potential consequences of our loss of, or our inability to attract a sufficient number of, key workers include delays or inability to develop new products, with a consequent reduction in sales and profits. Alternatively we may have to offer more attractive remuneration packages than our competitors and this might reduce our margins.

The loss of British Telecom as our customer would materially reduce our revenues and proﬁts For the year ended March 31, 2000, sales to British Telecom represented £605 million, or 11%, of our total revenues. The loss of or any substantial reduction in orders by British Telecom would materially reduce our revenues and proﬁts.

Our larger competitors may be in a position to secure components from third-party suppliers in a market showing signs of shortage, which could cause us delays in deliveries or price increases We are dependent on third party suppliers of electronic components. The components supply market is showing signs of shortage, with consequent delays on deliveries. The cost of components may increase and ultimately some components may be unavailable at any cost. We may not have as much inﬂuence as our larger competitors to secure supplies. As a consequence this may cause: • delays in our deliveries to our customers resulting in contractual penalties and loss of future business; • unavailability of components, also resulting in contractual penalties and loss of future business; and

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• price increases, which would reduce our margins if we are unable to pass on the cost increases to our customers.

Newly identified, developing and emerging businesses may fail to reach their full potential, adversely affecting our results We have a number of newly identified, developing and emerging businesses. For example, in our mobile communications business, we are developing products for the next generation of public mobile networks. These networks will provide wireless communications to and from mobile phones with fixed-line quality sound, fast data transmission and video capability. Our systems businesses also include developing and emerging businesses. These businesses may fail to reach their full potential and may, in the event of failure, absorb material costs and management resources and reduce our profits.

There is currently no public market for the bonds; investor interest is unknown; investors may have difﬁculty selling the bonds The bonds are new securities for which there is currently no public market. We cannot predict whether and to what extent investor interest in the bonds will cause a trading market for the bonds to develop, or how liquid that market will be. Marconi Corporation plc has not issued bonds in the United States before this offering. If a liquid trading market for the bonds does not develop the price of the bonds may decline, and investors may have difﬁculty selling the bonds.

Our holding company structure may affect our ability to satisfy our obligations under the bonds The subsidiaries of Marconi Corporation plc conduct substantially all of the operations of and directly own substantially all of the assets of the Marconi group. You should be aware that the subsidiaries have no obligation, contingent or otherwise, to pay any amount under the bonds or to make any funds available for such payment. Therefore, Marconi Corporation plc’s operating cash ﬂow and its ability to meet its debt obligations, including the bonds, will depend on the cash ﬂow provided by its subsidiaries in the form of loans, dividends or other payments to Marconi Corporation plc as a shareholder. The ability of the subsidiaries to make such payments will depend on their earnings, tax considerations and legal restrictions. In the event of insolvency, liquidation, dissolution or reorganization of any of the subsidiaries, the creditors of each subsidiary would be entitled to payment in full from such subsidiary’s assets. After paying their own creditors, the subsidiaries may not have any remaining assets for distribution to Marconi Corporation plc as a shareholder and, consequently, there may not be any assets available for payment to the holders of the bonds. At March 31, 2000, the subsidiaries of Marconi Corporation plc had total liabilities of £5,078 million, including £2,380 million owed to Marconi Corporation plc.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements concerning our business, operations and ﬁnancial performance and condition. You can identify these statements by words such as ‘‘anticipate’’, ‘‘assume’’, ‘‘believe’’, ‘‘estimate’’, ‘‘expect’’, ‘‘intend’’, ‘‘may’’, ‘‘plan’’, ‘‘positioned’’, ‘‘should’’, ‘‘will’’, ‘‘would’’ and other similar expressions which are predictions of or indicate future events and future trends. These forward-looking statements involve known and unknown risks, uncertainties and other factors which are in some cases beyond our control and may cause our actual results, performance or achievements to differ materially from those expressed or implied by such forward-looking statements. Factors that may cause such differences include but are not limited to the risks described under ‘‘Risk Factors’’ as well as the following: • any major disruption in production at our key facilities; • changes in environmental, tax and other laws and regulations, which, among other things, could cause us to incur substantial additional capital expenditures and operation and maintenance costs; and • adverse changes in the markets for our products, including as a result of increased competition in the highly competitive international markets for such products.

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PRESENTATION OF FINANCIAL AND OTHER INFORMATION

We state our ﬁnancial statements in U.K. pounds sterling. In this prospectus references to pounds sterling, pounds or £ and to pence or p are to the currency of the United Kingdom, references to euro or € are to the common legal currency of the members of the European monetary union, and references to U.S. dollars, U.S.$ or $ are to the currency of the United States.

This prospectus also contains translations of pound sterling amounts into U.S. dollar amounts at speciﬁed rates. Unless otherwise stated, the U.S. dollar equivalent for amounts in pounds sterling is based on the noon buying rate in the City of New York for cable transfers in pounds sterling as certiﬁed for customs purposes by the Federal Reserve Bank of New York on March 31, 2000, which was $1.5922 to £1. This rate differs from the rates used in the preparation of our consolidated financial statements included in this prospectus. These translations are provided solely for your convenience. You should not construe these translations as representations that the pound sterling amounts actually represent such U.S. dollar amounts or could be converted into U.S. dollars at the rates indicated or at any other rates. See ‘‘Exchange Rate Information’’ for historical information regarding the noon buying rate.

Some of the market share information and other statements in this prospectus regarding our position relative to our competitors with respect to the manufacture or distribution of particular products are not based on published statistical data or information obtained from independent third parties. Rather, such information and statements reflect our management’s best estimates based upon information obtained from our customers and from trade and business organizations and associations and other contacts within the industries in which we compete. Unless otherwise specified or the context otherwise requires, market share and market data are based on fiscal 2000 sales.

The information concerning Alstom and other associates contained in this prospectus, including ﬁnancial information, has been taken from or based upon publicly available documents and, where applicable, records on ﬁle with the SEC, supplemented by additional information obtained in our capacity as shareholders.

Our fiscal year ends on March 31. Unless otherwise specified, all references in this prospectus to our fiscal year refer to a twelve-month financial period ending March 31. For example, fiscal 1998 represents the fiscal year beginning on April 1, 1997 and ending on March 31, 1998.

The consolidated ﬁnancial statements contained in this prospectus have been prepared in accordance with U.S. GAAP.

Various amounts and percentages set forth in this prospectus have been rounded and, accordingly, may not total.

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USE OF PROCEEDS

We estimate that Marconi Corporation plc will receive net proceeds from the sale of the 3 $▲900 million principal amount of ▲7 ⁄4% bonds due 2010 and the $▲900 million principal amount 3 of ▲8 ⁄8% bonds due 2030 of approximately $▲1.77 billion, after deducting underwriting discounts and commissions and estimated offering expenses.

We plan to use the net proceeds of the offering to reduce the amounts outstanding under € Marconi Corporation plc’s 1998 credit facility. At ▲September 14, 2000, $▲3.1 billion and 400 million were outstanding under the 1998 credit facility, which amounts bear interest at the London inter-bank offered rate plus 0.175% per year. Such amounts were used to ﬁnance the general corporate purposes of Marconi plc and its subsidiaries and to ﬁnance, in part, the acquisitions of Reltec and Fore Systems. Our use of the net proceeds of this offering will reduce € the outstanding amounts under the 1998 credit facility to $▲1.3 billion and ▲400 million▲.

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CAPITALIZATION

The following table sets forth our consolidated capitalization at March 31, 2000: • on an actual basis; and • on an as adjusted basis to reﬂect the issuance of the bonds we offer in this prospectus and the application of the net proceeds we receive from this offering, as described in ‘‘Use of Proceeds’’.

You should read this table in conjunction with ‘‘Selected Consolidated Financial Information’’, ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ and the consolidated ﬁnancial statements, related notes and other ﬁnancial information contained elsewhere in this prospectus. March 31, 2000 As adjusted for the offering of Actual bonds (In millions) £ $(1) £ $(1) Cash and cash equivalents ...... 555 884 555 884 Short term debt ...... 1,830 2,913 719 1,144 Long term debt Finance leases and debenture loans ...... 39 62 39 62 Marconi Corporation plc eurobonds...... 900 1,433 900 1,433 Marconi Corporation plc $900 73⁄4% bonds due 2010 ...... ——565 900 Marconi Corporation plc $900 83⁄8% bonds due 2030 ...... ——565 900 Total debt ...... 2,769 4,408 2,788 4,439 Shareholders’ equity Ordinary shares, par value £0.05 per share; 6,000,000,000 shares authorized at March 31, 2000; 2,723,996,450 shares outstanding at March 31, 2000 ...... 136 217 136 217 Additional paid-in capital ...... 486 774 486 774 Retained earnings ...... 3,577 5,695 3,577 5,695 Accumulated other comprehensive income/(loss) ...... (138) (220) (138) (220) Total shareholders’ equity ...... 4,061 6,466 4,061 6,466 Total capitalization ...... 6,830 10,874 6,849 10,905

(1) Solely for your convenience, we have translated pounds sterling amounts into U.S. dollars and U.S. dollars into pounds sterling at the noon buying rate on March 31, 2000 of $1.5922 to £1. See ‘‘Presentation of Financial and Other Information’’ and ‘‘Exchange Rate Information’’.

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RATIO OF EARNINGS TO FIXED CHARGES

The following table sets forth the ratio of earnings to fixed charges of Marconi Corporation plc for each of the last five fiscal years:

1996 1997 1998 1999 2000 21.4 12.0 16.9 28.0 (0.4)

For the year ended March 31, 2000, earnings were insufficient to cover fixed charges as evidenced by a less than one-to-one coverage ratio as shown above. Additional earnings of £318,000,000 were necessary for the year ended March 31, 2000 to provide a one-to-one coverage ratio. The ratio of earnings to fixed charges before adjusting earnings for amortization charges and purchased in-process research and development would have been 3.0 for the year ended March 31, 2000 and 29.4 for the year ended March 31, 1999.

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EXCHANGE RATE INFORMATION

The following table sets out, for the periods and dates indicated, information concerning the noon buying rates for pounds sterling expressed in U.S. dollars per pound sterling. We have not used these rates to prepare our consolidated ﬁnancial statements.

End of Year ended December 31, High Low Average (1) period 1996 1.71 1.49 1.57 1.71 1997 1.70 1.58 1.64 1.64 1998 1.72 1.61 1.66 1.66 1999 1.68 1.56 1.61 1.62 2000 (through September 13, 2000) 1.65 1.40 1.53 1.41 (1) The average of the noon buying rates on the last business day of each month, or any shorter applicable period, during the period.

The noon buying rate on ▲September 13, 2000 was £1.00 = $1.4125▲.

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SELECTED CONSOLIDATED FINANCIAL INFORMATION

The following selected consolidated income statement data for each of the fiscal years ended March 31, 2000 and 1999, and the consolidated balance sheet data as of March 31, 2000 and 1999, have been derived from the audited consolidated financial statements, prepared in accordance with US generally accepted accounting principles (U.S. GAAP), that are included elsewhere in this prospectus. The selected consolidated financial information for the fiscal years ended and as of March 31, 1998, 1997 and 1996 has been derived from other Marconi information. The information set forth below is not necessarily indicative of future operations and should be read in conjunction with ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ and the consolidated financial statements, related notes and other financial information included elsewhere in this prospectus. Amounts are presented in accordance with U.S. GAAP.

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SELECTED CONSOLIDATED FINANCIAL INFORMATION — (continued)

Fiscal year ended March 31, 1996 1997 1998 1999 2000 2000 (In millions, except share data) ££££ £ $ Consolidated income statement data Revenues (1) Communications networks ...... * * 1,232 1,343 2,535 4,036 Communications services ...... * * 221 244 543 865 Mobile communications ...... * * 262 271 295 470 Medical systems ...... * * 755 898 1,010 1,608 Commerce systems ...... * * 336 385 388 618 Data systems ...... * * 186 218 235 374 Other ...... * * 842 430 431 686 Total Marconi group ...... 4,155 4,247 3,834 3,789 5,437 8,657 Gross proﬁt ...... 1,371 1,403 1,199 1,279 1,940 3,089 Operating expenses Selling, general and administrative ...... 710 837 536 597 1,066 1,697 Research and development ...... 249 255 248 214 384 611 Amortization of goodwill and other intangibles ...... 34 42 40 92 495 788 Purchased in-process research and development ...... — — — — 277 441 Total operating expenses ...... 993 1,134 824 903 2,222 3,537 Operating income/(loss) ...... 378 269 375 376 (282) (448) Other income/(expense)—net ...... 355 77 196 975 (21) (34) Income/(loss) from continuing operations before income taxes and minority interests ...... 733 346 571 1,351 (303) (482) Income tax provision...... (228) (135) (102) (458) (84) (134) Minority interests ...... (51) (49) (53) (12) (3) (5) Income/(loss) from continuing operations ...... 454 162 416 881 (390) (621)

Earnings per share—basic Income/(loss) from continuing operations (£ per share) ... £0.17 £0.06 £0.15 £0.32 £(0.14) $(0.23) Earnings per share—diluted Income/(loss) from continuing operations (£ per share) ... £0.16 £0.06 £0.15 £0.32 £(0.14) $(0.23) Cash dividends declared per common share(2) £ per share ...... £0.11 £0.13 £0.13 £0.12 £0.11 n/a $ equivalent per share ...... $0.18 $0.21 $0.21 $0.20 $0.17 n/a

March 31, 1996 1997 1998 1999 2000 2000 (In millions) ££££ £ $ Consolidated balance sheet data Total assets...... 6,989 6,876 7,058 8,292 9,999 15,919 Current assets ...... 4,506 4,642 4,854 5,990 3,676 5,853 Total liabilities ...... 1,558 1,665 1,939 2,734 5,922 9,428 Current liabilities ...... 1,440 1,505 1,820 2,602 4,844 7,712 Long-term debt (excluding current maturities) ...... — — 49 53 939 1,495 Minority interests ...... 132 114 144 11 16 25 Total shareholders’ equity ...... 5,299 5,097 4,975 5,547 4,061 6,466

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SELECTED CONSOLIDATED FINANCIAL INFORMATION — (continued)

(1) The analysis of revenues by segment presented reflects the reportable segments of the Marconi group for the fiscal year ended March 31, 2000, identified in accordance with Statement of Financial Accounting Standards (‘‘SFAS’’) No. 131: ‘‘Disclosures about Segments of an Enterprise and Related Information’’. The information necessary to present an analysis of revenues by these reportable segments for fiscal years 1996 and 1997 is not available and, accordingly, is not presented.

(2) Dividend payments were made out of proﬁts which included proﬁts from discontinued operations.

(3) We believe that the other information provides useful information regarding our ongoing proﬁtability. Operating income before non-recurring items, purchased in-process research and development and amortization of goodwill and other intangibles should not be considered in isolation or as a substitute for operating income/(loss) prepared in accordance with U.S. GAAP.

(4) The information necessary to present an analysis of cash ﬂow activities for ﬁscal years 1996, 1997 and 1998 is not available and, accordingly, is not presented.

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PRO FORMA COMBINED STATEMENT OF OPERATIONS for the year ended March 31, 2000 (Unaudited)

The unaudited pro forma combined statement of operations of Marconi plc for the ﬁscal year ended March 31, 2000 has been prepared to illustrate the effects of the acquisition of Fore Systems and the proposed debt offering.

The unaudited pro forma combined statement of operations gives pro forma effect to the Fore Systems acquisition as if it had occurred on April 1, 1999, the beginning of the period presented. It does not purport to be indicative of the results of operations that would have actually been obtained had the transactions been completed as of the assumed dates and for the period presented, or which may be obtained in the future. The pro forma adjustments are described in the accompanying notes and are based upon available information and assumptions that we believe are reasonable.

The unaudited pro forma combined statement of operations should be read in conjunction with the separate historical consolidated ﬁnancial statements of Marconi and Fore Systems and the notes to those statements and ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ included elsewhere in this prospectus.

The pro forma ﬁnancial information has been prepared for illustrative purposes only. Because of its nature, it may not give a true picture of the proﬁts which would have been reported if the Fore Systems acquisition and the debt offering had occurred on the dates assumed.

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PRO FORMA COMBINED STATEMENT OF OPERATIONS — (continued)

Historical

Marconi plc Fore Systems Pro forma consolidated period April 1, effects of year ended March 31, 1999 to June 16, Fore Pro forma the debt Pro forma 2000 1999 adjustments combined offering combined Note 1 Note 2 Note 3 (In millions, except share data) ££££££ Revenues ...... 5,437 64 — 5,501 — 5,501 Direct costs ...... 3,497 38 — 3,535 — 3,535 Gross proﬁt ...... 1,940 26 — 1,966 — 1,966 Operating expenses Selling, general and administrative . 1,066 32 — 1,098 — 1,098 Research and development ...... 384 12 — 396 — 396 Amortization of goodwill and other intangibles ...... 495 2 62 559 — 559 Purchased in-process research and development ...... 277 — (174) 103 — 103 Total operating expenses ...... 2,222 46 (112) 2,156 — 2,156 Operating income/(loss) ...... (282) (20) 112 (190) — (190) Other income/(expense) Gain on sale of investments ...... 4— — 4—4 Equity in net income of afﬁliates ... 83 — — 83 — 83 Interest income ...... 106 1 — 107 — 107 Interest expense ...... (214) — (42) (256) (90)(346) Income/(loss) from continuing operations before income taxes and minority interests ...... (303) (19) 70 (252) (90)(342) Income tax provision ...... (84) 5 13 (66) 27 (39) Minority interests ...... (3) — — (3) — (3) Income/(loss) from continuing operations ...... (390) (14) 83 (321) (63)(384) Discontinued operations Gain on discontinued operations, net of income tax ...... 675 — — 675 — 675 Net income ...... 285 (14) 83 354 (63) 291

Earnings per share data Basic ...... £ 0.11 £ 0.11 Diluted ...... £ 0.10 £ 0.11 Average ordinary shares outstanding ...... Basic ...... 2,696.9 2,696.9 Diluted ...... 2,737.4 2,737.4

Note 1: Fore Systems pre-acquisition results Fore Systems was acquired on June 17, 1999 and consolidated from the date of acquisition. This adjustment reﬂects the operations of Fore Systems for the period April 1, 1999 to June 16, 1999.

The income statement for the period April 1, 1999 to June 16, 1999 has been translated into sterling using the exchange rate $1.611 to £1.

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PRO FORMA COMBINED STATEMENT OF OPERATIONS — (continued)

Note 2: Fore Systems adjustments The acquisition of Fore Systems was accounted for by the purchase method of accounting. An allocation of the purchase price has been made to the major categories of assets and liabilities based on available information. The results of the purchase price allocation are set out in detail in Note 3 in the Marconi plc consolidated ﬁnancial statements for the year ended March 31, 2000. Based on this allocation, goodwill and other intangible amortization expense would have increased by £62 million had the acquisition occurred on April 1, 1999. In-process research and development of £174 million was identiﬁed on this transaction which is reversed.

We believe that the impact of adopting the financing arrangements related to the acquisition of Fore Systems on April 1, 1999 would have been to increase the interest expense incurred by £42 million. We estimate the income tax benefit resulting from this financing is £13 million.

Note 3: Pro forma effects of the debt offering The proposed debt offering results in the following pro forma adjustments:

(1) increase in interest expense of £▲90▲ million due to the $1,▲800 million of bonds being assumed to be in issue for the entire year; and

(2) related tax effect of the interest expense adjustment of £▲27 million.

We have translated U.S. dollars into pounds sterling at the average rate for the ﬁscal year ended March 31, 2000 of $1.62 to £1.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the discussion and analysis below in conjunction with ‘‘Selected Consolidated Financial Information’’ and the consolidated ﬁnancial statements and the related notes and the descriptions of our businesses included elsewhere in this prospectus.

Overview We are a global group focused primarily on the communications market. Our communications business activities include developing and supplying communications and data networking equipment and services. In addition, we have businesses that focus on medical, commerce and data systems markets for high technology products and services. Our operations comprise principally: • communications networks; • communications services; • mobile communications; • medical systems; • commerce systems; and • data systems.

The formation of Marconi plc Marconi plc was incorporated on September 17, 1999. Its ordinary shares were listed on the London Stock Exchange on November 30, 1999 when it became the new holding company of the remaining businesses of Marconi Corporation plc (formerly The General Electric Company, p.l.c. (GEC)). This followed the separation of GEC’s international aerospace, naval shipbuilding, defense electronics and defense systems business and the subsequent merger of this business with BAE Systems. This business has been included as a discontinued operation in our consolidated ﬁnancial statements. The following discussion of our businesses and results of operations relates only to our continuing operations.

Acquisitions and dispositions Acquisitions During the two years ended March 31, 2000 we made the following signiﬁcant acquisitions: • Reltec in April 1999 for approximately $1.8 billion (approximately £1.0 billion) (excluding assumed debt of £0.2 billion); • Fore Systems in June 1999 for approximately $4.5 billion (approximately £2.9 billion); and • Siemens’ 40% interest in GPT in August 1998 for a total consideration of £700 million of which £610 million was settled in cash and the balance by the sale of our 49.9% interest in Siemens GEC Communications Systems to Siemens. Other acquisitions in the same period, which were not signiﬁcant, include: March 2000 acquisition of 8,864,292 Series C shares of Ten Square (formerly known as iAMnetworks), representing approximately 22.5% of the Series C shares and approximately 10% of the total share capital of Ten Square. March 2000 a further 10% interest in Xcert following the acquisition of an initial 15% interest in August 1999.

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March 2000 the vending machine business and assets of Harvest Electronics.

March 2000 Scitec’s Australian communications solutions business.

January 2000 the public networks business of Bosch.

December 1999 Nokia’s transmission equipment business.

December 1999 27% of Atlantic Telecom’s equity and the formation of a strategic relationship with Atlantic Telecom (such 27% interest was diluted to a 19.7% interest as a result of Atlantic Telecom’s acquisition of First Telecom).

September 1999 the high field whole body magnetic resonance imaging business of SMIS.

August 1999 the business and assets of RDC Communications.

March 1999 the remaining 66.6% of Telephone Manufacturers of South Africa not already owned.

February 1999 Tetrel.

February 1999 Logitron.

December 1998 Electronic Automation.

November 1998 the computed tomography division of Elscint. Computed tomography (or CT as it is more commonly known) is an imaging technology which produces computer generated images of the body in cross sectional planes.

August 1998 a further 11.1% interest in Avery India to increase Avery Berkel’s interest in Avery India from 39.9% to 51%.

Dispositions

During the two years ended March 31, 2000, in addition to the separation of GEC’s international aerospace, naval shipbuilding, defense electronics and defense systems business, and the sale of the interest in Siemens GEC Communications Systems to Siemens mentioned above, we sold a 26% interest in Alstom for £952 million in June 1998 upon its initial public offering.

Other dispositions, which were not signiﬁcant, in the period include:

March 2000 Marconi Communications, Network Components & Services—Europe and Shanghai Reltec Communications Technology Co. to Viasystems.

March 2000 the facilities management and processing services businesses of Easams to Itnet.

Recent developments

Acquisitions and dispositions since March 31, 2000 are discussed in ‘‘History and Recent Developments’’.

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Results of operations Since Marconi is a U.K. company and produces its U.K. annual financial statements under U.K. GAAP, the chief decision maker evaluates segment performance using measures determined under U.K. GAAP. The financial statements of Marconi plc included in this registration statement have been prepared under U.S. GAAP which includes (in footnote 19 of the financial statements) segmental analysis on a U.K. GAAP basis, reconciled in total to a U.S. GAAP basis. In the following analysis: • revenues are discussed on a segmental basis under U.S. GAAP, which is the same as under U.K. GAAP, with one exception in ‘other’ for joint ventures which is explained below; and • operating profits are discussed on a segmental basis under U.K. GAAP. As part of the discussion, both revenues and profits are reconciled in total to a U.S. GAAP basis. A brief explanation of the primary differences between U.K. and U.S. GAAP is also included. In addition, gross profit, operating expenses and other income/expenses are discussed on a U.S. GAAP basis in total. Revenues-U.K. GAAP The primary revenue performance measure is revenue on a U.K. GAAP basis. Revenues attributable to joint ventures (that is equity share in affiliates) are included in U.K. GAAP revenues but excluded from U.S. GAAP revenues. All Marconi’s joint ventures are in ‘‘Other’’ for the purposes of segment analysis. The following is a reconciliation from the U.K. GAAP basis to the U.S. GAAP basis for the fiscal years ended March 2000, 1999 and 1998: 1998 1999 2000 (In millions) £££ Net revenues per segments-U.K. GAAP ...... 4,162 4,090 5,724 Less: joint ventures ...... (328) (301) (287) Revenues-U.S. GAAP 3,834 3,789 5,437

The discussion on revenues which follows uses the U.S. GAAP basis.

Revenues by geographical region-U.S. GAAP The following table presents Marconi’s revenues by geographical region and the approximate percentage of total revenues for the ﬁscal years ended March 31, 2000, 1999 and 1998: 1998 1999 2000 %of %of %of (In millions) £ total £ total £ total United Kingdom ...... 1,558 41 1,454 38 1,726 32 The Americas ...... 1,171 30 1,266 33 2,499 46 Rest of Europe ...... 656 17 747 20 850 15 Africa, Asia and Australia ...... 449 12 322 9 362 7 3,834 100 3,789 100 5,437 100

Total revenues increased by £1,648 million, or 43.5%, to £5,437 million in fiscal 2000 compared to £3,789 million in fiscal 1999. Growth in revenues in fiscal 2000 before taking account of the impact of acquisitions was £375 million, or 9.9%. The main acquisitions in the year, Fore Systems and Reltec, contributed revenues of £412 million, and £826 million, respectively. These acquisitions were primarily responsible for the increase of £1,233 million, or 97.4%, in revenues from the Americas between fiscal 2000 and fiscal 1999.

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Total revenues decreased by £45 million, or 1.2%, to £3,789 million in fiscal 1999 compared to £3,834 million in fiscal 1998. The decrease resulted from the sale of GEC Plessey Semiconductors, Magec Aviation and Marconi Instruments which contributed £394 million of revenues in 1998. This was offset by an increase of £258 million, or 6.7%, as a result of growth in the businesses before taking into account the impact of acquisitions. The acquisition of Elscint in the year and the acquisitions of Marsh and Salzkotten in the previous year contributed to an increase in revenues of £91 million. The geographical split of revenue remained broadly consistent between fiscal 1999 and fiscal 1998. Segmental discussion Revenues by segment—U.S. GAAP The following table presents Marconi’s revenues by segment and the approximate percentage of total revenues for the fiscal years ended March 31, 2000, 1999 and 1998: 1998 1999 2000 (In millions) £ % of total £ % of total £ % of total Communications networks ...... 1,232 32 1,343 35 2,535 47 Communications services ...... 221 6 244 7 543 10 Mobile communications ...... 262 7 271 7 295 5 Medical systems ...... 755 20 898 24 1,010 19 Commerce systems ...... 336 9 385 10 388 7 Data systems ...... 186 4 218 6 235 4 Other ...... 842 22 430 11 431 8 3,834 100 3,789 100 5,437 100

Communications networks Revenues for this segment increased by £1,192 million, or 88.8%, to £2,535 million in fiscal 2000 compared to £1,343 million in fiscal 1999. Of this increase optical networks accounted for growth in revenues of £239 million (17.8% growth in revenues of communications networks). The increase resulted from the continued strength in demand for digital transmission equipment during fiscal 2000. In addition, revenues increased as a result of: • the acquisition of Fore Systems, which contributed sales in broadband switching of £363 million (27.0% growth in revenues of communications networks); and • the acquisitions of Reltec and the Bosch public networks business which increased sales in access systems by £573 million (42.7% growth in revenues of communications networks). Revenues for the communications networks segment increased by £111 million, or 9.0%, to £1,343 million in fiscal 1999 compared to £1,232 million in fiscal 1998. This was primarily the result of a growth in revenues of £118 million, or 9.6%, of optical networks, mainly: • a £167 million increase in sales of digital transmission equipment during fiscal 1999; offset by • a reduction of £48 million from reduced prices as a result of increased competition internationally in digital transmission equipment; and • a reduction in sales of the fiber optic cables business during fiscal 1999. Communications services Revenues for the communications services segment increased by £299 million, or 122.5%, to £543 million in fiscal 2000 compared to £244 million in fiscal 1999. The increase in revenues excluding the impact of acquisitions was £82 million, or 33.6%, as a result of higher demand. In addition, revenues increased as a result of the acquisitions of Fore Systems and Reltec which contributed £49 million and £165 million, respectively.

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Revenues for the communication services segment increased by £23 million, or 10.4%, to £244 million in ﬁscal 1999 compared to £221 million in ﬁscal 1998. The increase in revenues was due to: • increased sales in Hong Kong; • additional demand for support services mainly related to sales of digital transmission equipment; • new maintenance contracts for large scale enterprises and governments (notably for the Saudi Arabian National Guard); and • the winning of outsourcing orders for NTL and London Underground.

Mobile communications Revenues for the mobile communications segment increased by £24 million, or 8.9%, to £295 million in ﬁscal 2000 compared to £271 million in ﬁscal 1999. The increase in revenues was primarily the result of strong growth in sales of mobile radio systems known as private mobile radios.

Revenues for the mobile communications segment increased by £9 million, or 3.4%, to £271 million in ﬁscal 1999 compared to £262 million in ﬁscal 1998. The increase in revenues was primarily the result of short-term contracts for equipment and spares for the Italian army and navy.

Medical systems Revenues for the medical systems segment increased by £112 million, or 12.5%, to £1,010 million in ﬁscal 2000 compared to £898 million in ﬁscal 1999. The increase in revenues was primarily the result of the full year impact of the acquisition of the Elscint computed tomography (CT) division. Additional revenues resulted from: • the launch of a new CT medical scanner which produces computer generated images of the body in multiple cross sectional planes; and • stronger demand in magnetic resonance imaging (MRI) equipment, which uses powerful magnets and radio frequency systems to produce three dimensional computer generated images of the body; offset by • the withdrawal from low margin X-ray markets.

Revenues for the medical systems segment increased by £143 million, or 18.9%, to £898 million in ﬁscal 1999 compared to £755 million in ﬁscal 1998. The increase in revenues was primarily due to strong demand in CT and MRI systems and imaging supplies. In addition, revenues also increased due to expanding the distribution network through acquisition of distribution centers and the acquisition part way through the year of Elscint’s CT division.

Commerce systems Revenues for the commerce systems segment increased by £3 million, or 0.8%, to £388 million in ﬁscal 2000 compared to £385 million in ﬁscal 1999. The increase in revenues was the result of: • a full year contribution from Logitron; and • favourable currency movements; offset by • lower industry demand resulting from purchase decision deferrals by major oil customers as a result of unprecedented industry consolidation.

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Additionally, a year-on-year comparison is affected by the surge in demand in ﬁscal 1999 as a result of environmental legislation on underground storage tanks.

Revenues for the commerce systems segment increased by £49 million, or 14.6%, to £385 million in fiscal 1999 compared to £336 million in fiscal 1998. The increase resulted from the inclusion of a full year of revenues from the Salzkotten acquisition made in fiscal 1998 and from increased sales in the United States. Revenues in the United States benefited from increased demand, particularly for card reader equipped petroleum dispensers and in response to the impact of U.S. federally-mandated requirements to replace underground gas and oil storage tanks by December 1998.

Data systems Revenues for the data systems segment increased by £17 million, or 7.8%, to £235 million in ﬁscal 2000 compared to £218 million in ﬁscal 1999. The increase in revenues was primarily the result of increased demand for new models and the impact of sales and marketing programs.

Revenues for the data systems segment increased by £32 million, or 17.2%, to £218 million in ﬁscal 1999 compared to £186 million in ﬁscal 1998. The increase in revenues was primarily due to a full year’s contribution of £39 million from Marsh, which was acquired in January 1998.

Other Revenues for other businesses increased by £1 million, or 0.2%, to £431 million in ﬁscal 2000 compared to £430 million in ﬁscal 1999. The increase in revenues was primarily the result of: • a small increase in sales in Marconi Applied Technologies and Woods Air Movement; offset by • the sale of the managed services division of Easams; and • weak market conditions for GPT Payphones in the Far East.

Revenues for the other businesses decreased by £412 million, or 48.9%, to £430 million in ﬁscal 1999 compared to £842 million in ﬁscal 1998. The decrease in revenues was primarily the result of: • the disposal of GEC Plessey Semiconductors and Marconi Instruments; and • the weakness in Far Eastern markets, which led to a decline in the export sales of Woods Air Movement and GPT Payphones.

Reconciliation of operating proﬁt information to U.S. GAAP

The chief decision maker evaluates profit performance using measures determined under U.K. GAAP. The primary profit performance measure is ‘‘operating profit before exceptional items and goodwill amortisation.’’

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The following is a reconciliation from the U.K. GAAP operating profits based on our segment analysis to the U.S. GAAP measure of income from continuing operations before income taxes and minority interests for the three fiscal years ended March 31, 2000: 1998 1999 2000 (In millions) ££ £ Total segment operating profit-U.K. GAAP ...... 448 508 750 U.S. GAAP adjustments ...... 18 36 (129) Adjusted operating profit 466 544 621 Operating exceptional items ...... (18) (51) (106) Joint ventures ...... (33) (25) (25) Goodwill and other intangibles amortization and purchased in-process research and development ...... (40) (92) (772) Other income / (expense), net ...... 196 975 (21) Income from continued operations before income taxes and minority interest-U.S. GAAP 571 1,351 (303)

The discussion which follows uses the U.K. GAAP measure of ‘‘operating profit before exceptional items and goodwill amortization’’ to compare segmental performance in fiscal 2000 to fiscal 1999. Further information explaining the total segment operating profit reconciliation above and the main differences between the U.K. GAAP measures reviewed by the chief decision maker and the U.S. GAAP financial statements follows the segmental profits discussion. Operating profits are discussed on a segmental basis under U.K. GAAP. Segmental cost information for fiscal 1998 is not available as a result of the reorganizations of the business. Accordingly the discussion is limited to fiscal 1999 and fiscal 2000. Segment operating profit-U.K. GAAP Total segment operating profit on a U.K. GAAP basis increased by £242 million, or 47.6%, to £750 million in fiscal 2000 compared to £508 million in fiscal 1999. 1999 2000 (in millions) ££ Communications networks ...... 247 416 Communications services...... 32 73 Mobile communications ...... 16 26 Medical systems ...... 49 76 Commerce systems ...... 45 49 Data systems ...... 57 59 Other ...... 62 51 508 750

Communications networks Operating profit increased by £169 million, or 68.4%, to £416 million in fiscal 2000 compared to £247 million in fiscal 1999. Access systems operating profit increased by £69 million, with the acquisition of Reltec contributing £41 million and continuing strong demand for switching systems contributing £28 million. The acquisition of Fore Systems contributed £53 million to the increase in broadband switching profits. Ongoing strong demand for digital transmission equipment saw optical networks systems profit increase by £43 million. Operating margins decreased to 16.4% in fiscal 2000 compared to 18.4% in fiscal 1999 mainly as a result of higher company funded research and development costs, which rose from 9.1% of segment sales in fiscal 1999 to 10.7% of segment sales in fiscal 2000.

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Communications services Operating profit increased by £41 million, or 128.1%, to £73 million in fiscal 2000 compared to £32 million in fiscal 1999. The acquisition of Reltec and Fore Systems increased operating profit by £33 million, while increased sales of higher value added support services, offset by higher overheads to support this growth, added £8 million to operating profit. Operating margins increased to 13.4% in fiscal 2000 compared to 13.1% in fiscal 1999. This is principally due to increased sales of higher value added support services, from both the acquisitions of Fore Systems and Reltec and organic growth.

Mobile communications Operating profit increased by £10 million, or 62.5%, to £26 million in fiscal 2000 compared to £16 million in fiscal 1999. Increased sales of private mobile radio products contributed £3 million to operating profit. Overhead efficiencies and increased grants received from the Italian government to reimburse expenditure on secure communications product development contributed a further £13 million. An increase of £8 million in privately funded research and development partially offset these increases. Operating margins increased to 8.8% in fiscal 2000 compared to 5.9% in fiscal 1999. This is principally due to the increased sales of private mobile radio equipment and the increased grants received from the Italian government.

Medical systems Operating profit increased by £27 million, or 55.1%, to £76 million in fiscal 2000 compared to £49 million in fiscal 1999. Of the increase, £9 million was the result of the full year impact of the acquisition of the Elscint CT business. A further £8 million of the increase was attributable to spending reductions achieved with the elimination of less profitable X-ray product offerings and the integration of the CT business of Elscint into existing operations. Product cost reductions in the nuclear and MRI businesses achieved an increase of £6 million. Operating margins increased to 7.5% in fiscal 2000 compared to 5.5% in fiscal 1999. This is principally due to product cost reductions achieved in the nuclear and MRI businesses. Overhead efficiencies, which arose from the integration of Elscint and the elimination of less profitable X-ray products, also improved operating margins.

Commerce systems Operating profit increased by £4 million, or 8.9%, to £49 million in fiscal 2000 compared to £45 million in fiscal 1999. The increase in operating profit was primarily the result of the full year impact of the fiscal 1999 acquisition of Logitron, which increased operating profit by £3 million. Reductions in volume in the North American and European markets were offset by overhead efficiencies. Operating margins increased to 12.6% in fiscal 2000 compared to 11.7% in fiscal 1999. This was principally due to increased gross margins due to improvements in cost and overhead efficiencies.

Data systems Operating profit increased by £2 million, or 3.5%, to £59 million in fiscal 2000 compared to £57 million in fiscal 1999. The increase was due principally to the increase in demand for new models. Operating margins decreased to 25.1% in fiscal 2000 compared to 26.1% in fiscal 1999. The decrease was a direct result of a change in product mix.

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Other Operating profit decreased by £11 million, or 17.7%, to £51 million in fiscal 2000 compared to £62 million in fiscal 1999. Increases in operating profit of £8 million in Marconi property and £3 million in Marconi Applied Technologies were offset by decreases in operating profit of £4 million in Avery Berkel, £4 million in Marconi Software Solutions and increased corporate operating costs of £12 million primarily as a result of increased staff costs and lower other income.

U.S. GAAP adjustments U.S. GAAP adjustments as related to the information reported on a segment basis are the result of differences in the accounting for pensions and post retirement beneﬁts, reorganization costs and employee share options. These are explained in more detail in footnote 19 of the ﬁnancial statements.

Operating exceptional items Under U.K. GAAP, amounts included within operating profit may be separately disclosed if they are unusual in size or nature and are not expected to recur. These items are referred to as operating exceptional items. There is no equivalent term or treatment in U.S. GAAP and the items are included in the appropriate line item in arriving at operating income. In the fiscal years ended 31 March, 2000, 1999 and 1998 these primarily related to year 2000 systems rectification costs and costs of reorganizing acquired and continuing businesses. These items are explained more fully within the selling, general and administrative expenses section below.

Joint ventures Under U.K. GAAP, operating proﬁt from joint ventures is included within consolidated operating income. Under U.S. GAAP the equity in net income of afﬁliates is included within other income / (expense), net. All joint venture income relates to ‘‘Other’’ for the purposes of segment analysis.

Goodwill and other intangibles amortization and purchased in-process research and development These are U.S. GAAP items and are discussed in more detail below.

Other income / expense, net These are U.S. GAAP items and are discussed in more detail below.

Group discussion In the remaining discussion and analysis U.S. GAAP measures of proﬁts and expenses as they appear in our consolidated statement of income are used and signiﬁcant changes are attributed to segments where appropriate.

Gross profit 1998 1999 2000 (In millions, except percentages) £££ Gross profit ...... 1,199 1,279 1,940 Gross margin % ...... 31.3% 33.8% 35.7% Gross profit increased by £661 million, or 51.7%, and the gross margin increased 1.9 percentage points in fiscal 2000 compared to fiscal 1999. The major reason for the increase in gross profit was the acquisitions of Fore Systems and Reltec. The improvement in gross margins was mainly in the communications networks and communications services segments due to Fore Systems where average gross margin was higher than that of our other businesses.

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Gross profit increased by £80 million, or 6.7%, and the gross margin increased by 2.5 percentage points in fiscal 1999 compared to fiscal 1998. The major reason for the increase was an overall favorable product mix in the communications networks segment with higher gross margin in digital transmission products and software. There were manufacturing cost reductions, offset by price reductions on hardware sales.

Operating expenses—selling, general and administrative

1998 1999 2000 (In millions, except percentages) ££ £ Selling, general and administrative expenses ...... 536 597 1,066 As a percentage of revenues...... 14.0% 15.8% 19.6% As a percentage of revenues excluding year 2000 costs and other non-recurring charges ...... 13.5% 14.6% 16.1%

Selling, general and administrative expenses increased by £469 million, or 78.6%, and increased 3.8 percentage points as a percentage of revenues in fiscal 2000 compared to fiscal 1999. The increase was as a result of several different factors. In the communications networks and communications services segments, Fore Systems and Reltec, which were acquired in the year, had higher average selling, general and administrative expenses expressed as a percentage of revenue than our other businesses. In addition, investment in expanding the direct selling capability of our businesses in the communications networks and communications services segments increased the level of selling, general and administrative expenses. The expenditure on year 2000 systems rectification was £21 million higher in fiscal 2000 than in fiscal 1999 primarily in the communications networks and communications services segments. The Marconi group has undergone significant internal reorganization over the past two fiscal years reflecting the change in focus of the business. Expenditure on reorganizing acquired and continuing businesses (primarily in the communications networks and communications services segments) totalled £87 million in fiscal 2000 compared to £22 million in fiscal 1999. Marconi has share option plans which are compensatory in nature. The compensation expense included in selling, general and administrative in fiscal 2000 was £95 million in fiscal 1999. The reasons for the increase were: • £38 million due to the separation of the discontinued operations which accelerated the vesting date for some variable plan options over GEC shares; and • £57 million due to the introduction of a stock appreciation rights scheme in the year.

Upon launch in November 1999 Marconi carried out a major branding campaign which cost £24 million in ﬁscal 2000.

Selling, general and administrative expenses increased £61 million, or 11.4%, and increased 1.8 percentage points as a percentage of revenues in ﬁscal 1999 compared to ﬁscal 1998. The main reasons for the increase were: • an increase of £13 million in expenditure across all segments preparing for the year 2000 systems issue; and • an increase of £13 million on expenditure on internal reorganizations, primarily with respect to the creation of Marconi Communications following the acquisition of the 40% interest in GPT that we did not already own. Marconi Communications was subsequently reorganized into the communications networks, communications services and mobile communications segments; offset by • the disposal of Marconi Instruments (in ‘‘Other’’) which had higher selling, general and administrative expenses as a percentage of revenues than our other businesses.

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Operating expenses-research and development 1998 1999 2000 (In millions, except percentages) £££ Charged in direct costs...... 59 73 87 Charged in operating expenses ...... 211 214 384 Total research and development expenses ...... 270 287 471 As a percentage of revenues ...... 7.0% 7.6% 8.7% Research and development expenses increased £184 million, or 64.1%, and increased 1.1 percentage points as a percentage of revenues in fiscal 2000 compared to fiscal 1999. This was primarily in the communications networks segment as a result of the acquisitions of Fore Systems and Reltec, which contributed an additional £113 million of research and development expenditure. The main focus of the fiscal 2000 research and development expense was the continued development of photonics, access, broadband or very high capacity switching and network management products. Photonics products combine the use of light (photons) and electronics. Network management products monitor and control the flow of communications traffic over a network. Research and development expenses increased £17 million, or 6.3%, and increased 0.6 percentage points as a percentage of revenues in fiscal 1999 compared to fiscal 1998. The main focus of the fiscal 1999 research and development expense was (in the communications networks and mobile communications segment) with respect to the development of a range of: • photonics products; • enhancing our access products; • developing other products for the next generation public and private networks that we envisage will replace the existing public and private networks; • digital private mobile radio systems; and • new radio and encryption products. Total operating expenses-in-process research and development 1998 1999 2000 (In millions) £££ In-process research and development expenses ...... — — 277 In connection with the acquisitions in the communications networks and communications services segments of Fore Systems and Reltec during fiscal 2000 £174 million of the purchase price for Fore Systems and £103 million for Reltec has been allocated to purchased in-process research and development costs. Both of these amounts have been written off in fiscal 2000. The projects to which purchased in-process research and development has been allocated are set out below. (In millions) £ Fore Systems Big fast switch. A new Asynchronous Transfer Mode (ATM) switch to be capable of switching at very high speeds (240 Gbps to 480 Gbps). ATM organizes digitized voice and other data into small packets and transmits them at high speed over a communications network ...... 85 Asynchronous Transfer Mode (ATM) switches. Known as our ASX1000 and ASX4000...... 77 Other projects ...... 12 174

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(In millions) £ Reltec A project to produce a very high capacity platform enabling service providers to maximise their use of optical ﬁber which extends to within 500 feet of the end user. We call this project the MX platform...... 63 Cable that enhances the performance of the MX platform. We call this cable the deep ﬁber hybrid co-axial cable ...... 14 Other projects ...... 26 103

Further details are set out in footnote 3 of our consolidated ﬁnancial statements.

Total operating expenses—goodwill and other intangible amortization 1998 1999 2000 (In millions) £££ Goodwill and intangible amortization ...... 40 92 495

Goodwill and intangible amortization expense increased £403 million, or 438%, in ﬁscal 2000 compared to ﬁscal 1999. The increase in the charge was primarily as a result of the acquisition of Fore Systems (£272 million) and Reltec (£103 million) within the communications networks and communications services segments.

Goodwill and intangible amortization expense increased £52 million, or 130%, in ﬁscal 1999 compared to ﬁscal 1998. The increase in the charge was a result of the purchase of Siemens’ 40% interest in GPT and acquisitions in the systems businesses.

Total other income/(expense), net, income tax expense and minority interest 1998 1999 2000 (In millions) £££ Gain on sale of investments ...... 6 850 4 Equity in net income of afﬁliates ...... 138 87 83 Interest income...... 80 93 106 Interest expense ...... (28) (55) (214) Other income/(expense), net ...... 196 975 (21) Income/(loss) before income taxes and minority interests ...... 571 1,351 (303) Income tax expense ...... (102) (458) (84) Effective income tax rate ...... 17.9% 33.9% 27.7% Minority interest ...... (53) (12) (3)

Other income/(expense), net was a net expense of £21 million in fiscal 2000, a net income of £975 million in fiscal 1999, and a net income of £196 million in fiscal 1998.

The main component of the total balance in fiscal 2000 was interest expense of £214 million compared to interest expense of £55 million in fiscal 1999 and £28 million in fiscal 1998. The increase in interest expense reflects the additional funding required for the acquisitions of Reltec and Fore Systems in fiscal 2000 and the share repurchase program effected in late fiscal 1999.

The main component of the total balance in ﬁscal 1999 was the gain realized on the sale of investments of £850 million. £841 million of this gain related to the sale of a 26% holding in Alsthom following its initial public offering in June 1998. Alsthom was the new holding

34 3.8.7 29025 TX 35 Project Marlin Prospectus p15 AOGps 24 AUG 00 12:57 R. R. DONNELLEY LON(•• ) LON00000/20000 011 44 20 7330 1600 CB 01 SEP 00 22:30 company of GEC Alsthom, which had previously been a 50-50 joint venture between GEC and Alcatel. In addition, equity in net income of affiliates decreased in fiscal 1999 compared to fiscal 1998 as a result of the reduction in the equity stake in Alsthom. Income tax expense in fiscal 2000 was £84 million compared to £458 million in fiscal 1999 and £102 million in fiscal 1998. In fiscal 2000 there was a tax charge despite the book loss. This was primarily due to non- deductible goodwill amortization (£148 million in terms of tax) and taxes recorded on disposals (£47 million). These amounts were partially offset by income from investments which attract no additional U.K. tax (£14 million) and a benefit for the impact of non-U.K. tax rate differences (£6 million). The fiscal 1999 rate exceeded the U.K. statutory rate of 31% primarily due to non- deductible goodwill amortization and the tax rate differential on non-U.K. profits. The fiscal 1998 tax rate was lower than the U.K. statutory rate of 31%. This was due to the recording of a tax benefit relating to the book versus tax difference in the basis of Alstom shares which were to be disposed of in fiscal 1999. This amount was partially offset by non-deductible goodwill amortization and the tax rate differential on non-U.K. profits. Total minority interest expense decreased to £3 million in fiscal 2000 from £12 million in fiscal 1999 and from £53 million in fiscal 1998. This was primarily as a result of the purchase of the 40% minority interest in GPT from Siemens in August 1998.

Liquidity and capital resources Each of our segments produced and is expected to continue to produce sufficient cash to finance its working capital needs and long-term debt. The sector specific, long-term debt including finance leases is not material. Long-term debt is arranged and drawn down centrally. Companies which have been acquired are generally owned by corporate intermediary holding companies rather than within segments and therefore the cost of those acquisitions is not funded by the segments. Historical trends are not necessarily indicative of the future. Capital expenditures are budgeted, reported and controlled on a segmental basis. An analysis of segmental capital expenditure and commitments is included below. We control acquisitions centrally. Because of the uncertainty surrounding potential acquisitions, they are not budgeted but central control of prospective acquisitions allows our group treasury to plan resources to meet our needs. In addition we monitor capital employed which includes the majority of the businesses’ net assets but excludes those balances such as cash, debt and liabilities for corporate taxes which central functions (treasury and tax) oversee. We monitor the trends in capital employed because it is an indicator of how effectively the segments are using their fixed assets and working capital. Responsibility for the management of working capital, other than cash, is undertaken by the individual businesses. Cash balances at individual businesses are reported to group treasury on a weekly basis and group treasury seeks explanations for any significant movements. Our group treasury oversees the management of our cash and borrowings. Each business has its own bank accounts. The main centres for cash management are in the United Kingdom and United States, where cash management is conducted by our group treasury staff who operate a system under which the cash balances of the businesses are effectively combined so that the cash surpluses in bank accounts can be applied to offset cash deficits in other accounts. We manage the resultant net balances of all the accounts on a daily basis. A net surplus is invested with, or a net deficit is funded by, the group’s bankers. In this way, the funding requirements of our businesses are met, and economies are achieved, by combining our liquid resources.

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1999 2000 (In millions) ££ Cash flows from operating activities ...... (149) 431 Cash flows from investing activities ...... 503 (2,980) Cash flows from financing activities ...... 189 1,676

During the years ended March 31, 2000 and 1999, the Marconi group funded its liquidity requirements mainly through a combination of internally generated funds, bank borrowings, debt issues in the capital markets, the disposal of non-core businesses and cash received as a result of the separation of GEC’s international aerospace, naval shipbuilding, defense electronics and defense systems business and its subsequent merger with BAE Systems.

At March 31, 2000 and 1999, the Marconi group had total borrowings of £2,769 million and £904 million respectively, comprising: • eurobonds with principal amount of £900 million and £nil, respectively; • syndicated bank loans of £1,612 million and £619 million, respectively; and • other borrowings of £257 million and £285 million, respectively.

For the same period, the Marconi group had cash and equivalents and short-term investments of £733 million and £1,498 million, respectively. The increase in the net borrowings resulted mainly from the acquisitions of Reltec and Fore Systems within the communications networks and communications services segments for an aggregate consideration of £3.9 billion.

For ﬁscal 2000, cash provided by operating activities totalled £431 million and cash used for operating activities in ﬁscal 1999 totalled £149 million. The difference was due mainly to changes in the group’s working capital.

Cash used for investing activities in fiscal 2000 totalled £2,980 million and cash provided by investing activities totalled £503 million in fiscal 1999. The group’s main investing activities in fiscal 2000 were: • £3,974 million for acquisitions, mainly within the communications networks and communications services segments for Reltec and Fore Systems; and • the group received net proceeds of £1,179 million from the separation of the discontinued operations. The proceeds were used to repay amounts outstanding under the group’s syndicated credit facilities.

In ﬁscal 1999 the main investing activities were: • cash receipts from investments in afﬁliates, in the form both of dividends and proceeds from the sale of investments, totalling £1,475 million; and • expenditure on acquisitions, spread across all segments, totalling £958 million.

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Capital expenditure for the ﬁscal years 2000 and 1999 were £299 million and £171 million, respectively analyzed by segment as follows:

1999 2000 (In millions) ££ Communications networks ...... 55 174 Communications services...... 611 Mobile communications ...... 816 Medical systems ...... 30 14 Commerce systems ...... 917 Data systems ...... 55 Other ...... 58 62 171 299

Total capital expenditure in the group increased by £128 million, or 74.8%, to £299 million in ﬁscal 2000 compared to ﬁscal 1999.

Capital expenditure within communication networks increased by £119 million, or 216.4%, to £174 million in ﬁscal 2000 from £55 million in ﬁscal 1999. The acquisitions of Fore Systems and Reltec contributed £64 million and £35 million respectively to this increase. Fore Systems purchased its building, which was previously leased, for £40 million. The increase in expenditure was also due to the acquisition and upgrading of test equipment and other information technology infrastructure which was required for the expansion of the business.

Capital expenditure decreased within medical systems by £16 million, or 53.3%, to £14 million in fiscal 2000 compared to £30 million in fiscal 1999. A decrease of £7 million was due to a reduction in the expenditure on new buildings and renovating of existing buildings from the levels in fiscal 1999. In addition, in fiscal 2000 there was £5 million less expenditure on new information technology systems. Capital commitments increased by £19 million, or 47.5%, to £59 million in fiscal 2000 compared to £40 million in fiscal 1999. Commitments were increased by £10 million with the expansion of the communications networks business, primarily at Fore Systems and £8 million within Fibreway for its network and £8 million within Marconi Applied Technologies. These increases were offset by a £10 million reduction at medical systems following the completion of substantially all of the Cleveland rebuilding program.

Cash provided by financing activities for the fiscal years 2000 and 1999 totalled £1,676 million and £189 million, respectively. The increase mainly reflected the borrowings used to fund the group’s acquisitions. The Marconi group has two committed multi-currency revolving credit facilities syndicated with its main relationship banks, with HSBC Investment Bank plc as agent, amounting in total to €8.2 billion. One facility for €5.8 billion has two tranches: one for €1.3 billion expiring on March 22, 2001; and another for €4.5 billion expiring on March 25, 2003, subject to an extension, at the banks’ discretion, for any period up to March 25, 2005. Borrowings under this facility bear interest at the London interbank offered rate plus 0.175% per annum. This facility includes covenants, warranties and events of default. The other credit facility for €2.5 billion and expiring on June 3, 2000 has been extended in a reduced amount of €2.4 billion to expire on June 2, 2001. Borrowings under this facility bear interest at the London interbank offered rate plus 0.25% per annum. This facility includes covenants, warranties and events of default. At

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March 31, 2000, drawings under these facilities amounted to £1,612 million, resulting in unused commitments of £3,495 million. The Marconi group completed two eurobond issues on March 30, 2000. These issues include €500 million of bonds due March 30, 2005 bearing interest at 5.625% per annum, and €1 billion of bonds due March 30, 2010 bearing interest at 6.375% per annum. The eurobonds are listed on the London Stock Exchange. They are governed by two trust deeds entered into with The Law Debenture Trust Corporation p.l.c. as trustee for the bondholders. The trust deeds include events of default normally found in eurobond issues, such as a breach by us of our payment and other obligations under the trust deeds, defaults under other agreements to which we are a party, and bankruptcy and other insolvency events involving us. We, like our competitors, are facing demand to provide financing to our customers. We have responded by developing financing arrangements that are attractive to our customers while limiting the risk to us. The terms facilitate the sale, transfer or disposal of the resultant loans, investments and other obligations to financial institutions and investors. We plan to continue to explore and consider new sources, arrangements or transactions to refinance existing debt, increase our liquidity or decrease our leverage, including among other things, the future issuance of public or private equity or debt and the negotiation of new or amended credit facilities. We believe that cash and cash equivalents, internally generated funds, borrowings under existing credit facilities, and future financing sources will be sufficient to meet our liquidity and capital requirements for the next twelve months. Although in the past we have been able to refinance our indebtedness or obtain new financing, we cannot assure you that we will be able to do so in the future or that the terms of such financings would be favorable.

Market risk Our treasury activities are co-ordinated by our treasury which operates in accordance with policies approved by our board. It does not operate as a proﬁt center. Treasury advises operational management on treasury matters and undertakes all derivative transactions except certain forward exchange contracts relating to the hedging of foreign currency transaction exposures arising in the operating businesses which are managed by those operating units as described below.

Interest rate risk Our policy is to maintain at least 50% of debt at fixed rates of interest. At March 31, 2000, 79% of our interest-bearing borrowings were at fixed rates after taking account of interest rate swaps. Of this total, 55% were at fixed dollar rates of interest and 24% were at fixed euro rates of interest.

The term structure of interest rates is managed in observance of this policy using derivative ﬁnancial instruments such as interest rate swaps and non-leveraged cancellable swaps.

Due to the high proportion of fixed rate debt, our interest expense is only exposed to interest rate movements in its floating rate debt, cash and investments and the net position on our floating rate debt, cash and investments is favorable. We are principally exposed to changes in short term interest rates in pounds sterling, euro and U.S. dollars due to this floating rate exposure. A one percentage point increase in market interest rates would have increased interest income by £13 million (1999: £19 million) and increased interest expense by £10 million (1999: £14 million) which, combined, would have reduced loss from continuing operations before income taxes in fiscal 2000 by approximately £3 million (1999: increased profit by £15 million).

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Foreign exchange risk We are a global communications and information technology company, and as such we conduct a significant portion of our business activities outside the United Kingdom in currencies other than sterling. Our principal exchange rate exposures relate to U.S. dollar/pounds sterling and euro/pounds sterling exchange rates for both transactional and translation related exposures. We enter into foreign currency forward exchange contracts in the ordinary course of business to protect ourselves from adverse currency rate fluctuations on firm contracts where cash receipts or payments are in a foreign currency different from that of the Marconi business which is contracting with customers or suppliers. These contracts are executed with creditworthy banks.

Our policy permits the use of derivative instruments in respect of certain longer-term commercial contracts, denominated in foreign currency, in order to protect the period from tender to contract effectiveness. These transactions are carried out by specialist treasury personnel. We had no contracts of this type in place at March 31, 2000, and no material positions existed during the year then ended.

The impact on earnings of changes in exchange rates related to transactional exchange rate exposures are eliminated through the use of forward foreign exchange contracts as soon as a ﬁrm commitment arises.

We also have overseas subsidiaries that earn proﬁts in foreign currencies. It is our policy not to use derivatives to hedge exposures arising from the translation of these overseas proﬁts into pounds sterling. However, over 99% of gross borrowings were denominated in foreign currencies in order to form a hedge for our investments in currencies other than sterling. Of these, 56%, denominated in U.S. dollars, formed a hedge for our investment in the United States, and 43%, denominated in euro, formed a hedge for our investment in the eurozone.

Under U.K. tax regulations, we are exposed to tax on changes in the translations into sterling of its foreign currency borrowings. Marconi has entered into derivative contracts with certain of its banks to eliminate the cash ﬂow exposure resulting from these tax payments.

If the pound had strengthened such that the average exchange rates used in the translation of our overseas earnings changed by 10%, our reported income from continuing operations would have been reduced by 6.7%, in the year ended March 31, 2000 (1999: 1.9%).

Share price risk We have issued share options to our employees under a number of different option plans. Options may be satisﬁed by way of a transfer of existing Marconi ordinary shares acquired in the market by an employee trust or other vehicle, or by an issue of new Marconi shares. It is intended, as a matter of general policy, to use existing shares to satisfy options under the plans. In order to hedge part of the potential cost of the plans, the Marconi Employee Trust has entered into contracts to purchase shares in the future at prices dependent upon the price at the date of contract. If the share price were to fall by 10%, the fair value of these contracts would fall by £19 million. We may use new shares, where appropriate, to satisfy options under the plans.

Inﬂation

We believe that inﬂation has not had a material impact on our results of operations for the ﬁscal years ended March 31, 2000, 1999 and 1998.

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Recent accounting pronouncements In June 1999, the Financial Accounting Standards (FASB) Board issued SFAS No. 137: ‘‘Accounting for Derivative Instruments and Hedging Activities—Deferral of the Effective Date of FASB No. 133 an amendment of FASB Statement No. 133’’, which defers the effective date of SFAS 133: ‘‘Accounting for Derivative Instruments and Hedging Activities’’ to all ﬁscal quarters of all ﬁscal years beginning after June 15, 2000. We will adopt SFAS No.133 for the year ending March 31, 2002. SFAS 133 requires that all derivatives instruments be recorded on the balance sheet at their fair value. Changes in fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. We are currently evaluating the impact of this statement.

During the year ended March 31, 2000, we adopted Statement of Position (SOP) No. 98-1: ‘‘Accounting for the costs of Computer Software Developed or Obtained for Internal Use’’. SOP No. 98-1 provides guidance on accounting for computer software costs that are developed or obtained for internal use and requires that only certain costs of acquiring or developing internal- use software be capitalized and amortized to expense over the expected useful life of the software. The adoption of SOP No. 98-1 did not have a material impact on its results of operations, ﬁnancial position or cash ﬂows.

During the year ended March 31, 2000, we adopted SOP No. 98-5: ‘‘Reporting on the Costs of Start-up Activities’’. SOP No. 98-5 provides guidance on the financial reporting of start-up costs and organization costs and requires such costs to be expensed as incurred. The adoption of the SOP 98-5 did not have a material impact on our results of operations, financial position or cash flows.

In December 1999, the SEC issued Staff Accounting Bulletin (SAB) No. 101: ‘‘Revenue Recognition’’, which provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosures related to revenue recognition policies. The adoption of SAB 101 did not have a material impact on our results of operations, financial position or cash flows.

Euro On January 1, 1999, eleven member countries of the European Union established ﬁxed conversion rates between their existing sovereign currencies, and adopted the euro as their new common legal currency. The legacy currencies will remain legal tender in the participating countries for a transition period between January 1, 1999 and January 1, 2002. During the transition period, cash-less payments can be made in euro. Between January 1, 2002 and July 1, 2002, the participating countries will introduce euro notes and coins and withdraw all legacy currencies so that they will no longer be available.

We have subsidiaries in most of the European countries which are converting to the euro, including major subsidiaries located in Italy and Germany. To ensure that all eurozone subsidiaries convert in a timely and efficient manner, we have established a euro program management office, comprising a program director, a technical director and administrative support, working with representatives drawn from the businesses to actively support and co- ordinate a euro program throughout the Marconi group. The program’s objectives are for all eurozone subsidiaries to be compliant before January 1, 2002 (the earliest date for the introduction of euro denominated notes and coins); and for us to be capable of conducting commercial and financial transactions, and account and report in euros, as and when required.

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OVERVIEW OF OUR BUSINESSES Introduction We are a global group focused primarily on the communications market. In addition, we have businesses that focus on medical, commerce and data systems markets for high technology products and services. Our communications business activities include developing and supplying communications and data networking equipment to telephone companies and providers of internet services for their public networks, also known as carrier, service provider or core networks, and to large corporations, government departments and agencies, utilities and educational institutions for their private networks, also known as enterprise networks. We also develop and supply advanced electronic and information technology products and services to a wide range of retailers, manufacturers and other businesses and institutions internationally. Our operations comprise principally: • Communications networks. Our communications networks business is a U.S.-based business that designs communications systems, comprised of our own products and those of third parties, to provide complete communications solutions to our customers in the public network and private network markets internationally. We supply telephone companies and providers of internet services with a broad range of products for their public networks, including optical networks systems, access systems, broadband, or very high capacity, switches and software management systems which are sold along with our communications networks products. We also supply large corporations, government departments and agencies, utilities and educational institutions with a broad range of switching equipment for their private networks in small areas such as an ofﬁce or building. • Communications services. Our communications services business is a U.K.-based business that focuses on providing services in response to operators’ increasing outsourcing of network design and planning, network building and deployment and network operation and maintenance in the highly competitive global communications market. We provide a broad range of support services to the communications industry worldwide tailored to suit customers’ needs, and we also support our own communications and information technology products. • Mobile communications. Our mobile communications business is an Italian-based business that designs, develops and integrates communications and information technologies into wireless communications systems for security forces and other uses. This business is also in the early stages of developing a product offering for the next generation of public mobile networks. These networks will provide high capacity wireless communications to and from mobile phones with ﬁxed-line quality sound, fast data transmission and video capability. Mobile communications’ main activities include secure communications for military use, private mobile radio systems such as those used by emergency services and public mobile networks. • Systems. Our systems businesses are U.S.-based businesses that supply advanced electronic and information technology systems to customers in more than 100 countries. Our customers include hospitals, major retailers and oil companies, food and beverage companies, pharmaceutical and chemical manufacturers, and companies in the automotive and aviation industries. In addition, as information technology and communications converge, our systems businesses are well-positioned to develop and supply new products and services in cooperation with other Marconi group businesses. Our systems businesses include medical systems, commerce systems and data systems.

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Corporate structure Set forth below is a simpliﬁed legal structure chart of principal Marconi group companies as at March 31, 2000. It does not show all intermediate companies. As at March 31, 2000, all companies shown were wholly owned indirectly by Marconi plc unless otherwise stated. The dotted lines show how these companies ﬁt within our business groups.

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Our group strategy

The increase in data trafﬁc and the demand for greater network capacity, or bandwidth, has created growth opportunities in the communications and information technology markets. Our strategy is to build on our experience in developing and supplying very high capacity communications networks, known in the industry as broadband, and information technology products and services to develop a global business, offering differentiated solutions that beneﬁt our customers.

Our strategic priorities are to:

• continue to focus on developing new technologies and technically innovative products that add value to our customers and differentiate us in the marketplace;

• broaden our geographic reach in our target markets;

• take advantage of technological and market discontinuities to develop and establish new value adding businesses within the Marconi group; and

• be cost-competitive in all business activities and efﬁciently direct resources in research and development, manufacturing and marketing.

In pursuit of these objectives, we will seek to:

• facilitate existing service providers’ migration from legacy networks to broadband networks for voice, video and data and to develop and deploy new and complete public communications networks to enable newcomers to enter the market;

• develop and deploy complete and ready to operate solutions for network operators by planning, building and operating networks;

• participate in the development of new mobile communications that will utilize our new and complete broadband public network products;

• use our broadband communications capability, our established positions in each of our systems businesses, our customer relationships and our knowledge of markets and customer needs to develop new converged technological solutions and related software applications and services;

• develop comprehensive capabilities for customers who wish to rent software applications, known in the industry as software applications hosting, particularly in the telecommunications, healthcare, logistics and retail markets;

• use our varied technologies and experience across the Marconi group to develop new products and services and to cross-sell those products and services to our customers; and

• continue to pursue acquisitions that enhance our technology portfolio and meet our return on investment criteria.

In implementing our strategy we will direct our activities to the creation of shareholder value. The initial priority will be the continuing development of our communications networks and services businesses and the pursuit of other proﬁtable development opportunities throughout the Marconi group, particularly those which may offer cross-selling opportunities with our communications business.

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HISTORY AND RECENT DEVELOPMENTS

We have a long history of innovation and technological breakthroughs that can be traced to the Marconi Company, the world’s ﬁrst wireless telegraph company, established by Guglielmo Marconi in 1897. The General Electric Company, p.l.c. (GEC), now called Marconi Corporation plc, which is now a wholly-owned subsidiary of Marconi plc, was incorporated as a public limited company in England in 1900 under the name The General Electric Company (1900) Limited and can trace its origins back to 1886.

Early history In the late 1960s, GEC signiﬁcantly expanded its presence in the electrical industry. In 1967, GEC acquired Associated Electrical Industries. In 1968, GEC merged with The English Electric Company which included, among other entities, the Marconi Company.

During the late 1970s and 1980s, GEC acquired several of the key businesses that currently comprise our systems business sector. In 1979, GEC acquired Videojet, now a part of our data systems business. In March 1981, GEC acquired 80% of Picker, now a part of our medical systems business and obtained full ownership in 1985. In August 1987, GEC acquired Gilbarco, now a part of our commerce systems business.

In the late 1980s, GEC strengthened its position in the telecommunications and defense electronics industries. In March 1988, GEC formed GPT, a joint venture with Plessey. Following the acquisition in 1989 and restructuring of Plessey by GEC-Siemens, GEC increased its interest in GPT to 60%, with Siemens owning the remaining 40%. GEC also acquired Plessey’s naval systems and avionics businesses and its U.K. cryptography operations. In 1989, GEC established two 50-50 joint ventures: GEC Alsthom with Alcatel; and the GDA businesses.

In the 1990s, GEC further strengthened its position in defense electronics by acquiring the avionics, naval and defense systems businesses of Ferranti. In 1995, GEC acquired Vickers Shipbuilding. GEC also established joint ventures in space systems with Matra in 1990, in sonar systems with Thomson-CSF in 1996 and in missiles, ground and naval radar systems and air trafﬁc control with Finmeccanica in 1998.

In 1998, GEC implemented a strategy of focusing its activities on defense electronics, communications and intelligent electronics businesses and divested a number of non-core assets. In June 1998, GEC reduced its 50% stake in GEC Alsthom by way of an initial public offering to a 24% interest in Alstom (the new holding company of GEC Alsthom). In June 1998, GEC acquired the U.S. defense company Tracor. In August 1998 GEC bought out Siemens’ 40% minority stake in GPT. Following this acquisition, GEC formed Marconi Communications by placing the businesses of GPT, Marconi in Italy, GEC Hong Kong and GEC’s telecommunications interests in South Africa under the same management structure.

Separation of defense electronics and systems business; reconstruction of the Marconi group In the second half of 1998, GEC’s board conducted a detailed review of the future of the international aerospace, naval shipbuilding, defense electronics and defense systems business, which it concluded would be better positioned in the long term as part of a larger combined defense business. This resulted in its announcement in January 1999 that GEC and BAE Systems had reached agreement on the principal terms of a proposed reconstruction which would involve the separation of the business under review from GEC’s other business, the merger of that business with BAE Systems and the reorganization of GEC’s remaining businesses under a new

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We have implemented a strategy of focusing the remaining business on communications and intelligent electronics and have continued to divest non-core assets. In April 1999, we acquired Reltec, a company that provides telecommunications access products. In June 1999, we acquired Fore Systems, a company that provides broadband switches. In August 1999, we acquired the business of RDC Communications, a company that provides wireless networking products. In December 1999, we formed a strategic partnership with Atlantic Telecom in which GEC acquired 27% of Atlantic Telecom (which was diluted in June 2000 to a 19.7% interest as a result of Atlantic Telecom’s acquisition of First Telecom). We also reorganized Marconi Communications and most of our other telecommunications interests into communications networks, communications services and mobile communications. In December 1999, we also acquired the equipment transmission business of Nokia. In January 2000 we acquired the public networks business of Bosch. In March 2000, we acquired the Australian communications solutions business of Scitec and 10% of the total share capital of Ten Square.

Recent developments Since March 31, 2000, we have made one material acquisition and one material disposal:

• in June 2000, we acquired Metapath Software International (MSI), a Delaware company headquartered in London, England, for total consideration of $618 million, consisting of $309 million in cash and 21,960,808 new Marconi shares. In addition, compensation of up to a value of approximately $245 million may be due in relation to warrants and share option packages. MSI is a global provider of software and services used in the wireless telecommunications market to launch and support mobile voice and data services. MSI has over 100 customers in more than 60 countries across North America, Europe, Asia, South America and Africa. • in June 2000, we sold Avery Berkel to Weigh-Tronix for approximately £103 million (subject to adjustments), payable in cash and notes plus warrants to subscribe for 5% of the equity of Weigh-Tronix.

Since March 31, 2000, we have made the following acquisitions and disposal, which, in the aggregate, were not material:

In April 2000, we: • acquired the assets and assumed the liabilities relating to the business of The Software Works!, a California-based back-ofﬁce software company; • acquired 486,224 shares of, or 0.9% of the equity in, Viewlocity, a Delaware company that provides e-business integration and software services; • acquired the entire issued share capital of VMC marketing consulting, an Austrian company; • acquired Intervest; and • acquired the 30% interest we did not already own in Marconi Commerce Systems Latin America.

In May 2000 the contractual arrangements between Fibreway and British Waterways were restructured and we sold 10% of our equity interest in Fibreway to British Waterways.

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In June 2000, we:

• acquired Systems Management Specialists (SMS), a U.S.-based provider of data centers and information technology outsourcing services, for consideration in Marconi plc shares. SMS provides infrastructure and expertise in providing a secure service where the use of software programs is provided to customers on a rental basis, known as application hosting and will enhance our ability to offer value-added applications services. • entered into an agreement to sell our 50% interest in Comstar to Metromedia International Group.

In July 2000, we:

• acquired Davies Industrial Communications, a U.K.-based provider of personal radio equipment; and • acquired Albany Partnership.

In September 2000, we agreed to acquire an initial 15% ownership interest in netdecisions

Holdings Limited, a U.K.-▲based provider of e-commerce and digital services, for approximately £60 million. We have also committed to purchase up to an additional 7% ownership interest in netdecisions over the next two years.

We are currently in advanced negotiations to acquire a U.S.-▲based provider of access device products for a total consideration of approximately $300 million. Substantially all of the consideration is expected to consist of newly issued Marconi plc ordinary shares, with the balance to be paid in cash.

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OUR COMMUNICATIONS NETWORKS BUSINESS

Our communications networks business is a U.S.-based global business that designs communications systems, comprised of our own products and those of third parties, to provide complete communications solutions to our customers in the public and private network markets internationally. We supply telephone companies and providers of internet services with a broad range of products for their public networks, including optical networks systems, access systems, broadband switches, and software management systems. We also supply large corporations, government departments and agencies, utilities and educational institutions with a broad range of switching equipment for their private networks in small areas such as an ofﬁce or building.

Aggregate sales for all of communications networks’ activities for the fiscal year ended March 31, 2000 were £2,535 million compared to £1,343 million in our 1999 fiscal year. Communications networks’ aggregate sales for the fiscal year ended March 31, 2000 represented 46.6% of the Marconi group’s total sales for the same period (35.4% in 1999).

Our communications networks business is headquartered in Pittsburgh, Pennsylvania.

Products and services that provide communications solutions

Our communications networks products are used in: • optical networks systems, which use optical ﬁber as a medium to transport data; • access systems, which connect businesses and consumers to communications networks; and • broadband switches, which are very high digital data capacity devices that switch and route communications trafﬁc.

We also sell, along with our communications networks products, software management systems that monitor and control communications trafﬁc over communications networks.

Optical networks We produce a comprehensive range of equipment that service providers use to transmit voice and data over ﬁber optic networks. Our current transmission systems are based on the two standard technologies used for transmission systems in the world today: synchronous digital hierarchy (SDH), a common standard for digital transmission in Europe and parts of Asia, and the equivalent U.S. digital transmission standard, known as SONET. We are the world leader in SDH, with over 30% market share.

Our SDH transmission equipment comprises all four elements of an optical network: • products used for inserting or removing individual traffic streams into and out of an SDH transmission ring without disturbing other traffic streams being transported through the same SDH transmission ring, known as add-drop multiplexors. Multiplexing is the combination of two or more data streams in a single transmission channel. • products used for re-configuring and re-connecting entire streams of traffic, known as cross-connects. • systems which provide the transmission link between add-drop multiplexors and cross- connects. These systems are used to transmit digital communications down the optical fiber link and are known as line systems. • systems which enable network operators to manage traffic on their networks. These systems are known as software management systems.

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We have also developed transmission systems that use a new technology, dense wave division multiplexing, or DWDM. This uses multiple wavelengths of light in the same optical fiber which increases the capacity of each fiber, and results in the faster transmission of information than single wavelength SDH or SONET networks. We recently launched the world’s first optical add-drop multiplexor capable of adjustment from a remote location. This device inserts and removes individual optical communication traffic streams into and out of a transmission ring without disturbing other traffic streams. It uses a light source known as a laser that produces discrete channels of light at multiple wavelengths. The selected wavelength can be changed remotely from the operators’ computer terminals, which facilitates re-routing of traffic to uncongested wavelengths. In addition, as our laser can operate at any of the multiple wavelengths, lower inventories of spare lasers may be carried. We expect to ship this product later this year. We plan to have a complete optical system (including add-drop multiplexors, cross-connects and line systems) available by the end of this year. We have recently agreed to provide British Telecom with DWDM and new high performance SDH equipment and related services for its new European all optical network.

Access systems We design, manufacture, sell and support a broad range of equipment that connects the end user to a telephone company’s switch or local office. This is known as access equipment and is used in the last mile of a network towards the end user. The last mile is known as the local loop. We supply both wireline and wireless access systems that enable users to access a network quickly and reliably by providing high capacity transmission of voice, video and data services. Our wireline systems extend fiber from the telephone company’s switch to a location close to the user, with copper wire providing the remainder of the route. These systems include: • deep fiber, which extends fiber optic cables to within 500 feet of a user and transmits a signal over copper or coaxial cable for the last few hundred feet. This allows for very high speed data transmissions over a single fiber feed to the curb: evolving from 25Mbps to rates exceeding 155Mbps, with the final delivery rate dependent on the type of final link installed. The fastest of these currently has downstream data rates to the end user of up to 8 Mbps. This also allows for economic costs which in many configurations are comparable to the traditional low speed copper systems. We have recently agreed to provide BellSouth with deep fiber. We rank second in the U.S. fiber-based access market with a 30% market share (Frost & Sullivan 2000 report for 1999) and second in the overall access market in Western Europe with a 17% market share. • transmission and multiplexing equipment which bundles a number of individual phone line signals into a single digital signal for local traffic between the telephone company’s switch and a remote location close to the user. This enables multiple voice calls to be combined into a single signal and transmitted over a single connection which is usually optical fiber. These products are known as next-generation digital loop carriers. • devices that substantially increase the capacity of copper cables used to connect end users to a network. These systems are known as digital subscriber line systems. We have developed products for use with our deep fiber systems, known as asymmetric digital subscriber line systems. These products provide high data transmission rates from the network to the user, but lower rates from the user to the network. We are currently developing symmetric digital subscriber line systems to transmit data to and from the user at the same quick rate. Our wireless access system enables telecommunications operators to provide an alternative solution for residential and small office subscribers with data and internet access at speeds in excess of 4 Mbps.

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Broadband switching We supply: • a broad range of switches that use asynchronous transfer mode (ATM) technology, the dominant technology for large switches used for the internet; • printed circuit boards comprising electronic circuitry to connect workstations to communications networks, known in the industry as ATM network interface cards; • internet protocol (IP) switches, which are switches that use a set of rules governing the format and timing of data transmission that is exchanged between computers used by Microsoft and UNIX operating systems and the internet; and • IP switches for small computer networks. We rank second in the world core ATM switch market (large ATM switches with capacities of 20 Gbps or more that are used in telecommunications core networks) with an 18% market share by revenue (RHK, March 30, 2000 report for 1999). We rank first in the world ATM local area network switch market with a 33% market share. A local area network is a network of computers or workstations connected together in a small area such as an office or building. We are developing a new standard which will extend the strengths of ATM networks to IP environments. We chair the standards committee, a global industry group responsible for devising a common industry protocol that will identify whether a packet of digital information requires a special quality of service as it travels through a network. Packets labeled as voice or video need to be sent through the network in their proper sequence and without disruption or delay, thus enhancing reliability of carrier and enterprise network service. This standard is known as multi-protocol label switching (MPLS). We are developing a faster switch that we are designing to be capable of switching at 240 Gbps with a plan to double its capacity to 480 Gbps. In addition, we are developing other systems that will enhance voice, video and data to travel across the internet. Overview of the communications market There are two global communications network markets: the public network market, which includes telephone companies and companies that provide internet services, and the private network market, which includes large corporations, government departments and agencies, utilities and educational institutions. Each of these markets has experienced a tremendous amount of growth in recent years, largely in response to increased demand for internet access and fast, reliable transmission of voice, video and data traffic. The market for technologies that provide communications network solutions is already large, and we believe it will continue to grow as companies and others in the public network and private network markets seek to improve their existing networks and establish new networks to meet the demands of their customers. For example, synchronous digital hierarchy or SDH equipment, a standard for digital transmission, is forecast to grow at a compound annual growth rate of 20% in Europe from 1999 to 2003 (RHK, September 17, 1999). The market for dense wavelength division multiplexing or DWDM, which uses multiple wavelengths of light in a single fiber, is forecast to grow at a compound annual growth rate of 47% from 1999 to 2003 in North America and 50% per year in Europe for the same period (RHK, March 3, 2000 and September 17, 1999). The worldwide market for asynchronous transfer mode or ATM switches, the dominant technology used in the internet, is forecast to grow at a compound annual growth rate of 14% from 1999 to 2003. We also believe that as the public network market and the private network market grow they will converge: technologies that provide communications solutions for the public network market will be applied to provide solutions for the private network market, and vice versa.

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The public network market Historically, state-owned or state-regulated monopolies have operated public networks, which traditionally transmitted voice calls between users in such states. Recent privatization and deregulation of public networks has led to the entrance of a large number of new companies into the public network market. We believe the key drivers of growth in the public network market are: • Growth in data traffic. In recent years there has been a rapid increase in the volume of data transmitted over public networks, primarily as a result of the emergence of the internet and the increased use of digital technology. As data traffic over public networks grows, it is increasingly using up the limited available capacity, causing congestion. Currently, the amount of voice traffic and data traffic being transmitted over public networks is about the same, although in some networks, data traffic already exceeds voice traffic. Data traffic is increasing at a faster rate than voice traffic and we expect this trend to continue. We also expect that within the next two to three years service providers will make available improved mobile data services to mobile telephone users, which is likely to further increase data traffic over public networks commonly used for the non-wireless transmission element of the mobile service and this will further exacerbate network congestion. • Deregulation and privatization. Since the mid-1980s the process of privatizing state- owned operators and deregulating state-regulated commercial operators has accelerated. Existing telephone companies and providers of internet services have been put under pressure to invest heavily in networks to meet the competition provided by new telephone companies and providers of internet services. We expect that the continuing trend of deregulation, privatization and the resulting entry of newcomers to the public network market will lead to continued growth in the demand for cost-effective, innovative telecommunications network systems and solutions. The competitive environment in the public network market is causing both existing and new operators to focus on data networking technologies which can increase capacity and satisfy the demand for data transmission services. We expect operators will seek to install new high capacity broadband upgrades which are capable of transferring data more rapidly across existing networks to meet demand for bandwidth. Eventually, continued bandwidth upgrades will result in networks becoming prohibitively complex and costly. Consequently, in the longer term, we believe operators will ultimately seek to build completely new public networks that are optimized for data traffic while maintaining quality of service for voice and multimedia applications.

The private network market Private networks transmit primarily data over a network of computers or workstations connected together in a small area such as an office or building for large corporations, government agencies and other organizations. We believe the key drivers of growth in the private network market are: • Growth in traffic. In recent years private networks, like public networks, have experienced a rapid increase in the volume of data traffic, which needs a large amount of capacity, or bandwidth. In addition, large corporations, government agencies and other organizations have experienced a rapid increase in the demand for voice and video traffic. Existing private networks cannot ensure delay-sensitive traffic (such as voice and video) will be delivered without interruptions that can have an unacceptable impact on service because private networks are not capable of identifying different types of traffic, determining which type of traffic requires transmission priority. We believe that data,

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voice and video traffic over private networks will continue to grow and aggravate network congestion. • Need for network reliability and quality of service. Large corporations, government agencies and other organizations are increasingly relying on their networks to conduct business. In recent years there has been a substantial increase in the number of employees working outside the office with remote access to private networks. E-mail has become a critical communications medium within and among enterprises. In addition, there has been a substantial increase in the number of business-to-business and business- to-consumer transactions taking place over the internet. These trends have made network reliability and quality of service critical for many large corporations, government agencies and other organizations. We believe these customers will require management systems to manage work flow, diagnose and repair problems and monitor their private networks on an around-the-clock basis to ensure reliable transmission and quality of service. As a result of the increase in delay-sensitive traffic over private networks and the increasing need for network reliability and quality of service, we believe large corporations, government agencies and other organizations will seek to install new systems which provide solutions capable of transmitting voice and video traffic without disruption or delay. In the short term, we expect large corporations, government agencies and other organizations will upgrade their existing networks to meet demand for reliable, quality multimedia services. In the long term, we expect that the amount of multimedia traffic will increase significantly, but continued upgrades of the existing packet-based networks will be unreliable with respect to delay-sensitive traffic. We believe large corporations, government agencies and other organizations will ultimately seek to build completely new private networks that are optimized for multimedia traffic.

Technological convergence We see a strong technological interdependency between new public networks and the new private networks that we expect will develop. For example, both telephone companies and providers of internet services, as well as large corporations, government agencies and other organizations are exploring the ability to merge their data, voice and video transmission networks.

Strategy • Focus on developing and supplying complete, next generation communications systems. We intend to facilitate existing service providers’ migration from legacy networks to broadband networks for voice, video and data and to develop and deploy new and complete public communications networks to enable newcomers to enter the market: • in optical networks, we intend to build on our strength in synchronous digital hierarchy (SDH), a standard for digital transmission, and also focus on dense wavelength division multiplexing (DWDM), which uses multiple wavelengths of light in a single fiber, and plan to supply an all-optical network. We also intend to unify our software management systems and employ open interfaces to facilitate coordination with other systems. • in access systems, we intend to build on our position in deep fiber and deploy fiber closer to the user as well as supply products which provide high capacity data transfer to and from the end user. These products include asymmetric digital subscriber line, symmetric digital subscriber line and wireless products. • in broadband switching, we intend to focus on developing a range of large scale carrier class ATM switches and enterprise internet protocol (IP) switches using a

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new standard which will allow voice and video to travel over the internet. This standard is known as multi-protocol label switching (MPLS), and supports high capacity, high quality service.

• Increase the amount of outsourced manufacturing. We currently outsource some of the manufacturing of our products to reduce costs and maintain our focus on developing value-added products and network solutions for our customers. We intend to increase the amount of manufacturing we outsource to reduce capital employed and increase operating ﬂexibility.

• Pursue cross-selling opportunities. Communications networks provides a natural route to market for our communications services business, which, until recently, was part of our communications networks business. In addition, communications networks provides technologies that may be applied in the development of products and systems by other businesses in the Marconi group. These opportunities encourage the development of applications that have very high capacity communications requirements. We intend to pursue these opportunities to expand our customer base and increase revenues.

Customers

Our communications networks business has customers in 90 countries. Our major public network customers include Ameritec, AT&T, Bell Atlantic, BellSouth, British Telecom, Cable & Wireless, Deutsche Telekom, France Telecom, GTE, Level 3 Communications, MCI Worldcom, SBC, Sprint, Telebras, Telecom Italia, Telefonica, Telstra and USWest. Our major private network customers include Delta Airlines, Microsoft, Shell and Unisys. Except for British Telecom, each of our customers accounted for less than 5% of Marconi plc’s total revenues for the ﬁscal year ended March 31, 2000. For the same period British Telecom accounted for approximately 11% of Marconi plc’s total revenues. We are targeting existing customers in the public network and private network markets. We are also targeting customers of our systems businesses.

Sales, marketing and distribution

Communications networks sells its products and services using its own dedicated sales force as well as local partners and distribution partners. In the ﬁscal year ended March 31, 2000, communications networks made approximately 80% of its total sales through direct sales efforts and 20% through distributors.

Communications networks’ sales force includes sales and marketing organizations in three regions: the Americas; Europe, the Middle East and Africa; and Asia Paciﬁc. We have specialized product marketing groups which support these organizations internally and a central marketing staff which provides strategic direction and customer and market communications support for these organizations externally. Each of these regional organizations has responsibility for account management, sales and contract negotiation.

Communications networks’ distribution partners include Ericsson, Italtel, Nokia, Sagem and Siemens in Germany, Belgium, Australia and The Netherlands. We signed a seven-year agreement with Ericsson in July 1999 that allows Ericsson to market the full range of our synchronous digital hierarchy (SDH) equipment to its worldwide customer base. We also entered into a four-year agreement with Nokia in November 1999 to market our synchronous digital heirarchy (SDH) and dense wavelength division multiplexing (DWDM) systems.

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Research and development Communications networks spent approximately £308 million on research and development in the ﬁscal year ended March 31, 2000, and £156 million in the year ended March 31, 1999. Approximately 12% (1999: 20%) of this amount was customer funded while the remainder was company funded.

Communications networks’ current research and development programs are focused on: • further enhancing its existing optical networking product range; • developing a range of next generation photonics products (products which make use of both light (photons) and electronics); • enhancing access network products; and • developing switching products for new public and private networks.

On March 30, 2000, communications networks and the University of Cambridge in the United Kingdom announced a project to build a communications research center to develop technology for the internet and data transmission. Communications networks committed £40 million to build the center and for an extensive research program for an initial period of six years.

Competition The public network and private network markets in which our communications networks business operates are highly competitive. Communications networks’ principal competitors in the public network market include Alcatel, Cisco Systems, Lucent Technologies, Nortel and Siemens. The primary method of competition in the public network market is the widespread use of open bids for public network equipment purchases. Service providers use a combination of factors to evaluate bids, including price, technical compliance, ability to deliver in the required timescale and provide after-sales support and long term visibility.

In the private network market, our principal competitors include Cabletron, Cisco Systems, Lucent Technologies and Nortel. The primary method of competition in the private network market is by a combination of open bids and selection/endorsement. Selection criteria are similar to those in the public network market, although long term visibility is not as important a selection factor in the private network market.

A number of our competitors have substantial technological and ﬁnancial resources (including research and development resources) and operate in all signiﬁcant market segments of the industry. As the public network and private network markets converge, other specialist companies in the information technology sector may also emerge as strong competitors.

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OUR COMMUNICATIONS SERVICES BUSINESS

We created our communications services business by separating all of the service organizations from within our communications networks business and bringing together our consultancy, project management and ﬁeld services and support capabilities into a dedicated group. We created a separate business in order to focus on providing services in response to operators’ increasing outsourcing of network design and planning, network building and deployment and network operation and maintenance in the highly competitive global communications market. We provide a broad range of support services to the communications industry worldwide tailored to suit customers’ needs, and we also support our own communications and information technology products.

Aggregate sales of all communications services activities for the ﬁscal year ended March 31, 2000 were £543 million, compared to £244 million in our 1999 ﬁscal year. This amount of sales represents 9.9% of the Marconi group’s total sales for the same period (6.4% in 1999).

Communications services is headquartered in Coventry, England.

Service offerings Our communications services business provides plan, build and operate support services to network operators in many countries around the world. We have over 6,000 employees in over 60 countries, and an established in-country presence in the United States, Germany, Italy, the United Kingdom, Saudi Arabia and Australia. Our recent acquisitions of Bosch’s public network systems business in Germany and Scitec’s communications business in Australia have extended our territorial presence.

Our plan services include business consultancy, network architecture, technical consultancy, custom network management and financing. Our recent acquisitions have enhanced our technical expertise. For example, our acquisition of Reltec provided us with an enhanced capability in high-speed connections between a network and the consumer known as deep fiber access. These systems extend fiber to within 500 feet of the user. Our acquisition of Fore Systems provided us with expertise in very high-capacity devices known as broadband switches that direct traffic over a network. Our acquisition of MSI broadened our capabilities in the wireless market. We also have expertise in arranging and providing tailored financing structures, including private finance for government customers, pay-as-you-go and pay-as-you-grow packages where the service offering is paid for under a long-term service contract with no sale of equipment to the customer, and special structure finance companies for larger deals.

Our build services include network design, project management and build, network integration and testing services. Network build services currently represent the largest portion of our revenues.

Our operate services include network operation, network upgrades, web-based support, service management, maintenance, service provisioning, engineering support, technical education and marketing and selling services. We have twelve telephone call centers (three in each of the United States, the United Kingdom and the rest of Europe and one in each of Canada, Japan and Australia) offering around-the-clock telephone assistance to customers. We also have four network operating centers (one in each of the United States, the United Kingdom, Germany and Australia) for remote monitoring, fault diagnosis and network repair. We can support the Marconi product range as well as products supplied by other communications companies. In addition, our acquisition of SMS broadened our capabilities in providing a service where software programs are rented to users, known in the industry as software hosting applications.

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Our service contracts generally include a combination of plan, build and operate services. Examples include: • a contract with Atlantic Telecom to provide project management, site identiﬁcation, refurbishment, ﬁber deployment, installation and commissioning, and maintenance and support; • a contract with UUNet to provide support services; • a three-year, £50 million contract with Sangcom, the Saudi Arabia national guard, for fully-managed network services and a separate, eight-year, £200 million contract for upgrades; and • a contract for the upgrade of communications infrastructure on the west coast mainline railway in the United Kingdom.

Overview of the communications services market The growth in demand for data transmission and an increasingly liberalized and competitive communications market has created challenges for network operators and service providers. Existing operators need to upgrade their networks with very high-capacity, broadband equipment to make the best use of existing investment and support new data and mobile services. As a result, existing operators have been outsourcing the building and maintenance of their networks so they may focus on improving their services. New operators, on the other hand, need to install complete new networks quickly in order to compete effectively with existing operators and each other. As a result, new operators outsource the planning, building and operating of these complete new networks so that they do not have to recruit the necessary skilled workforce and can focus their attention on customer service. In addition, new operators generally require innovative ﬁnancing as well as assistance in marketing and selling their products to end consumers.

We estimate the global communications support services market for wide area networks, public networks, corporate premises equipment, network integration and support services will be $82 billion for 2000, and will grow annually at a rate of 15% for the next three years. Wide area networks link the private networks of large corporations, government agencies and other organizations. The ﬁgures exclude third generation mobile networks that will provide wireless communications to and from mobile phones with ﬁxed-line quality sound, fast data transmission rates and video capability. We believe both existing and new network operators will require support services on a global scale and on an around-the-clock basis to meet their customers’ needs for fast and reliable communications services.

Strategy We intend to take advantage of the growth in demand for internet and mobile services by: • Becoming a leader in providing complete networks. We intend to build on our ability to offer support services that an operator needs to plan, build and operate a network quickly and reliably. We will continue to help existing operators to migrate their low capacity, narrowband networks to very high capacity, broadband networks so that they may make the best use of existing investment. We also intend to continue to address the outsourcing requirements of new operators by providing initial planning, assistance with regulatory approvals and complete, ready to operate build services, network operation and maintenance. • Growing our business organically and through acquisitions and the development of partnerships. We plan to grow organically and through strategic acquisitions of and

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partnerships with other service providers to improve our geographical coverage and broaden our expertise. We intend to target Brazil, Spain and the Far East, markets which we believe are liberalizing, to support existing customer developments.

• Developing a systems integration capability. We intend to further develop our capability to integrate different application software to help different application systems work together. For example, we intend to provide a system that allows internet protocol (IP) billing systems and customer relationship management packages to work together. Internet protocol is a set of rules governing the format and timing of data transmission that are exchanged between computers using Microsoft and UNIX operating systems and by internet.

• Developing global support standards and global service. We intend to further develop a uniform standard of service in all key markets through our telephone call centers and network operating centers.

• Developing software application hosting capabilities. We intend to build on the assets and capabilities of our recent acquisitions to provide a service where software applications are rented to users, known in the industry as software hosting applications, for application service providers and to make available software applications that our systems businesses are developing.

• Pursuing cross-selling opportunities. Our communications networks business provides a natural route to market for our communications services business which, until recently, was part of our communications networks business. In addition, we are in a unique position to build on the existing relationships between our system’s businesses and their customers. We intend to pursue these opportunities to expand our customer base and increase revenues.

See also ‘‘Risk Factors—Newly identiﬁed, developing and emergent businesses may fail to reach their full potential, adversely affecting our results.’’

Customers

Our customers include many of the world’s leading service providers and major transport, health, finance, government and enterprise organizations worldwide. Our main public network customers include Atlantic Telecom, Bell South, British Telecom, Cable & Wireless, Colt, Deutsche Telekom, NTL, Omnitel, Sprint, Telecom Italia, Telstra and Viag. Our main private network customers include Adelphia Business Solutions, Delta Airlines, Hong Kong Mass Transit Railway Corporation, Italian Railways, London Underground, Railtrack, Shell and Thrucomm. We target customers in the service provider, large scale ‘‘carrier class’’ markets and in the new, fast growing applications markets. British Telecom accounted for approximately 11% of Marconi plc’s total revenue for fiscal 2000. For the same period, none of our other customers accounted for 5% or more of Marconi plc’s revenues for the fiscal year ended March 31, 2000.

Sales and marketing

Communications services uses communications networks as a primary marketing channel to service providers. Additionally, communications services has its own sales and marketing personnel to address other markets like transport and utilities.

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Competition The market for global services today is still emerging, and there are no dominant competitors. Major telecommunications vendors such as Nortel, Lucent Technologies, Alcatel and Cisco Systems are extending their service capabilities to offer total solutions, in direct competition to us. Major information technology and system integrators such as IBM, EDS and CSC are now offering telecommunications solutions to their customers. Furthermore, independent service and support organizations such as Dimension Data and Telindus offer a broad portfolio of services.

The market for support services is also fragmented. Currently a small number of companies have positions in speciﬁc territories. For example, communications services has a competitive position in the United Kingdom, Siemens has a competitive position in Germany and Alcatel has a competitive position in France.

This market however, has recently begun to consolidate. Participants in the global services market are pursuing acquisitions to strengthen the depth and breadth of service skills and to expand territorial presence. For example, Nortel recently acquired Clarify and Lucent Technologies recently acquired INS. Communications services has also made recent acquisitions. See ‘‘History and Recent Developments’’.

The principal method of competition for plan, build and operate services is through open bidding. Services may also be sold as a part of, or linked to, equipment sales.

We believe the key success factors required to take advantage of the growth in demand for service-oriented solutions in the carrier, service provider and enterprise markets, are: • global support capability with network operation centers; • the ability to put in place innovative financial packages, public/private finance consortia and special purpose finance vehicles; • the ability to deliver total solutions; • knowledge of new broadband, or very high capacity, networks; and • the ability to manage the transfer of employees as part of outsourcing contracts.

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OUR MOBILE COMMUNICATIONS BUSINESS

Our mobile communications business is based in Italy and designs, develops and integrates communications and information technologies into wireless communications systems for security forces and other uses. This business is also in the early stages of developing a product offering for the next generation of public mobile networks, the so called third generation networks. These networks will provide wireless communications to and from mobile phones with ﬁxed-line quality sound, fast data transmission and video capability. Mobile communications’ main activities include secure communications, private mobile radio systems and public mobile networks.

Aggregate sales of all mobile communications activities for the fiscal year ended March 31, 2000 were £295 million, compared to £271 million in our 1999 fiscal year. Mobile communications’ aggregate sales for the fiscal year ended March 31, 2000 represented 5.4% of the Marconi group’s total sales for the same period (7.2% in 1999).

Mobile communications is headquartered in Genoa, Italy.

Products, services and customers

Secure communications Secure communications designs and implements tactical networks, infrastructure networks, command and control systems, naval systems and avionics systems that provide communications services to military and security organizations like armed forces and police forces. Its products include: ground systems • communications networks based on encrypted switched radio and optical fiber links that provide integrated communications services at a national level; • mobile networks, installed in vehicles or on man packs, based on encrypted single- channel and multi-channel radio links that enable secure communications and integrated communications services for ground military operations; • command and control systems, implemented on distributed computer networks, which support and automate the planning and control of military deployment at operational levels from field staff to individual units; and • auxiliary equipment, such as field telephones, portable computers, power supply management systems and antenna masts, for tactical communications. avionics systems • communication, navigation and identification systems for helicopters and fixed-wing aircraft; • on-board opto-electronic sensors for aircraft and vehicles capable of detecting hostile laser designators; and • electro-luminescent display panels for aircraft instruments. naval systems • internal and external communications services for naval ships and submarines.

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Our secure communications customers include the armed forces of Brazil, Bulgaria, Denmark, Finland, Germany, Greece, Italy, Malaysia, Romania, Turkey, the United Kingdom, the United States and NATO and major aerospace contractors such as Alenia Aerospazio, British Aerospace, Boeing and Lockheed Martin. None of our customers accounted for 5% or more of Marconi plc’s revenues for the ﬁscal year ended March 31, 2000. We will continue to target these types of customers.

Private mobile radio systems Our private mobile radio business provides private mobile radio systems to police forces, ambulance services, fire departments, utilities, transportation organizations, air traffic control organizations and security services. Our private mobile radio systems use analog technology and the European standard for private digital mobile radio systems, called terrestrial trunked radio or TETRA. Our analog products include user terminal systems. Our TETRA products include: • switching and control nodes suitable for small, medium and large networks; • radio base stations using 400 MHz and 800 MHz frequency bands; and • a range of user terminals and relevant accessories like hand portable, vehicular station and fixed station communications devices.

We supply software applications, dispatching systems and network management systems for both analog and TETRA systems. In addition, we supply a full range of services that cover all project phases, working with the customer to devise technical systems that meet the customer’s needs, engineering and customizing of products, installation, commissioning and other ﬁeld activities and post-sale customer support.

We also provide ground-to-air radio communications equipment for air trafﬁc control systems.

Our private mobile radio customers include the Italian Ministries of Interior, Justice, Finance and Defense and public utilities including regional gas, electric and transportation companies in Belgium, Germany, Italy, Portugal, Russia, Saudi Arabia and the United Kingdom. We supply communications equipment and systems to civil and military air trafﬁc control authorities in more than 30 countries. None of our customers accounted for 5% or more of Marconi plc’s revenues for the ﬁscal year ended March 31, 2000. We target emergency services, government departments, utilities, transportation and security organizations.

Public mobile networks We currently market base stations and controllers for public mobile networks, which comply with the global system for mobile communciations known as GSM. GSM is the standard which has been adopted in Europe and, to a certain extent and on a non-standardized basis, in Japan and the United States. These base stations and controllers will incorporate upgrades to the GSM technology that increase data transmission rates. Base stations transmit and receive signals that enable wireless telephone calls and text messages to be exchanged between users. Controllers manage a group of base stations in a network and connect calls and messages.

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We are also in the early stages of developing a product offering for the next generation of public mobile networks, the so called third generation networks. These networks will provide wireless communications to and from mobile phones with fixed-line quality sound, fast data transmission and video capability. We plan to offer a complete third generation public mobile network offering, including base stations, controllers, switches and control nodes, handsets and network management systems to operators who provide wireless communication services to individual users. Our third generation public mobile network offering will use technology that will comply with the standard wireless technology defined by the European Telecommunications Standardization Institute for third generation networks, called universal mobile terrestrial service or UMTS. We are building on the experience we have gained since 1989 in developing and supplying GSM base stations and controllers to develop UMTS base stations and controllers for third generation public mobile networks. We will source the remaining elements of our third generation public mobile network offering from our communications networks business and third party suppliers. UMTS has a smaller cell size, the area covered by a fixed radio transmitter/receiver, than GSM. UMTS therefore requires a greater number of cells to give equivalent network coverage over a certain area. The process for identifying and acquiring sites, obtaining necessary approvals for and deploying base stations is time-consuming and expensive, so additional base stations can delay the installation of a third generation public mobile network. We are focusing on technologies that will minimize the number of base stations and increase the speed of installation of a third generation public mobile network. For example, we are investigating: • beam-forming antennae which will be installed on top of base stations and will extend the radial range of a base station, increase network coverage in underserved areas or within buildings and decrease interference at base stations. This will permit operators to have broader network coverage using fewer base stations, particularly in remote areas; and • a compact version of our base station which will permit operators to install an initial network consisting of a limited number of base stations and then progressively expand network coverage as the number of users of third generation public mobile networks grows and fill in gaps where demand for service is particularly high with mini base stations. We previously sold our GSM products through an exclusive arrangement with Siemens. This arrangement was terminated in 1999. Since that time we have been preparing a direct sales initiative to attract customers to our new products. We recently began marketing our second generation and upgraded base stations and controllers, as well as our third generation public mobile networks products, which are currently in development. We are targeting existing operators for upgrades and successful applicants for third generation license for our new third generation products. We do not yet have customers for these products.

Overview of the mobile communications market Secure communications market The market for secure communications includes armed forces, domestic police forces and other organizations that require particularly secure, communications services capable of maintaining communications links under harsh environmental conditions. The United States represents approximately 44% of the world market for secure communications (Fact Sheet, Center for Defense Information, February 7, 2000) Following a period of low demand since the end of the cold war, the market for secure communications has experienced growth. The growing use of armed forces in international peace-keeping and civil defense operations has caused defense budgets to increase, particularly

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Consolidation in the U.S. and European defense industries has caused defense companies in these markets to outsource non-core defense activities such as secure communications. As a result of these trends, the annual growth rate in worldwide defense (communications and electronics) spending is expected to be approximately 3% to 10% for the period 1999 through 2003 (National Defense Budget Estimates for FY 2001, U.S. Department of Defense, Ofﬁce of the Under Secretary of Defense (Comptroller) dated March 2000, and Procurement Programs (P-1), Fiscal Year 2001, Ofﬁce of Under Secretary of Defense (Comptroller) February 2000).

Private mobile radio systems market The market for private mobile radio systems includes public safety organizations such as police forces, ﬁre departments, ambulance services, utilities, transport organizations, air trafﬁc control authorities and security services that require special communications services. These customers require a communications system with a high level of call privacy and security, fast call connection speed, guaranteed connections even when the system is busy, simultaneous voice and data transmission, group calling, direct mode operations (handset direct to handset for communications in remote areas) and rugged and reliable service in time-critical situations that public mobile networks cannot provide.

The European Telecommunications Standardization Institute has adopted terrestrial trunked radio or TETRA as the standard digital technology in Europe for private mobile radio services. Many countries in Asia have also adopted TETRA as their standard. The U.S. private mobile radio market, which represents approximately half of the world private mobile radio market, uses a variety of technologies without a clear standard, and currently TETRA is not used in the United States. Our mobile communications business is participating in discussions with other European and U.S. private mobile radio providers concerning the adoption of TETRA in the United States, but we cannot be certain of success. We believe, however, that demand for TETRA will increase as world markets, which may include the United States, adopt the TETRA standard for their private mobile radio systems. We estimate the TETRA market will grow at an annual rate of 100% and will represent a £2.6 billion opportunity over the next ﬁve years.

Public mobile networks technology and market The market for public mobile networks serves operators that provide wireless communications services to individual users. These services were ﬁrst developed and deployed in the 1980s. The ﬁrst generation of public mobile networks was based on analog technology and provided simple voice calls. Users, however, experienced poor call quality and clarity, high call prices and limited call options.

The second generation of public mobile networks was developed in the 1990s based on digital technology. Second generation public mobile networks provide better call quality and clarity, lower call prices and a broader range of service options, including limited text messaging and basic data services, than ﬁrst generation networks.

There are currently three principal digital technologies that second generation public mobile networks use to enable users to make wireless calls. In FDMA (frequency division multiple access), each call is transmitted within a separate narrow frequency band. In TDMA (time division multiple access), each frequency band is divided into speciﬁc time slots, commonly ten

61 3.8.7 29025 TX 62 Project Marlin Prospectus p15 AOGps 18 AUG 00 00:49 R. R. DONNELLEY LON(•• ) LON00000/20000 011 44 20 7330 1600 CB 01 SEP 00 22:30 separate slots for each frequency. Each caller is assigned a speciﬁc time slot. In CDMA (code division multiple access) each caller is assigned a unique code which identiﬁes the calls transmitted over a wide frequency range. GSM uses mixed FDMA and TDMA. CDMA and TDMA are the most prevalent second generation technologies used in the United States, but not on a standardized basis. FDMA, TDMA and CDMA are incompatible with each other, which means, for example, that a user on a GSM system cannot make calls from a GSM handset in an area using TDMA or CDMA technology unless the user has a special dual-band, dual-mode handset.

Growth in the worldwide public mobile networks market is increasing at a rapid rate. In addition, users are increasingly demanding data transmission and internet access from their handsets. Existing second generation technology for public mobile networks is incapable of meeting these demands as it can transmit data only at very slow speeds. Some public mobile networks providers are upgrading existing second generation technology with hardware and software changes to increase data transmission speed and bandwidth. For public mobile networks using GSM there are two types of upgrades. Neither of these upgrades, however, has the speed or bandwidth to keep pace with the growth in the number of users and their increasing demand to access the internet and to transmit data with their handsets. These upgrades also do not improve voice quality of mobile telephone calls. Substantially improved data transmission rates (which will be available in the third generation systems described below) are required to meet users’ increased voice, data and multimedia needs in the longer term.

Public mobile networks providers are developing a third generation technology to provide the greater bandwidth and functionality that existing second generation technologies and their upgrades are incapable of providing. Third generation public mobile networks will further improve call quality and clarity, making mobile communications very similar to ﬁxed-line communications. It will also broaden service options as it will be able to support high resolution video or multimedia applications at much faster and more reliable data transmission rates than currently provided by second generation public mobile networks and upgrades. While the range of services offered over third generation public mobile networks will be determined by the needs of the market over time, we believe multimedia services will feature prominently and are likely to include, in addition to conventional mobile voice and data services, high speed internet and intranet access, video telephone and conferencing, entertainment services and direct instant access to home or ofﬁce information technology systems.

Two types of third generation technology are currently being developed. The European Telecommunications Standardization Institute has selected UMTS as the standard wireless technology eventually to replace GSM in Europe. The U.K. government has auctioned licenses for third generation public mobile networks, and other European governments are assigning licenses for third generation public mobile networks, to operators so that third generation public mobile networks can be launched in Europe by January 1, 2002. Japan has also adopted UMTS as its third generation standard to replace a variety of existing second generation technologies, and has auctioned third generation licenses for third generation mobile networks to operators so that third generation networks can be launched by the end of the third calendar quarter of 2001.

The United States may adopt CDMA2000 as its third generation standard technology to replace a variety of existing second generation technologies, and is expected to launch third generation networks in 2003. CDMA2000, like UMTS, is based on CDMA (Code Division Multiple Access) technology, one of the wireless technologies currently used in the United States, but UMTS and CDMA2000 are not compatible.

We expect demand for UMTS-based public mobile networks will increase dramatically in 2001 and 2002 as third generation networks are launched in Japan and Europe and will continue

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Strategy Our strategy is to focus on the third generation public mobile market using our experience in GSM, as we believe the third generation public mobile market represents the greatest opportunity for our mobile communications businesses, and to develop our existing secure communications and private mobile radio businesses. We intend to implement our strategy by: • Developing a complete third generation public mobile network offering with special technical features at competitive cost. We will use our experience to develop certain products which, together with equipment sourced from our communications networks business and third parties, will provide our customers with a complete third generation public mobile network offering. • Marketing second generation public mobile network products and upgrades. We intend to market our second generation products and upgrades to establish credibility with operators in the public mobile networks market and to help operators migrate from second generation public mobile networks to third generation public mobile networks. • Broadening our TETRA product offering. We intend to broaden the range of special services our TETRA products offer to increase our private mobile radio market share.

See also ‘‘Risk Factors—Newly identiﬁed, developing and emerging businesses may fail to reach their full potential, adversely affecting our results.’’

Sales, marketing and distribution Our mobile communications business distributes its products and services through direct sales and through third party distributors. Occasionally our secure communications business uses local agents in markets outside the United Kingdom and Italy.

Research and development Our mobile communications business spent £54 million on research and development in the ﬁscal year ended March 31, 2000. Of this amount, £13 million was funded by grants from the Italian government for research in secure communications and £28 million was funded by other customers. We intend to allocate the largest portion of research and development investment to our public mobile networks business for the development of third generation public mobile networks products. We expect that research and development costs to develop third generation public mobile networks products will increase substantially in the next ﬁscal year in preparation for the launch of third generation public mobile networks in Europe by 2002.

Competition The secure communications market is fragmented because of the high level of specialization among industry suppliers and the domination of national champions in the United States and Western Europe. The major competitors in this market are European-based companies BAE Systems, Ericsson Microwave Systems, European Aeronautic Defence and Space Co., Rohde & Schwarz, Tadiran and Thomson-CSF and American-based companies Harris, Raytheon and Rockwell. The principal method of competition is a two step process. The ﬁrst step is to demonstrate compliance with the criteria of the relevant government agency or company. The second step is to submit a competitive bid. Local manufacturing arrangements and price are important factors in the selection process. Increasingly, secure communications products are

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The private mobile radio market is currently dominated by Motorola, followed by Comnet- Ericsson, Matra and Nokia. The principal method of competition is by open bid. The key drivers for competitive positioning are brand strength and organization size, custom-tailored solutions capability, in-country business operations and installed base and pricing. We believe we have an opportunity to compete in this market by developing and marketing our TETRA products. We believe TETRA products have the following competitive advantages: • custom-tailored solutions capability; • cost-effectiveness; • good ﬁt in target vertical markets; and • applications for vertical markets.

The market for public mobile networks is currently dominated by Alcatel, Ericsson, Motorola, Nokia, Nortel and Siemens. As we expect high demand for third generation network equipment, the principal method of competition will be the ability to provide a complete product offering that meets customer requirements. We believe we may have an opportunity to compete in this market by developing third generation technology compliant with UMTS, the new mobile standard for Europe and Japan.

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OUR SYSTEMS BUSINESSES

Our systems businesses are U.S.-based global businesses that supply advanced electronic and information technology systems to customers in more than 100 countries. Our customers include hospitals, major retailers and oil companies, food and beverage companies, pharmaceutical and chemical manufacturers, and companies in the automotive and aviation industries. In addition, as information technology and communications converge, our systems businesses are well- positioned to develop and supply new products and services by linking with other Marconi group businesses. Our systems businesses include medical systems, commerce systems and data systems.

Aggregate sales of all systems’ activities for the fiscal year ended March 31, 2000 were £1,633 million, compared to £1,501 million in our 1999 fiscal year. Systems’ aggregate sales for the fiscal year ended March 31, 2000 represented 30% of the Marconi group’s total sales for the same period (39.6% in 1999).

Our systems businesses are headquartered in Arlington, Virginia.

Products and services

Our systems businesses operate over 25 manufacturing and research facilities in eight countries. Throughout the production process, we seek to minimize costs while adhering to strict quality standards by outsourcing the manufacture of component parts. As a result, most of systems’ manufacturing facilities focus on the assembly and testing of ﬁnal products.

Medical systems

Medical systems offers competitive product lines in computed tomography (CT) scanners, magnetic resonance imaging (MRI) systems and nuclear cameras under the brand names ‘‘Marconi’’ and ‘‘Picker’’. In addition, medical systems is North America’s largest supplier of radiological supplies. Medical systems also provides radiology information systems.

• CT scanners. CT scanners use X-rays from which computer-generated images are created. The images show organs in a cross-sectional plane, providing information that in the past could only be obtained by exploratory surgery. Among medical systems’ key products is the Mx8000 CT scanner, an advanced multi-slice scanner, which serves as a stand-alone diagnostic tool and at the heart of an interventional suite that combines CT, X-ray and image-guided tools. This suite enables physicians to examine a patient from head to toe in less than 60 seconds and treat trauma, stroke, heart attack and other ailments in a single episode of care. We have a 21% share of the CT market (TMG 1999 report).

• Nuclear cameras. Nuclear cameras are used to track injected radioactive trace isotopes as they travel through the body to help physicians determine how the body is functioning. IRIX is medical systems’ brand name for one of its nuclear cameras. It helps physicians improve the early detection, diagnosis and localized treatment of cancer. We have a 15% share of the nuclear camera market (Frost & Sullivan 1999 report).

• MRI systems. MRI systems use powerful magnets and radio frequency systems to map the distribution of hydrogen molecules in the body to produce three dimensional computer-generated images of the body. With MRI, it is possible to see with clarity the

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brain and nerves of the spinal cord, making MRI the preferred method for imaging the brain and spine. Medical systems recently introduced the 1.5T Eclipse system, an optical tracking applications suite that enhances the physician’s view during a procedure by providing a link between the image on the monitor and the instrument in the physician’s hand. This coordination enables minimally invasive procedures to be planned and performed with precision and safety. We have a 10% share of the MRI market (TMG 1999 report). • Healthcare Information Systems. With radiology information systems, medical images are created digitally, thus eliminating the need for ﬁlm and allowing physicians to store images and view them from any location. Healthcare Information Systems is an emerging business being developed from radiology information systems. Healthcare Information Systems will store patient information electronically and connect hospitals with remote facilities to enable healthcare professionals and patients to view health records from either location using broadband, or very high capacity, communications systems and ﬁlmless imaging equipment.

Commerce systems Commerce systems is the leading manufacturer and distributor of fuel dispensing equipment in the United States, the world’s largest market for such products. We offer our products under the brand name ‘‘Gilbarco’’. In addition to petroleum equipment, commerce systems also provides retail automation systems and knowledge systems. It is building on its existing installed base to address retailers’ growing need for remote site monitoring services and information management software as well as electronic content and application services. • Retail automation. This business provides systems for attended and unattended points of sale for retailers for in-store and outdoor applications. Its in-store cashiers’ systems include its G-SITE system, a point-of-sale system that integrates credit card processing, pump control and cash register functions which provides an integrated system for petroleum retail. Its Passport system is a PC-based open architecture point-of-sale system for convenience store, grocery and high volume retail locations for fuel and non-fuel applications. Its outdoor products include its e-CRIND system, which combines internet technology and multimedia features to allow advertising and promotions at the pump while progressing credit card transactions, and its TRIND system, which is a wireless electronic customer relationship management system that recognizes customers as they drive on to a site using radio frequency technology and allows the consumer to buy fuel even more quickly without inserting a credit card. G-SITE, Passport, e-CRIND and TRIND are Gilbarco brand names for important product lines. • Petroleum equipment. This business provides fuel pumps and dispensers that incorporate many enhanced automation features. Its major product line has been the Advantage, a multi-product dispenser introduced in 1990. It also manufactures the Dimension, a multi-product dispenser exported to South America and Europe, and the Legacy, a line of single and dual dispenser electronic pumps. It also remanufactures dispensers. Its latest dispensers, Encore and Eclipse, will replace the Advantage product line. Encore and Eclipse were designed after a consumer research campaign to provide the greatest possible ease of use and allow for customers to select merchandise and other screen content material over the internet. Advantage, Dimension, Legacy, Encore and Eclipse are Gilbarco brand names for important product lines. • Marconi Online. This business was launched in May 2000 to expand our presence in retail automation systems. We have entered into a ﬁve-year alliance under which we

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expect Coca-Cola and its bottlers to invest $100 million in our intelligent vending technology to link more than 500,000 soft drink vending machines worldwide.

Data systems Data systems designs, develops, manufactures, distributes, sells and supports industrial, graphic and bar code inkjet printers, laser coding systems and inks and fluids under the brand names ‘‘Videojet’’, ‘‘Marsh’’ and ‘‘Cheshire’’. We are a leader in the industrial product marking and coding systems market. Additionally, our data systems business intends to provide an expanded range of services through its InfoChain business which offers products for supply chain management. • Digital imaging systems. This business provides inkjet printing and laser imaging systems that apply large, small and micro high resolution images on many different types of materials and surfaces. These systems are used on a wide variety of different products, such as food and beverage containers, automotive and aerospace parts, cosmetics, electronic components and cables, pharmaceuticals and personal care items as well as printed materials. Inkjet printing products include industrial, graphics and bar code printers. Excel, our high-end fully-featured model, and the Videojet 37 series, our entry-level model which supports many foreign languages for use in lesser developed countries, are used in industrial applications. PrintPro is a graphics printer used for promotional mail. Overture is a bar coding printer for cartons and packages. Excel and PrintPro are Videojet brands and Overture is a Marsh brand. Laser imaging technology applies energy, rather than ink, which etches surfaces to create permanent markings. Our laser printer is LaserPro DM, a Videojet brand. • Digital imaging supplies. This business offers a broad range of inks and fluids that are compatible with many printing systems and product surfaces and that provide customers with consistent operation in challenging imaging and ambient environments. For example, we supply inks which are suitable for printing on extruded plastic as it exits a heat-forming tunnel, coding on ice cream packages as they enter the freezing chamber and printing on cold, wet substrate moving at high speeds (like beverage bottles on a filling line). InkSource is our global ink brand. • InfoChain. InfoChain is an emerging business which intends to provide a range of products and services, including data application, automated data capture and internet- based services, that help customers manage their supply chains. Supply chain management systems monitor and manage goods and provide real-time information concerning the status of products as they move from suppliers, manufacturers and distributors to end consumers.

Overview of systems’ markets

Medical diagnostic imaging technologies and market

The main imaging technologies used in the medical diagnostic imaging market are computed tomography (CT) scanners, which create computer-generated images from X-rays, magnetic resonance imaging (MRI) systems, which create computer-generated images from mapping hydrogen molecules in the body, nuclear cameras, which create computer-generated images from tracking radiation emitted from injected trace isotopes, X-ray and ultrasound. Radiology information systems tie these technologies to the healthcare services industry. We focus on CT, MRI, nuclear medicine and radiology information systems because they have higher proﬁt

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We estimate that the global market for medical imaging equipment (excluding ultrasound and X-ray) will be in excess of $8 billion in 2000. Of that total, North America will account for approximately 51%, the European Union will account for approximately 18% and Japan will account for approximately 19%.

We believe there are four major trends driving growth in the medical imaging market: • Convergence of diagnostic and healthcare information systems. The growth of new information technologies and deployment of broadband, or very high capacity, voice, video and data networks offer healthcare providers greater efﬁciencies and new revenue streams in healthcare information management. The availability of high-speed communications networks is driving demand for applications that unite information streams such as diagnostic images, patient records and billing data and more effectively create, carry and store information. This trend is likely to accelerate ﬁrst in North America and then in the United Kingdom, Europe and Asia, following the anticipated build-out of broadband networks. • Aging populations in developed countries. According to the U.S. Bureau of the Census, International Database, 43.1% of the U.S. population, 49.7% of Germany’s population and 51.0% of Japan’s population is 40 years of age or older. Because medical imaging can be used for the early diagnosis and treatment of medical conditions and people require more medical care as they grow older, use of medical imaging equipment is likely to increase in the major established markets. As usage reaches capacity limits, we expect demand for new equipment to increase. • Increasing standards of living in developing countries. Standards of living in developing countries are rising, giving populations in these countries wider access to health care. We believe that as standards of living continue to rise, demand for medical imaging equipment will also continue to rise. • Advances in computing and communication technology. The focus of research and development in the medical imaging market is not on basic sensing technologies, but rather on the computer hardware and software to analyze sensing data and integrate sensing data from a variety of source technologies. New applications and enhancements of medical imaging are aimed primarily at improving productivity and efficiency to allow medical professionals to improve patient care better through earlier and more accurate diagnoses. This continual improvement in medical imaging equipment and the gradual obsolescence of the installed base is likely to create demand for new medical imaging equipment.

Retail automation and petroleum dispensing markets We produce products for the retail industry that provide payment systems, inventory control, forecourt device control, merchandising information and business management control. Dispensers used for the measurement and dispensing of fuel for the automobile and truck population use high accuracy low volume meters with sophisticated valve control to provide blended products. Pollution control recovers harmful vapors that may escape using patented active vapor recovery technology.

Based on our internal estimates, the retailing fueling market is approximately $2.6 billion worldwide of which approximately 42% is in North America and approximately 29% is in Europe. An additional $2.4 billion is estimated for retail automation products outside retail

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Variable imaging market for data systems The variable imaging marketplace includes a range of products and services that generate human and machine readable codes on items to manage and track their use and to generate and manage personalized documents such as promotional mail. Our data systems business serves primarily the industrial product and package marking market, which we estimate was approximately $1.3 billion in 1999 and will grow annually at a rate of 6% from 1999 to 2002. Our data systems business also markets imaging products in the graphic arts, mailing and commercial printing markets and in the related area of postal encoding systems, segments which are not independently monitored for growth and performance. We believe the main drivers of growth in the variable imaging market are: • Product identiﬁcation. Quality control legislation and concern for the safety of certain consumer products such as food, recreational items and pharmaceuticals has resulted in increasing demand for data imaging on a variety of surfaces. Products such as meat and dairy items under the control of government agencies like the U.S. Department of Agriculture require markings that indicate the time the goods were processed or the time when freshness can no longer be assured. Food producers and manufacturers in the United States, Europe and increasingly Asia require identiﬁcation or similar consumer information in order to develop business in export markets where these markings are required by law.

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• Customized imaging. As new packaging processes and materials are introduced, the opportunity to provide a range of custom imaging solutions has accelerated. Customers seek imaging products that meet production environment requirements as well as image durability and readability. The advent of laser imaging, which generates a high energy light source to etch surfaces, has provided many customers, particularly those using high density plastics or paperboard, with a flexible, permanent marking system. Inkjet fluids are also taking on new attributes that enhance not only their effectiveness but their complementary impact on products. Using inkjet technology, images can be applied in colors or with characteristics that can match or contrast with the manufacturer’s marking to draw attention to code or conceal them, depending on the customer’s requirements. Capabilities range from inks that allow automotive and aerospace users to meet durability requirements in harsh environments and can print on unusual surfaces to fluids that can be used in contact with human consumable items such as prepared foods and medicines. • Service-based sales relationships. Customers in the variable imaging market have traditionally acquired equipment from manufacturers through large, infrequent, outright purchases. Additional requirements such as supplies, parts and services are then procured as needed, throughout the asset life of the equipment purchase and beyond, but not necessarily from the original equipment supplier. Customers in this market are now looking for ways to combine the equipment and additional imaging requirements in a complete and flexible service-based relationship. This approach has the benefits to the customer of not only reducing burden on purchasing and production management, but also equipment downtime, and providing access to new technology and capability without large capital investment.

Supply chain logistics management market Companies are increasingly demanding supply chain management systems to improve competitiveness and proﬁtability. AMR Research predicts that the overall supply chain management market will grow 42% to $5.4 billion in 2000. AMR Research also predicts that the supply chain management market will continue to grow over the next ﬁve years at a compound annual growth rate of 40%, representing a $20.3 billion opportunity by the end of 2004 (The Enterprise Applications Report 1999–2000, Market and Analysis Review Series 2000 AMR Research, Inc.).

Strategy • Expand into related applications markets. We intend to build on our large installed base and expand our product offerings in the information management, systems integration, service and automated identiﬁcation markets. • medical systems intends to develop its Healthcare Information Systems business and offer patients and healthcare professionals the ability to access and view medical records from any location, whether within a single department or hospital, across a hospital network or via the internet. • commerce systems intends to develop its Marconi Online business and offer retailers point of sale data management services, and it has recently entered into a contract with Coca-Cola, one of the world’s largest users of vending machines, to provide data management services.

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• data systems intends to assist customers in converting from analog printing to digital imaging techniques, targeting commercial print applications including wide format graphics, tag, ticker and cards and digital imaging of paperboard packaging and displays. It is also actively developing its InfoChain business, an emerging services provider that offers supply chain management systems.

• Pursue organic growth opportunities. We intend to expand sales through continued new product development of new products and by increasing the level of software systems integration and service in our product offerings.

• medical systems plans to offer innovative solutions to its customers, such as improved computed tomography (CT) scanners, which create computer-generated images from X-rays, magnetic resonance imaging, (MRI) systems, which create computer-generated images from mapping hydrogen molecules in the body, and nuclear cameras, which create computer-generated images from tracking radiation emitted from injected trace isotopes, to enable quicker and more accurate diagnoses.

• commerce systems is introducing new dispensers that are capable of performing innovative tasks such as handling new modes of payment at the pump, reading bar codes, generating coupons and accessing the internet.

• data systems has a number of technology developments underway in the areas of coding, marking and addressing to increase the use of inkjet and laser imaging, and plans to enhance its sales support and integration services through its e-commerce web site.

• Expand our international market positions. We intend to build on our installed base to enhance our position in international and developing markets.

• medical systems, which already sells its products in over 100 countries, will expand its international presence by selling its products and services in developing countries where demand for improved health care is increasing.

• commerce systems, which also sells its products in over 100 countries, has expanded its presence in and intends to further expand in Latin America and the Asia Paciﬁc region.

• data systems, which sells its products in over 65 countries, intends to broaden its distribution in Asia and increase its market share in Europe and the Middle East.

• Develop and market state-of-the-art technologies. We intend to bring state-of-the-art technologies to market by drawing upon our resources, knowledge and proprietary intellectual property.

• medical systems intends to focus on improving the technology for CT, MRI and nuclear medicine equipment to offer quicker and more accurate diagnoses.

• commerce systems intends to focus on developing information intensive new products such as back-ofﬁce and home-ofﬁce station management, accounting and reporting packages to offer retailers point of sale data management systems.

• data systems intends to focus on developing innovative ﬂuids and expanding the range and capability of its coding and imaging products to meet the needs of customers converting from analog to digital printing techniques.

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See also ‘‘Risk Factors—Newly identiﬁed, developing and emerging businesses may fail to reach their full potential, adversely affecting our results.’’

Customers Our systems businesses apply advanced electronic and information technology solutions to business and institutional customers in over 100 countries. Our customers include hospitals, major retailers and oil companies, food and beverage companies, pharmaceutical and chemical manufacturers and the automotive and aviation industries. None of our customers accounts for 5% or more of Marconi plc’s revenues for the ﬁscal year ended March 31, 2000.

Medical systems has a global customer base, with customers in over 100 countries. In the United States, medical systems has established relationships with several multi-hospital systems such as Tenet, community health systems, group purchasing organizations such as AmeriNet, one of the largest group purchasing organizations in the United States, and the federal government and its agencies, including the U.S. Department of Veterans Affairs and the U.S. Department of Defense. Medical systems’ key customers include private university hospitals in the United States, including the University of Utah, the University of Maryland Medical Center, University Hospital in Cleveland, Ohio, University of Pennsylvania Hospital and the Brooke Army Medical Center, as well as St. James Leeds in the United Kingdom. Outside the United States, medical systems is a supplier to governments and their healthcare agencies and has established relationships with many multi-hospital systems and group purchasing organizations. We will continue to target these types of customers.

Commerce systems has customers in over 100 countries worldwide. Its customers include multinational and major oil companies, independent petroleum retailers and a growing list of new entrants into the petroleum retailing market such as hypermarkets, quick service restaurants, discount chains and others. Its top ten direct customers, all of which are oil companies, typically account for approximately 25% of its revenues. We will continue to target these types of customers. Data systems has customers for digital imaging products in over 65 countries worldwide and an installed base of over 90,000 units. Over 49% of its sales are made in the United States. Digital imaging customers include postal companies and consumer and industrial producers such as food packaging companies, beverage companies, household goods providers, pharmaceutical and medical supply companies, chemical manufacturers, and electronics, automotive and aviation companies, including Siemens, Japan Ministry of Post and Telecommunications, Toshiba, Coca-Cola, Unilever, Standard Brands, PepsiCo and Anheuser-Busch. The InfoChain business targets as customers many Fortune 500 companies already served by data systems, in addition to trucking companies, distribution and service ﬂeets, shipping and transportation companies and ﬁnancial institutions such as banks and insurance companies. We will continue to target these types of customers.

Sales, marketing and distribution Our systems businesses distribute their products either through direct sales, third party distributors or both, depending on the product and the location of the customer.

Approximately 70% of medical systems’ sales are direct sales to customers. Medical systems also uses distributors in remote areas.

Approximately 60% of commerce systems’ sales are typically made through distributors. Data systems has a large worldwide network including 20 direct operations and more than 120 distributors. All direct and indirect locations provide sales, support and service with direct

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Research and development Our systems businesses spent approximately £73 million on research and development in the ﬁscal year ended March 31, 2000. Systems allocates the largest portion of research and development investment to medical systems. Medical systems spent $68.8 million, or 10.1% of equipment sales, on research and development for the year ending March 31, 2000. Substantially all of systems’ research and development is company funded.

Competition Our systems businesses compete in a number of different markets. Although all of the markets are highly competitive, the basis and nature of competition vary signiﬁcantly among the businesses. Despite these differences, technological competence and innovation, excellence in design, high product performance, quality of service and pricing are among the factors affecting competition. Systems seeks to differentiate itself from competition by increasing the level of software, systems integration and service in its product offerings. We expect that this differentiation will increase as medical systems develops its Health Care Information Systems business, commerce systems develops its Marconi Online business and data systems develops its InfoChain business. Each of these businesses plans to use the skills and experience of our communications networks and communications services businesses.

The medical diagnostic imaging market in which medical systems competes is led by a few large companies, including, in addition to medical systems, GE, Siemens, Philips, Hitachi and Toshiba. Principal methods of competition are technological advancement, sales and service market coverage and availability of ﬁnancing and service. We believe medical systems has a competitive position due to its broad and technologically advanced product line, its service capabilities and its 86-year history in the industry.

The retail automation market and petroleum dispensing market in which commerce systems competes are highly competitive. Recent consolidation in the industry has further intensified this competition. Competitors in the retail automation market include Radiant Systems, Sun Systems, Production Engineering Company, Wincorp, Bullock, Autogas, Canmax, Prodata, Pinnacle, Comdata, Veriphone, PDI and Nitsuko. These firms vary greatly in both their geographic scope and the range of products they offer. Some, like Canmax, are custom software developers of hardware platforms supplied by others. Principal methods of competition are product functionality and reliability, service and support coverage and price. Commerce systems’ principal competitors in the petroleum dispensing market, Tokheim Corporation and the Wayne Division of Halliburton, are both global market participants with broad product lines. In addition, there is a significant number of small regional or national companies supplying these products to more geographically focused markets. Most notable of these is Tatsuno, a Japanese company with an established in-country presence as well as an aggressive export program to the Pacific Rim and elsewhere in the world. We believe that commerce systems is well positioned as a market leader due to its technological strengths, relationships with key customers, worldwide distribution network and broad product range.

The variable imaging market in which data systems competes is highly competitive. Principal competitors in the area of inkjet printing technology include Domino Printing Sciences,

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Imaje (a division of Dover International), Willett International, Markem Corporation and Scitex Digital Printing. Domino Printing Sciences is also a principal competitor in the area of laser imaging technology. All of data systems’ principal competitors in the variable imaging market have a global presence and have direct sales channels or indirect distribution. Principal methods of competition are product reliability, print quality, price, the ability to meet customer application requirements such as harsh operating environments or unique substrates or surfaces, and breadth of product line as customers generally prefer to deal with a common supplier for multiple applications. The supply chain management systems market is still emerging and there are no dominant competitors. We anticipate our likely competitors in this market will be IBM (e-business), Symbol Technologies (data acquisition) and the major accounting ﬁrms that have business consulting groups. We believe data systems enjoys a competitive position based on its worldwide distribution network, wide product range of equipment and large existing customer base.

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OUR OTHER BUSINESSES

In addition to our principal businesses, we invest in technology start-up and early stage businesses that may have growth potential or technology that is complementary to our principal businesses. We also retain, with a view to development or disposal, other businesses that may not ﬁt in our business model. We have categorized these companies into three groups:

Emerging technologies

Emerging technology businesses are those which we believe have the potential to support the strategic plans of our core businesses by widening their range of technologies, accelerating the development cycles of new products and services or otherwise generating attractive ﬁnancial returns. We will develop these technology activities by investing in external companies through our newly formed Marconi Ventures (a capital fund to which we have initially allocated $100 million) and by identifying internal projects which could be developed as stand-alone businesses. Where appropriate, we intend to invest alongside other Marconi group businesses with related or complementary strategies. Our strategy is to continue to develop these new activities and ultimately leverage them with one of our core business divisions or otherwise realize their value to the Marconi group. Early stage businesses in which we have invested include the following:

• Xcert. We own a 25% stake in Xcert, a Delaware company that provides digital certiﬁcate software products and services for the internet and offers solutions to the security issues of internet communications and on-line transactions.

• Ten Square. We own a 10% stake in Ten Square (formerly known as iAMnetworks), which develops and delivers digital media promotions, entertainment and community services messages at point-of-sale devices worldwide, securely over the internet. We invested in Ten Square jointly with our commerce systems business.

• Viewlocity. We own a 0.9% stake in Viewlocity, a global provider of e-business integration software and services that enable trading communities and their members to conduct business-to-business e-commerce in real time. Viewlocity creates trading community infrastructure solutions that allow integration and synchronization among multiple software applications, databases and communication protocols among trading partners.

See also ‘‘Risk Factors—Newly identiﬁed, developing and emergent businesses may fail to reach their full potential, adversely affecting our results.’’

Development businesses

We are continually reviewing our development businesses to determine which we will develop as emerging technologies and which we will dispose of as non-core businesses. We currently identify the following businesses as development businesses:

• Fibreway. This business, which is owned 90% by us and 10% by British Waterways, has an installed ﬁber optic communications backbone in the United Kingdom which it leases to telecommunications operators and large corporations to provide broadband, or very high capacity, communication capability. In November 1999, in conjunction with our communications services business, we announced a strategic partnership with Atlantic Telecom to provide dedicated ﬁber trunk for Atlantic Telecom to extend its

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regional coverage in Scotland to a U.K. national service and eventually an international service when Fibreway completes the links to the transatlantic connection and European continental connections across the English Channel and the North Sea. In May 2000 we announced that we, together with British Waterways, were examining the strategic options for Fibreway and that we were considering some form of separation of Fibreway later in 2000. • GPT Payphones. This company supplies a range of modular payphones for outdoor and indoor applications and has an installed base over 800,000 units. GPT Payphones is focusing on developing a new range of payphones which have internet capability. • Marconi Software Solutions. This business provides systems integration and application development capabilities using Oracle, web-based, Java, C++ and other software language support. Marconi Software Solutions works on projects within the Marconi group and externally. It is actively involved with several projects throughout the Marconi group in the capacity of project management and business consultancy. An example is the support for InfoChain, a data systems business, in the development of a database infrastructure. It is also involved in development work for novel solutions like internet protocol (IP) billing reports for use in the telecommunications market. Its competitors include information technology service companies IBM, EDS and Andersen Consulting. • Marconi Applied Technologies. This business designs, manufactures and supplies electronic components and systems for a range of sectors including communications, industrial, medical and science, military, safety and security. Its products include free electron tube technology for radio-frequency and microwave components and circuits, as well as solid state charge coupled devices, solar cells and chemical sensors. Its main competitors are Thompson Tube Electronique, Communications Power Industries and Litton Electron Devices. The competition is more fragmented in the solid state market than in the market for tube devices. Marconi Applied Technologies does not face a single or concentrated group of competitors.

Non-core businesses Our non-core businesses are all being managed for value rather than growth, as they do not fit Marconi’s business model. We are continuing to assess ways in which we can maximize the value of the Marconi group’s current interest, which may involve further disposals in the near term. The discussion below includes businesses we sold since the end of fiscal 2000 as they remain in our financial statements for that period. We currently identify the following businesses as non-core businesses: • Woods Air Movement. This business manufactures a wide range of fans and air movement equipment. We announced in November 1999 our intention to sell this company, and the sale process is currently underway. • Avery Berkel. This business manufactures weighing and food processing products. We sold Avery Berkel to Weigh-Tronix in June 2000 for £103 million (subject to adjustments), payable in cash and notes plus warrants to subscribe for 5% of the equity of Weigh-Tronix. • Comstar. This business is a 50-50 joint venture formed in 1989 with MGTS (Moscow’s telephone network operator). Comstar provides international and inter-city telecommunications services primarily to business customers in Russia. In June 2000 we entered into an agreement to sell our interest in this business to Metromedia International Group.

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• Buzton. This business is a joint venture formed in 1994 to provide communications services primarily to business customers in Tashkent, Uzbekistan. We hold a 50% stake, and two Uzbekistan state telecommunications agencies, TCIL and TCN, each hold a 25% stake. • General Domestic Appliances (GDA). This company is a 50-50 joint venture formed in 1989 with GE. It manufactures, sells and services domestic appliances, including washing machines and dryers, electric and gas cookers, refrigerators and dishwashers. GDA’s brands include Hotpoint, Creda Cannon, Redring and Xpelair. GDA is the leading supplier of white goods in the United Kingdom. • Alstom. We currently hold a 24% stake in Alstom with registration rights for our shares. Alstom is a French-based company that designs, manufactures and commissions equipment and systems for the power generation and transmission industries and for railway support and industry. Alstom is the new holding company of the former GEC Alsthom group, which was a 50-50 joint venture with Alcatel until June 1998 when both we and Alcatel reduced our respective stakes to 24% each in Alstom. • Marconi property. This business provides property advice to Marconi companies worldwide and manages a number of U.K. properties which are held for income, development or disposal.

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FACILITIES

Our headquarters and registered ofﬁce are located at One Bruton Street, London, W1J 6AQ, England.

We have production facilities in the United Kingdom, continental Europe, North America, Africa, Asia and Australasia. We own or lease all of our principal manufacturing facilities. Our principal facilities are as follows:

Owned property Principal use Building or site area

Highland Heights Medical systems 755,000 sq. ft. on 58.78 acres (Cleveland), Ohio office, assembly, distribution (part under construction) and research and development Greensboro, North Commerce systems 598,000 sq. ft. on 61.2 acres Carolina factory, offices and warehouse Coventry, England Communications networks 861,100 sq. ft. on 150 acres and communications services offices, research and development Liverpool, England Communications networks 608,200 sq. ft. on 22.5 acres research and development and manufacturing Lorain (Cleveland), Ohio Communications networks 333,570 sq. ft. in five separate manufacturing, engineering buildings and sites in close and administration offices proximity Warrendale (Pittsburgh), Communications networks 464,396 sq. ft. on 101.38 acres Pennsylvania offices, research and development and manufacturing

Leased property Term Principal use Building or site area

Wood Dale, Illinois Lease to November 30, Data systems 250,355 sq. ft. on 2011 ofﬁce, warehouse and 15.28 acres laboratories

London, England Lease to June 23, 2018 Marconi headquarters, 43,820 sq. ft. ofﬁces

We announced in May 2000 our plan to build a new facility in Ansty, England, to replace our existing facility in central Coventry, England. Other than this, we believe that our principal manufacturing facilities are suitable and adequate for their use. Use of these facilities may vary with economic and other business conditions, but none of the principal plants is idle.

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EMPLOYEES

At March 31, 2000, we had 49,363 full-time employees worldwide (excluding share of employees in joint ventures). The following table shows our average number of full-time employees by business and geographic location for the periods indicated (excluding employees in discontinued operations);

Year ended March 31, 1999 2000 (thousands) Employees by business Communications businesses ...... 17 28 Systems businesses ...... 10 11 Other ...... 10 10 37 49 Employees by location United Kingdom...... 17 17 The Americas ...... 717 Rest of Europe ...... 78 Africa, Asia and Australasia ...... 67 37 49

Membership of our employees in trade unions varies from country to country, and we have entered into various collective bargaining agreements. It is our practice to renew or replace our various labor arrangements relating to continuing operations as and when they expire and we are not aware of any material arrangements whose expiry is pending and which is not expected to be satisfactorily renewed or replaced in a timely manner. We have not experienced any material work stoppages or strikes in the past three ﬁscal years. We believe that relations with our employees are generally good.

We require a sufficient number of highly skilled technology specialists. The supply of such employees is highly limited, and competition to hire and retain them is consequently and increasingly intense. Competition raises the cost of hiring and retaining these employees and increases employee turnover as competitors seek to lure away employees with particularly rare or sought-after skills. We are continually seeking to recruit skilled high-technology workers and believe that we offer compensation, benefits and opportunities for development and advancement which will attract and retain a sufficient number of such employees.

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INTELLECTUAL PROPERTY

We own a number of patents, trademarks and registered trademarks throughout the world. We have a number of patent and know-how (and other) licenses from third parties relating to products and methods of manufacturing products. We have also granted patent and know-how (and other) licenses to third parties.

Because we develop some of our technologies through customer-funded research or joint ventures, we may not always retain proprietary rights to the products we develop. Generally speaking, our joint venture agreements provide that proprietary technologies developed in joint ventures will remain the property of the entity that develops them. However, these agreements typically also give us the non-exclusive right, subject to non-competition provisions, to use and commercially exploit such technologies for the duration of the joint venture.

We rely on patents, trademarks, trade secrets, copyrights, conﬁdentiality provisions and licensing agreements to establish and protect our proprietary technology and to protect against claims from others. Infringement claims have been and may continue to be asserted against us or against our customers in connection with their use of our systems and products. We cannot ensure the outcome of any such claims and, should litigation arise, such litigation could be costly and time-consuming to resolve and could result in the suspension of the manufacture of the products utilizing the relevant intellectual property. In each case, our operating results and ﬁnancial condition could be materially affected. See ‘‘Legal Proceedings’’.

The ‘‘Marconi’’ trademark used by many of our businesses is identiﬁed with and important to the sale of our products and services. It is either registered or the subject of an application for registration in approximately 120 territories, including all of those territories which we currently view as being our major trading territories. We do not believe that any patent, trademark, registered trademark, license or other intellectual property right other than the ‘‘Marconi’’ trademark is material, by itself, to our business.

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ENVIRONMENTAL AND OTHER REGULATION

Environmental, health and safety regulation We are subject to increasingly stringent regulation under various U.K., U.S., EU and other national and local laws and regulations relating to employee safety and health, and to the handling, and emission into the environment, of various substances that our facilities use.

In the United Kingdom, the United States and elsewhere, we are subject to environmental laws governing the cleanup of soil and groundwater contamination. These laws may impose strict, joint and several, and retroactive liability on us for the costs of investigating and cleaning up releases of hazardous materials at sites currently or formerly owned, operated or leased by us. This liability may also, in certain circumstances, include the cost of cleaning up historical contamination, whether or not caused by us. Several of our facilities are located in areas in which industrial activities have been ongoing for many years.

We are currently conducting investigation and cleanup of approximately 20 sites, principally in the United States, the United Kingdom, the Netherlands and Germany, either pursuant to a directive from the appropriate governmental authority, as part of a group of named potentially responsible parties, or voluntarily, in connection with the acquisition or disposition of property. Based on the estimates of our consultants and our past experience with comparable investigation and remediation activities, we do not believe that the costs associated with any of these activities will, either individually or in the aggregate, have a material adverse effect on our ﬁnancial condition or results of operations.

The European Commission has issued proposals for two directives which, if implemented, will require member states of the EU to meet certain targets of collection, re-use and recovery of waste electrical and electronic equipment. In the United Kingdom it is likely that these obligations would be achieved through legislation placing the responsibility for meeting these obligations on the producers of the equipment. Producers may also be required to phase out certain hazardous materials from the equipment. Other member states of the EU are likely to implement similar requirements. It is possible that this proposed legislation, if implemented, would signiﬁcantly increase costs to producers of electrical and electronic equipment.

Our facilities are subject to regular internal environmental, health and safety audits governing all aspects of employee protection, materials handling and environmental compliance. We have not incurred material capital expenditures for environmental, health or safety matters during the past three years, nor do we anticipate having to incur material capital expenditures during the current or the succeeding ﬁscal year. We believe that any non-compliance or liability under current environmental laws and regulations will not have a material adverse effect on our ﬁnancial condition or results of operations as a whole.

Other government regulation Our products are subject to industry-speciﬁc government regulation and legislation in the United States, the EU and throughout the world: • our communications networks business must comply with U.S. Federal Communication Commission requirements and regulations governing communications products sold in the United States; • our data systems business must comply with the U.S. Food and Drug Administration regulation governing food additives and colorants for ink products;

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• our medical systems business is subject to the U.S. Food and Drug Administration’s ‘‘Quality Systems Regulations for Medical Devices’’ which governs the manufacturing, design control and testing of health care equipment, including medical imaging systems; and • our commerce systems business is subject to regulations of the U.S. National Institute of Standards and Technology and the U.S. National Conference on Weights and Measures covering the design and control of liquid measuring devices and national and international standards governing both the commercial and environmental aspects of power operating petroleum product dispensing devices.

In each of these industries, our businesses would suffer if they failed to obtain or lost the certifications, clearances and authorizations required to participate in new or existing projects. Further, we could be subject to fines, criminal sanctions or the revocation of important licenses and certifications if we fail to comply with government regulations. While we believe that our systems of obtaining and maintaining industry and regulatory certification and compliance are adequate, new and more stringent government regulation or industry oversight might make compliance more difficult or more costly and have an adverse impact on our businesses.

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LEGAL PROCEEDINGS We are not and have not been engaged in, nor (so far as we are aware) do we have pending or threatened by or against us, any legal or arbitration proceedings which may have or have had in the recent past (including at least the 12 months immediately preceding the date of this document) a signiﬁcant effect on our ﬁnancial position as a whole, except as set out below: • Fore Systems, together with six of its former directors and officers, are defendants in a consolidated class action lawsuit filed in the United States District Court for the Western District of Pennsylvania on behalf of a putative class of persons (other than defendants and their respective affiliates) who purchased Fore Systems securities during the period July 19, 1996 through April 1, 1997, inclusive. Plaintiffs allege that, during this period, Fore Systems misrepresented material facts relating to its results of operations, competitive position and future prospects and concealed its alleged deterioration, declining growth and inability to compete successfully until the preliminary release of its projected results of operations for the fiscal year ended March 31, 1997. Plaintiffs also allege that Fore Systems’ financial statements for the fiscal quarters ended September 30, and December 31, 1996 had improperly recognized revenues on sales to certain customers. Plaintiffs seek unspecified compensatory damages, counsel and expert fees and other costs of suit and unspecified relief. Defendants have denied all allegations of wrongdoing. Discovery in this case closed on August 14, 2000. No date has been set for trial. • Fore Systems is a defendant in a lawsuit filed by Bell Communications Research, Inc.

(formerly known as Bellcore, now named Tel▲cordia Technologies) on October 14, 1998 in the United States District Court for the District of Delaware. Tel▲cordia alleges that Fore Systems has infringed and continues to infringe four patents owned by Tel▲cordia, and seeks unspecified damages for past infringement and an injunction against future infringement. Fore Systems has denied infringement and asserted the affirmative defenses of invalidity, unenforceability, laches, equitable estoppel, implied license, misuse and unclean hands. In addition, Fore Systems has counterclaimed for a declaratory judgment on non-infringement, invalidity, unenforceability, laches, equitable estoppel, implied license, misuse, and unclean hands and asserted affirmative claims seeking damages for reformation of contract based on fraud, breach of the covenant of good faith and fair dealing, fraud, negligent misrepresentation, and common law unfair business practices and competition. Discovery in

this case has closed. ▲The court denied summary judgment motions filed by both of the parties. The trial for the case has been postponed indefinitely pending the resolution of

Tel▲cordia’s motion requesting certification of a number of claim construction issues for appeal. • Fore Systems is a defendant in a second lawsuit ﬁled by Tel▲cordia on June 8, 1999 in the United States District Court for the District of Delaware. Tel▲cordia’s second lawsuit alleges that Fore Systems has infringed two additional Tel▲cordia patents. Fore Systems has denied infringement and asserted the afﬁrmative defenses of invalidity, unenforceability, laches, equitable estoppel, implied license, misuse and unclean hands. In addition, Fore Systems has counterclaimed for a declaratory judgment on the issues of

non-infringement, invalidity and unenforceability and has alleged that Tel▲cordia infringed one of Fore Systems’ patents. Discovery in this case has closed. The plaintiff has filed summary judgment motions which are pending before the court. The case has been scheduled for trial in November 2000. • Fore Systems, Marconi Corporation plc and 13 persons who were then directors and/or senior executives of Fore Systems are defendants in a consolidated lawsuit filed in the United States District Court for the Western District of Pennsylvania on behalf of the public stockholders of Fore Systems (other than the defendants and their respective affiliates) relating to Marconi Corporation plc’s tender offer for Fore Systems’ shares and the treatment afforded the individual defendants’ options in that tender offer and the

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related merger transaction. Plaintiffs allege that Fore Systems and the individual defendants made inadequate disclosures concerning the options and the terms of the merger in Fore Systems’ Schedule 14D-9 and assert claims in relation to the fairness of the merger consideration and that the individual defendants breached their fiduciary duty for their alleged actions relating to the grant of options and the negotiation and disclosure of the terms of the merger. Plaintiffs further allege that Marconi Corporation plc, as part of the tender offer, agreed to cash out unvested options held by the individual defendants and that such agreement constituted (1) additional consideration in violation of SEC Rule 14d-10 under the U.S. Securities Exchange Act of 1934 and (2) a ‘‘side purchase’’ in violation of SEC Rule 10b-13 under the Exchange Act. Plaintiffs seek class certification, an award of damages, costs of suit, including attorneys’ fees and experts’ fees and other disbursements, and other unspecified relief. On March 21, 2000, the court denied defendants’ motions to dismiss. The court has set a discovery deadline of December 31, 2000. No date has been set for trial.

We intend to defend all claims vigorously. While we believe we have meritorious defenses, the duration and outcome of the litigation are not predictable at this point.

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MANAGEMENT

The following table sets forth certain information regarding the directors of Marconi Corporation plc:

Name Age Title Lord Simpson of Dunkeld ...... 58 Director John Charles Mayo, CBE ...... 44 Director Robert Ian Meakin ...... 51 Director

The directors in the table above also act as directors of Marconi plc, as discussed more fully below. Marconi Corporation plc does not have executive ofﬁcers.

The following table sets forth certain information regarding the directors and executive ofﬁcers of Marconi plc.

Name Age Title Chairman: Sir Francis Roger Hurn ...... 62 Chairman Executive directors: Lord Simpson of Dunkeld ...... 58 Chief Executive Michael John Donovan ...... 47 Chief Executive Officer, Marconi Systems John Charles Mayo, CBE ...... 44 Finance Director Robert Ian Meakin ...... 51 Personnel Director Michael William John Parton ...... 46 Chief Executive Officer, Marconi Communications Networks Non-executive directors: Sir William Martin Castell ...... 53 non-executive director The Rt. Hon. The Baroness Lydia Selina Dunn, DBE ...... 60 non-executive director Sir Alan Walter Rudge, CBE ...... 62 non-executive director Hon. Raymond George Hardenbergh Seitz ...... 59 non-executive director Nigel John Stapleton ...... 53 non-executive director Executive officers: Norman Charles Porter ...... 48 Company Secretary Jeffrey Isaac Gordon...... 51 General Counsel Jack Raymond Fryer ...... 61 Strategic Planning Director Jeffrey Steven Brooks ...... 51 Chief Marketing Officer Sandro Gualano ...... 64 Chairman of Marconi Mobile Communications Neil David Sutcliffe ...... 38 Chief Executive Officer, Marconi Communications Services Jan Niel Viljoen...... 39 Chief Technology Officer

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Chairman Sir Francis Roger Hurn was appointed to the board of directors and as Chairman in October 1999 having previously been appointed to similar positions in GEC in December 1998. Sir Roger also serves as Chairman of the nomination committee. From November 1991 to November 1996, Sir Roger was Chairman and Chief Executive of Smiths Industries and from November 1996 to November 1998 he was Chairman. Sir Roger is Chairman of Prudential, a non-executive director of Imperial Chemicals Industries, Deputy Chairman of Glaxo Wellcome and Chairman of the Court of Governors at the Henley Management College. Sir Roger has announced that he intends to step down from the chairmanship of Marconi at the end of the next annual general meeting of shareholders in July 2001.

Executive directors Lord Simpson of Dunkeld was appointed to the board of directors and as Chief Executive in October 1999 having previously been appointed to the GEC board of directors in July 1996 and as Chief Executive (formerly entitled Managing Director) in September 1996. Lord Simpson also serves as Chairman of the executive committee. From 1991 to 1994, Lord Simpson was Chairman and Chief Executive of Rover, from 1992 to 1994 he was Deputy Chief Executive of British Aerospace and from April 1994 to September 1996 he was Chief Executive of Lucas Industries. Lord Simpson is a non-executive director of Imperial Chemical Industries, Alstom and Nestle´. Lord Simpson intends to step down as chief executive of Marconi at the end of his five year contract in July 2001 and it is intended that he will become chairman replacing Sir Roger Hurn who has announced his intention to retire from Marconi. Michael John Donovan was appointed to the board of directors in January 2000. He joined GEC in October 1998 as Chief Executive of GEC’s industrial electronics group in the United States (which subsequently became Marconi Systems and our other businesses) and was appointed Chief Executive for our systems business and our other businesses. Mr. Donovan held a number of senior management positions in Rover from 1976 to 1991 and in Vickers from 1991 to 1994. In 1994, Mr. Donovan joined British Aerospace as Chief Executive at Avro International. In April 1996, he was appointed Chief Executive for regional aircraft and in May 1997, he was appointed President of Aero International (regional). John Charles Mayo, CBE was appointed to the board of directors and was appointed Finance Director in October 1999, having previously been appointed to similar positions in GEC in October 1997. From May 1993 to September 1997, Mr. Mayo was Finance Director of Zeneca. Mr. Mayo is a non-executive director of Alstom. It is intended that Mr. Mayo will become the new chief executive of Marconi in July 2001 following the retirement of Sir Roger Hurn and his replacement as chairman by the current chief executive Lord Simpson. Robert Ian Meakin was appointed to the board of directors and was appointed Personnel Director in October 1999 having previously been appointed GEC’s Personnel Director in November 1996 and to the GEC board of directors in October 1998. From 1992 to 1996, Mr. Meakin was Director of Personnel at British Aerospace. Mr. Meakin is on the board of directors of Young Enterprise, is a member of the Steering Board at the Radiocommunications Agency and is Chairman of the Education and Training Export Group of the U.K. Department of Trade and Industry and of the U.K. Department for Education and Employment. Michael William John Parton, Chief Executive Officer of Marconi Communications Networks, was appointed to the board of directors in January 2000. Mr. Parton held a number of finance appointments in ICL from 1978 to 1980 and STC Telecommunications from 1986 to 1991. Mr. Parton joined GEC as Finance Director of GPT in 1991, was appointed Managing Director of GPT’s public networks group in 1995, Managing Director of GEC’s industrial electronics group in 1997 and Chief Executive of Marconi Communications in July 1998.

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Non-executive directors Sir William Martin Castell was appointed to the board of directors in October 1999 having previously been appointed a director of GEC in October 1997. From 1987 to 1989, Sir William was Commercial Director on the board of directors of Wellcome. Sir William has been Chief Executive of Nycomed Amersham (formerly known as Amersham International) since 1990. The Rt. Hon. The Baroness Lydia Selina Dunn, DBE was appointed to the board of directors in October 1999 having previously been appointed a director of GEC in July 1997. From 1988 to 1995, Baroness Dunn was Senior Member of the Hong Kong Executive Council and from 1985 to 1998, she was Senior Member of the Hong Kong Legislative Council. Baroness Dunn is an executive director of John Swire & Sons and is a non-executive deputy chairman of HSBC Holdings. Sir Alan Walter Rudge, CBE was appointed to the board of directors in October 1999 having previously been appointed a director of GEC in November 1997. Sir Alan also serves as Chairman of the remuneration committee. From April 15, 1999 to June 15, 1999, Sir Alan was non-executive Chairman of MSI. From 1996 to 1997, Sir Alan was Deputy Chief Executive of British Telecom. In 1994 he was President of the Institution of Electrical Engineers. Sir Alan is Chairman of W.S. Atkins and ERA Technology and is a non-executive director of Great Universal Stores and MSI Cellular Investment Holdings. Sir Alan is also a Fellow of the Royal Academy of Engineering and the Royal Society. Hon. Raymond George Hardenbergh Seitz was appointed to the board of directors in October 1999 having previously been appointed director of GEC in December 1994. From 1991 to 1994, Mr. Seitz was U.S. Ambassador to the United Kingdom. Mr. Seitz is Vice Chairman of Lehman Brothers International (Europe), a non-executive director of British Airways, Cable and Wireless, Rio Tinto and Telegraph Group and Chairman of Authoriszor. Mr. Seitz is also a trustee of the National Gallery and the Royal Academy. Nigel John Stapleton was appointed to the board of directors in October 1999 having previously been appointed a director of GEC in July 1997. Mr. Stapleton also serves as Chairman of the audit committee. From January 1993 to September 1999, Mr. Stapleton held senior management positions in Reed Elsevier, where he was Co-Chairman and Co-Chief Executive from August 1998 to September 1999. From 1968 to 1986, Mr. Stapleton held a number of ﬁnance and general management positions with Unilever. Mr. Stapleton is Chairman of Veronis, Suhler International, and is a non-executive director of Sun Life & Provincial Holdings, Centaur Communications and AXA U.K. Investments. Mr. Stapleton is also a member of the U.K. Financial Reporting Review Panel.

Executive ofﬁcers Norman Charles Porter was appointed Company Secretary in September 1999 having previously been appointed Company Secretary of GEC in April 1991. He is a member of the Council of the Electrical and Electronics Industries Benevolent Association. Jeffrey Isaac Gordon joined us as General Counsel in November 1999 having previously held senior positions at the U.S. law ﬁrm Mayer, Brown & Platt in Chicago and in London where he was the head of international practice. Jack Raymond Fryer was appointed Strategic Planning Director of GEC in November 1996 and in November 1998 also assumed responsibility for Technology and IT. Mr. Fryer held a number of senior management positions with Rolls-Royce from 1961 to 1975, Rank Xerox from 1975 to 1986 and Lucas Industries from 1986 to 1996. In December 1999, Mr. Fryer became a non-executive director of MDIS and in August 2000, he was appointed as non-executive chairman of Fibreway.

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Jeffrey Steven Brooks was appointed Chief Marketing Officer in March 2000 having previously been Senior Vice President, Brand Management and Corporate Marketing at Nortel. Mr. Brooks has held senior marketing and communications positions in Bay Networks in 1998, Digital Equipment Corporation from 1994 to 1997 and Sony Corporation of America from 1979 to 1994.

Dr. Sandro Gualano joined us in 1964 and has held a number of senior management positions and is presently Chairman of Marconi Mobile Communications. Dr. Gualano was appointed Chairman and Managing Director of Marconi in Italy in 1995, Managing Director of Marconi Finanziaria in 1996 and Chairman of Marconi Communications in 1998. In 1993, Dr. Gualano was placed under preliminary investigation by the Italian prosecution authorities, along with the heads of a number of suppliers to Italian state-owned entities. The investigation related to the alleged corruption of ofﬁcials of an Italian state-owned entity during the period 1988 to 1992. The preliminary investigation has not yet been completed. Dr. Gualano strongly denies the allegations. Dr. Gualano has been nominated for appointment as the Commissioner of the National Air Trafﬁc Control Agency in Italy. The nomination is subject to approval by the Italian government. In the meantime, Dr. Gualano will continue in his current role at Marconi.

Neil David Sutcliffe was appointed Chief Executive Ofﬁcer of Marconi Communication Services in November 1999 having previously been Managing Director of strategic networks, the European services business of GPT from 1998. He was a systems engineer with British Aerospace from 1984 to 1988 and a manufacturing consultant with Coopers and Lybrand from 1988 until he joined GPT in 1992.

Jan Niel Viljoen was appointed Chief Technology Ofﬁcer in January 2000 having previously been Senior Vice President and General Manager of Fore Systems’ service provider business. Mr. Viljoen joined Fore Systems in 1996 upon its acquisition of Nemesys Research where he was Chief Executive Ofﬁcer.

The executive directors are also executive ofﬁcers.

Board system We are controlled through a board of directors. Our operating subsidiaries are managed by the Chief Executive Ofﬁcers for the business segments under which they are organized.

The board is responsible for our strategic direction including approval of business strategy and the annual plans designed to meet the strategy, interim and full year accounts, accounting policies and dividends and our system of governance and internal control.

Our board currently consists of 11 members: the Chairman, 5 non-executive directors and 5 executive directors (including the Chief Executive). There is a clear division of responsibility between the Chairman and the Chief Executive. The Chairman is responsible for running the Board and ensures all directors receive sufﬁcient relevant information on ﬁnancial, business and corporate matters to enable them to participate effectively in board decisions. The Chief Executive’s primary role is the coordination of our businesses and the development and implementation of strategy. Accordingly, no single individual has unfettered powers of decision.

The board meets at least six times a year, and holds additional meetings when circumstances require. Non-executive directors meet with the Chairman and Chief Executive at least once a year to discuss a wide range of matters affecting us. All directors have access to such information as they require to enable them to participate in consideration of matters to be decided by the board and its committees (discussed below). Directors also receive appropriate training on appointment and then as necessary. Directors attend an induction program which aims to provide an understanding of us, our strategy, structure, geographical spread of operations, financial position, the industries in which we

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The nomination committee recommends the appointment of directors and, in accordance with the provisions of our Articles of Association, the board appoints directors. We may also, by ordinary resolution, appoint a director. At every annual general meeting of shareholders, one- third of the directors (or the nearest to one-third if not a multiple of three) are required to retire from office although a director who is willing may be re-appointed as a director. If we do not fill the vacancy at the meeting at which a director retires by rotation or otherwise, a director is, if willing to act, deemed to be re-elected if the vacancy is not filled. Directors are required to retire from office at the annual general meeting after which he or she reaches 70 years of age, although such director may be re-appointed as a director on an annual basis after reaching 70 years of age. Directors may be removed or suspended from office at any time by an ordinary resolution. A director must resign from office if he or she ceases to be a director by virtue of the U.K. Companies Act 1985, is prohibited by U.K. law from being a director, becomes bankrupt, suffers from mental disorder, is absent for more than six consecutive months without permission from the board or is requested to resign in writing by not less than three-quarters of the other directors.

The board has delegated certain powers and duties to committees constituted by it, and receives regular reports of their proceedings. The Company Secretary acts as secretary to all board committees. The board committees include an audit committee, a nomination committee, a remuneration committee and an executive committee. The audit, nomination and remuneration committees are comprised only of non-executive directors. The executive committee is comprised of both executive directors as well as certain other executive ofﬁcers. The quorum for meetings for each of these committees is three members in person or in telephonic or electronic communication. For the executive committee, two of the three members must be executive directors.

The audit committee meets at least three times a year. Its duties include reviewing the scope and results of any audit. It meets regularly with our management, as well as with internal auditors, to review the effectiveness of corporate controls and accounting policies, as well as matters raised in regular reports to it and the full year and interim ﬁnancial statements prior to their submission to the board. Our auditors are able to attend meetings and have the opportunity to raise matters or concerns in the absence of executive directors.

The nomination committee meets as and when required to do so. It reviews the board structure, considers candidates for appointment as directors and makes appropriate recommendations to the board.

The remuneration committee meets formally at least twice a year and makes decisions on behalf of the board on the contracts of service and remuneration packages of executive directors and the Chairman. The remuneration committee also determines the framework within which executive remuneration is more generally determined and, in its review of executive directors’ pay, takes account of the remuneration of the other members of the executive committee. The remuneration committee has access to and takes professional advice from inside and outside Marconi. The remuneration committee also takes the advice of the Chairman and Chief Executive, as appropriate, on the performance of the executive directors. All members of the remuneration committee are independent non-executive directors and have no personal financial interest in the matters to be decided by the remuneration committee, no potential conflicts of interests arising from cross-directorships and no day-to-day involvement in the running of our business.

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The executive committee meets bi-monthly and comprises executive directors and certain other executive ofﬁcers. It approves our business plan and budget and strategies in areas including technology, people, information technology and corporate communications prior to submission to the board for approval. It also approves day-to-day matters of a routine nature.

Directors’ emoluments

Emoluments The names of our current directors appear in the table and paragraphs above. Our founding directors during ﬁscal 2000 were D.H. Reid and N.C. Porter, both of whom were appointed on September 17, 1999 and resigned on October 4, 1999. With the exception of M.J. Donovan and M.W.J. Parton, both of whom were appointed on January 1, 2000, all of the current directors were appointed on October 4, 1999. Sir Christopher Harding was appointed as non-executive director on October 4, 1999 but ceased to be a director upon his death on December 13, 1999. The following table shows emoluments paid or payable to our directors for the period to March 31, 2000. Gains made Excluding on the pension Pension exercise of contributions contributions share options Salary and Other 2000 1999 2000 1999 2000 1999 fees beneﬁts Bonus Total Total Total Total Total Total £000 £000 £000 £000 £000 £000 £000 £000 £000 Sir Roger Hurn ...... 25016— 26689————

Lord Simpson ...... 669 221 338 1,228 1,085 352 182 — — M.J. Donovan...... 87 14 44* 145 — 21 — — — J.C. Mayo ...... 515 167 260 942 877 259 212 — — R.I. Meakin...... 283 153 143 579 489 226 167 — — M.W.J. Parton ...... 94 28 87* 209 — 42 — — —

Sir William Castell ...... 25— — 2525———— The Rt. Hon. The Baroness Dunn ...... 25— — 2525———— Sir Alan Rudge ...... 26— — 2625———— Hon. Raymond G. H. Seitz ...... 25— — 2525———— N.J. Stapleton ...... 28— — 2825———— * Represents the period January 1, 2000 to March 31, 2000.

The following table shows emoluments paid or payable to all directors and all executive ofﬁcers as a group for the period to March 31, 2000:

Gains made Excluding on the pension Pension exercise of contributions contributions share options Salary and Other 2000 1999 2000 1999 2000 1999 fees beneﬁts Bonus Total Total Total Total Total Total £000 £000 £000 £000 £000 £000 £000 £000 £000 Total for all directors and executive ofﬁcers ...... 3,685 1,015 1,375 6,075 2,665 1,392 878 111 —

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The emoluments for all directors, except for M.J. Donovan and M.W.J. Parton, are for the full ﬁscal years 2000 and 1999 and include emoluments paid to them by GEC. The emoluments shown in the table above for M.J. Donovan and M.W.J. Parton are for the period beginning January 1, 2000, the date of their appointment. The emoluments for the executive ofﬁcers are in respect of full years or, where appropriate, from their dates of appointment. D.H. Reid and N.C. Porter received no emoluments for the period in which they acted as directors. The emoluments paid to Sir Christopher Harding from October 4, 1999 to December 13, 1999, the period during which he acted as a non-executive director, were not material.

Executive directors receive taxable beneﬁts, including an allowance under a company car plan.

All directors are reimbursed all necessary and reasonable expenses incurred in the performance of their duties.

Short-term incentive bonus Executive directors are eligible to participate in a short-term incentive plan. The plan pays bonuses only when an economic value added target (based on proﬁtable growth) is met. The payment for on-target performance is 25% of basic salary, and the payment for performance at levels exceeding the on-target level is subject to a maximum payment in any single year of 50% of base salary. Any incentive earned beyond this level is capped at 100% of basic salary and is carried forward and paid in two equal instalments, but only to the extent that the economic value added target is achieved in future years. In considering the payment of short-term incentive bonuses, the remuneration committee also takes account of personal performance. During the period ending March 31, 2000, no such amounts were carried forward.

Service contracts Each of the executive directors has a service contract with Marconi Corporation plc, our wholly owned subsidiary. The contracts are subject to termination by either party giving no less than one year’s notice or, if not already terminated, on Lord Simpson reaching the age of 60 years and the remaining executive directors on reaching the age of 62 years. It is intended that each of the executive directors will, in due course, enter into service contracts with us in substantially the same form and on substantially the same terms as their existing service contracts, which will in such circumstances be revoked.

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Pension, retirement and similar beneﬁts All executive directors are members of our pension plan, the G.E.C. 1972 Plan. Members contribute at the rate of 3% of salary and our contributions made during the year ended March 31, 2000 amounted to 6.6% of salary (1999: 6.6%). We also operate funded unapproved retirement benefit plans (FURBS), company contributions under which are taxable, for the executive directors. We make annual payments to the FURBS to meet our obligation under the plan to accumulate capital, equivalent in value to a two-thirds pension at a normal retirement age of 62 in respect of M.J. Donovan, J.C. Mayo, R.I. Meakin and M.W.J. Parton and a normal retirement age of 60 for Lord Simpson. Pensionable salary for Lord Simpson is restricted to £540,800 but subject to increase at the same percentage amount (if any) as the annual rate of increase in basic salary, with a maximum increase of 4% per year. The obligations take into account the capital value of any relevant benefits in payment or otherwise arising from previous employment together with the capital value of benefits from the G.E.C. 1972 Plan that are payable. In the event of cessation of employment before normal retirement age, or at retirement age, each of the executive directors is entitled to the cash amount held in the FURBS established for him. The pension beneﬁts earned by the directors under the G.E.C. 1972 Plan are as follows:

Cost of pension benefits Increase in accrued accrued during the Accumulated Length of pension year net of total accrued pensionable during the member’s pension at service year contributions March 31, 2000 (years) £000 £000 £000 M.J. Donovan ...... 11 2 2 J.C. Mayo ...... 21 2 4 R.I. Meakin ...... 3 1 11 5 M.W.J. Parton ...... 91 1 14 Lord Simpson ...... 3 1 10 5 The pension entitlement shown is that which would be paid annually at normal retirement age based on service to March 31, 2000. The increase in accrued pension during the year excludes any increase for inflation. The cost of pension benefits accrued during the year net of member’s contributions has been calculated on the basis of independent actuarial advice. The cost of pension benefits accrued during the year net of member’s contributions is a measure of the capital cost of providing future pension payments and accordingly is a liability of the group’s pension arrangements and not a sum paid or due to the directors of Marconi. Members of the G.E.C. 1972 Plan have the option to make contributions to our selected benefit scheme (an additional voluntary contribution plan). Neither the contributions nor the resulting benefits to the selected benefit scheme are included in the above table. During the year, we made the following payments to the trustee of the FURBS in respect of individual directors:

2000 £ 1999 £ Lord Simpson ...... 308,000 152,825 J.C. Mayo ...... 222,300 183,000 R.I. Meakin ...... 205,320 150,578 M.J. Donovan ...... 13,212 — M.W.J. Parton ...... 35,625 —

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Contributions paid into FURBS are determined each year based on actuarial advice to be sufﬁicient to meet the obligations and are periodically reviewed by the actuary.

M.J. Donovan and M.W.J. Parton became directors during ﬁscal 2000. The table above reﬂects contributions that were paid into their FURBS, respectively, for the period during which they served as directors, in accordance with the terms of their employment contracts in effect prior to their appointment as directors.

In the event of death in service, a lump sum of four times pensionable salary, plus additional benefits for a surviving spouse and/or child(ren), inclusive of any death benefits arising from the G.E.C. 1972 Plan will be held on trust for the benefit of dependants of each of M.J. Donovan, J.C. Mayo, R.I. Meakin, M.W.J. Parton and Lord Simpson.

Directors’ share options The table below sets forth the interests of executive directors in options over ordinary shares in GEC under the GEC share option plans for the period April 1, 1999, to November 28, 1999, and, subsequently, over Marconi ordinary shares under the Marconi 1999 share option plan and the Marconi U.K. sharesave plan for the period November 30, 1999 to March 31, 2000:

At November 29, 1999 (or subsequently on Granted during the At April 1, 1999 appointment) period At March 31, 2000 Exercisable Average Average Average Average exercise exercise exercise exercise price price price price No. pence No. pence No. pence No. pence From To M.J. Donovan ..... 266,271 338 266,271 801.5 266,271 338 Nov. 1999 Nov. 2009 335,681 844* 335,681 844* Nov. 2002 Nov. 2009

J.C. Mayo ...... 1,167,960 423 1,442,791 342 1,442,791 801.5 1,442,791 342 Dec. 2000 Nov. 2009 1,442,791 801.5* Nov. 2002 Nov. 2009 R.I. Meakin ...... 258,255 423 319,024 343 319,024 801.5 320,319 344 Dec. 2000 Nov. 2009 211,952 931.5 530,976 853* Nov. 2002 Jan. 2010 1,295 747.5

M.W.J. Parton .... 692,857 388 692,857 388 Nov. 1999 Nov. 2009 684,360 801.5* 684,360 801.5* Nov. 2002 Nov. 2009 Lord Simpson .... 1,405,864 311 1,543,408 801.5 1,407,159 311 Dec. 2000 Nov. 2009 1,295 747.5 1,543,408 801.5* Nov. 2002 Nov. 2009

* Exercise price exceeded market price at March 31, 2000.

No pre-tax gains were made by the executive directors in the exercise of share options during the period April 1, 1999 (or subsequently on appointment) to March 31, 2000. No executive director had any share options which lapsed during this period. Options granted by GEC became exercisable on November 22, 1999. No options were exercised by any of the executive directors while they held ofﬁce during the year ended March 31, 2000. J.C. Mayo, R.I. Meakin and Lord Simpson each undertook not to exercise their options at any time before November 30, 2000.

The mid-market price of our shares as at March 31, 2000 was 749 pence with a range during the period from November 30, 1999 (the ﬁrst day of dealing in our shares) to March 31, 2000 of 749 pence to 1,095.5 pence per share.

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The executive directors, along with those employees remaining in the Marconi group, were given the opportunity to exchange their GEC options for Marconi options on a value-for-value basis (which means that the option holder was kept in the same economic position after the exchange as before the exchange through an adjustment to the exercise price and an increase in the number of shares under option).

All of the executive directors elected to exchange their options.

During the year to March 31, 2000, we introduced a personal shareholding policy in order to assist further in aligning the interests of executives and shareholders. The policy requires executive directors to build up, over a period of time, a target shareholding of our shares with a market value equal to three times annual base salary. The terms of Lord Simpson’s service contract with GEC made certain provisions for awards of shares to be made to him under the rules of the GEC employee share plan and the grant of a notional option. Upon the reconstruction of GEC, the service contracts of executive directors were reviewed, and the remuneration committee decided, taking account of the restriction with regard to Lord Simpson’s notional option, to more closely align his incentive arrangements with those of the other executive directors. In exchange for the GEC share award and notional option held by Lord Simpson each over 625,000 GEC shares at £3.84 per share, Lord Simpson received, subject to a limitation agreed by the remuneration committee in respect of the notional option, options over Marconi shares, details of which are set out in the table above.

Employee share plans We have developed a range of employee share plans which are designed to create incentives for employees and encourage them to become long-term shareholders. Some of these plans are available to all employees, according to their country of residence. Participation in some plans is at the discretion of the remuneration committee of the board. The main plans are described below.

The Marconi U.K. sharesave plan All U.K. resident employees and full-time executive directors are eligible to participate in the U.K. sharesave plan. Under this plan, participants can purchase options with an exercise price not less than 80% of the market value of a Marconi ordinary share on the trading day immediately before the day invitations to participate are issued. Invitations to participate are normally made during a six-week period after the announcement of our results of operations. In order to participate, each employee must enter into a savings contract with a specified financial institution under which they agree to make monthly contributions, which must not exceed £250 per month in aggregate. The savings contracts will typically expire on the third or fifth anniversary of the date of grant. The number of Marconi ordinary shares over which a participant is granted an option will be the number that can be acquired, at the exercise price, with the savings made plus interest on the maturity of the savings contract.

The Marconi international sharesave plan The international sharesave plan, at the discretion of the board, permits employees who are resident outside the U.K. to participate in a share option plan that is substantially similar to the U.K. sharesave plan. Unlike the U.K. sharesave plan, under the international sharesave plan, the savings plans may not generate the exact amount required to exercise the options because of currency ﬂuctuations and interest rate differences. Additional cash may be required when the options are exercised, however, any excess savings generated cannot be used to purchase additional shares.

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The Marconi launch share plan Under this plan, employees at November 30, 1999 were, at the discretion of the board, granted the right to receive, free of charge, up to 1,000 Marconi ordinary shares, which would be exercisable provided that two conditions are met. The ﬁrst condition is that the market price of a Marconi ordinary share must have doubled from 801.5p to £16.03 during the period between November 30, 1999 and November 30, 2004. The second condition is that a participant must normally remain in employment until November 30, 2002 or, if later, at the time that the ﬁrst condition is met.

The Marconi long term incentive plan

Under the long term incentive plan, eligible employees may be granted performance-related awards entitling them, at the end of a three-year period, to be granted a right to call for a number of Marconi ordinary shares without payment based on corporate performance over that period. Any right so granted will normally become exercisable in three equal tranches. The ﬁrst tranche will become exercisable immediately, and the second and third tranches will normally become exercisable on the ﬁrst and second anniversaries of the date of grant. All full-time employees and executive directors are eligible to participate in the long term incentive plan, at the discretion of the remuneration committee.

The Marconi 1999 share option plan All full-time employees and executive directors are eligible to be granted options under the option plan at the discretion of the remuneration committee. Options may normally only be granted within six weeks after the announcement of our results of operations for any period, or any day on which the remuneration committee determines that exceptional circumstances justify a grant. Options granted to participants will not normally be exercisable unless our earnings per share over a period of at least three ﬁnancial years has exceeded the growth in the U.K. Retail Price Index by at least an average of 3% per year. Options will entitle the option holder to acquire Marconi ordinary shares at a price per share determined by the remuneration committee, which must not be less than the market value of a Marconi ordinary share shortly before the date of grant.

The Marconi associated companies share option plan The associated companies option plan enables options to be granted to executives of companies in which we have a direct or indirect equity interest of between 20% and 50%. The terms of the associated companies option plan are substantially similar to the Marconi 1999 share option plan.

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The Marconi U.S. employee share purchase plan All part-time and full-time employees of Marconi’s U.S. businesses will be eligible to participate in the employee share purchase plan. Under this plan employees will be able to acquire ordinary shares with voluntary, after-tax payroll deductions in a manner which qualiﬁes for favorable tax treatment under the provisions of section 423 of the U.S. Internal Revenue Code. The employee share purchase plan will enable employees to purchase shares at a price no less than the lower of 85% of the closing price of a share on the offering date and 85% of the closing price of a share on the purchase date. The board may apply a smaller discount than 15% at its discretion. Purchase rights are granted at the beginning of an offering period which may be a period of up to 27 months, or up to ﬁve years if the purchase price is determined solely by reference to the closing price of a share on the purchase date. No employee will be permitted to purchase shares pursuant to the employee share purchase plan at a rate which exceeds $25,000 in any calendar year or a lower limit as Marconi may specify.

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SHARE OWNERSHIP

The directors of Marconi Corporation plc do not own shares of Marconi Corporation plc. All of the shares of Marconi Corporation plc, which amounted to 2,825,012,659 as of March 31, 2000, are owned by Yeslink Limited, a U.K. company that is wholly owned indirectly by Marconi plc.

The table below sets forth as of March 31, 2000, the security ownership in Marconi plc of each of the directors and all of the directors and executive ofﬁcers as a group of Marconi plc. To our knowledge, no person owns, directly or indirectly, more than 5% of the outstanding voting shares of Marconi plc.

Number Percentage of shares of shares Name of beneﬁcial owner owned owned Sir Roger Hurn ...... 11,450 0.0000042 Lord Simpson ...... 106,606 0.0000390 M.J. Donovan ...... 23,232 0.0000085 J.C. Mayo ...... 164,388 0.0000602 R.I. Meakin ...... 10,800 0.0000039 M.W.J. Parton ...... 28,776 0.0000105 Sir William Castell ...... 10,000 0.0000036 The Rt. Hon. The Baroness Dunn ...... 10,000 0.0000036 Sir Alan W. Rudge ...... 10,000 0.0000036 Hon. Raymond G.H. Seitz ...... 11,027 0.0000040 N.J. Stapleton ...... 13,572 0.0000049 All directors and executive ofﬁcers as a group...... 475,862 0.0001745

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS All the contracts and other arrangements with Atlantic Telecom, Alstom and the joint ventures described below have been on arm’s length terms. We may enter into arrangements with these companies in the future, which will be on arm’s length terms.

Atlantic Telecom We own 19.7% of the ordinary shares of Atlantic Telecom, a local exchange carrier with networks in Glasgow, Edinburgh, Aberdeen and Dundee. We originally acquired 27% of the ordinary shares of Atlantic Telecom upon the formation of a strategic partnership with them in December 1999 pursuant to which: • Atlantic Telecom acquired from us, in return for shares in Atlantic Telecom valued at £122 million at the time the strategic partnership was formed, 20-year exclusive rights to use dedicated fiber on a national broadband fiber optics network, along with certain prepaid contractual commitments from us to provide software, equipment and maintenance necessary for the fiber to carry telecommunications traffic; • We invested £60 million in Atlantic Telecom; and • We provided a £50 million vendor facility to Atlantic Telecom to finance purchases of equipment from us over a three-year period. Our 27% interest in Atlantic Telecom was diluted to a 19.7% interest as a result of Atlantic Telecom’s acquisition of First Telecom.

Alstom We have a 24% stake in Alstom. Upon the initial public offering of Alstom in 1998 (prior to which we had a 50% stake in GEC Alsthom, as it was called prior to the initial public offering) we entered into a transitional services agreement providing for the termination of existing group services provided by us to Alstom except that we would continue to provide transitional services in the ﬁelds of research and development, real estate management, bulk purchasing, and environmental advice and insurance. These transitional services are now largely completed. From time to time in the ordinary course of business we supply products or services to Alstom and Alstom supplies products or services to us.

Comstar We have a 50-50 joint venture with MGTS (Moscow’s telephone network operator). The joint venture was formed in 1989 under the name Comstar. Our communications networks business has supplied the joint venture with equipment and services since formation to a value of approximately $70 million. In June 2000, we entered into an agreement to sell our interest in this business to Metromedia International Group for $60 million.

Buzton We have a joint venture with two Uzbekistan state telecommunications agencies. We have a 50% stake in the joint venture which was formed in 1994 under the name Buzton. Our communications networks business has supplied the joint venture with equipment and services since formation to a value of less than $5 million.

Picker Financial Picker Financial is a 50-50 joint venture between our medical systems business and CIT Financial established for the purpose of leasing medical systems’ equipment to customers and ﬁnancing the purchase of equipment by customers.

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Sir Alan Rudge Sir Alan Rudge, a non-executive director of Marconi and formerly a non-executive Chairman of MSI, held a substantial number of options from MSI. He received from MSI approximately $5.3 million in respect of the cancelation of his options, which amount represented the difference between the offer price in the MSI transaction ($17.50), and the exercise price of such options. See ‘‘History and Recent Developments’’.

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DESCRIPTION OF OTHER INDEBTEDNESS

1999 credit facility Marconi Corporation plc entered into a syndicated credit facility agreement on June 4, 1999. Marconi plc guarantees this facility.

The 1999 credit facility agreement provides for the banks to make available to Marconi plc and its subsidiaries a committed multicurrency revolving credit facility up to the amount of €2,500,000,000 for the period from June 4, 1999 until June 3, 2000. €2,402,000,000 of this facility has been extended until June 2, 2001. The rate of interest for each credit advance is equal to the aggregate of the London inter-bank offered rate plus 0.25% per annum. The facility may be made in euro, pounds sterling, U.S. dollars or any other currency which is readily available and freely transferable in the London foreign exchange market in sufﬁcient amounts to fund any credit advance.

The purpose of the revolving facility is to ﬁnance the general corporate purposes of Marconi plc and its subsidiaries.

The 1999 credit facility agreement includes covenants and warranties and events of default.

Marconi plc is liable to pay commitment fees at the rate of 0.10% per annum on the undrawn amount of this facility and a utilization fee on amounts outstanding in excess of €1,000,000,000.

1998 credit facility Marconi Corporation plc entered into a syndicated credit facility agreement on March 25, 1998. Marconi plc guarantees this facility.

The 1998 credit facility agreement provides for the banks to make available to Marconi plc and its subsidiaries a committed multicurrency 364-day revolving credit facility up to the amount of €1,500,000,000 and a 5-year committed multicurrency revolving credit facility up to the amount of €4,500,000,000.

The purpose of the revolving facilities is: • in the case of the 364-day facility, to ﬁnance the bridging and liquidity requirements of Marconi plc and its subsidiaries; and • in the case of the 5-year facility, to ﬁnance the general corporate purposes of Marconi plc and its subsidiaries.

Any borrowings under these facilities are unsecured and repayable (with a right to reborrow) on the last day of each borrowing period. €1,312,500,000 of the 364-day facility has been extended to terminate on March 22, 2001, and the 5-year facility will terminate on March 25, 2003 (subject to an extension, at the banks’ discretion, for any period up to March 25, 2005).

Borrowings bear interest at a rate equal to the aggregate of the London inter-bank offered rate plus 0.175% per annum. Borrowings may be made in euro, pounds sterling, U.S. dollars or in any other currency which is readily available and freely transferable in the London foreign exchange market in sufﬁcient amounts to fund any credit advance.

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The 1998 credit facility agreement includes covenants and warranties and events of default.

Marconi plc is liable to pay commitment fees at the rate of 0.035% per annum under the 364-day facility and 0.075% per annum under the 5-year facility and a utilization fee on amounts outstanding under the 5-year facility in excess of €2,500,000,000.

Eurobonds

Marconi Corporation plc issued €1,000,000,000 6.375% bonds due 2010 and €500,000,000 5.625% bonds due 2005 on March 30, 2000. Marconi plc guarantees the eurobonds. The guarantee may terminate at any time.

The eurobonds are listed on the London Stock Exchange.

The eurobonds bear interest at a ﬁxed rate per annum on their outstanding principal amount from and including March 30, 2000, payable annually in arrears on March 30th, the interest payment date. The ﬁrst interest payment date is March 30, 2001.

Marconi Corporation plc or any of its subsidiaries may purchase the eurobonds in any manner and at any time.

The trust deeds governing the eurobonds provide for events of default, including:

• bankruptcy or insolvency of Marconi Corporation plc or Marconi plc;

• failure by Marconi Corporation plc to pay interest when due on the eurobonds if not cured within a period of 14 days;

• failure of Marconi Corporation plc or Marconi plc to perform or observe its obligations under the trust deeds governing the eurobonds (if not cured within a period of 30 days);

• an event of default under existing agreements for borrowed money causes amounts due under those agreements to become due prematurely, or Marconi Corporation plc or Marconi plc fails to make payment of the amounts when they become due within ﬁve business days of the due date for payment; and

• Marconi plc’s guarantee of the eurobonds is not, or is claimed by Marconi plc not to be, in full force and effect (other than following its termination in accordance with its terms).

For so long as the eurobonds remain outstanding, Marconi Corporation plc has agreed that it will not, without taking actions which satisfy the eurobond trustee or 75% of the holders of the eurobonds, create or have outstanding any mortgage, charge, pledge, lien or other security interest on any of its present or future assets or revenues to secure debt securities. Except for the guarantee of the eurobonds by Marconi plc, Marconi Corporation plc has agreed that it will not, without taking actions which satisfy the eurobond trustee or 75% of the holders of the eurobonds, permit to exist any other guarantee of or indemnity or any arrangement having similar effect from Marconi plc relating to debt securities of Marconi Corporation plc. The Law Debenture Trust Corporation p.l.c., the eurobond trustee, has given its consent to Marconi plc’s guarantee of the bonds offered by this prospectus.

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DESCRIPTION OF THE BONDS

Marconi Corporation plc will issue:

• 3 ▲$900,000,000 principal amount of 7 ⁄4% bonds, due 2010 (the ‘‘2010 bonds’’); and • 3 ▲$900,000,000 principal amount of 8 ⁄8% bonds, due 2030 (the ‘‘2030 bonds’’).

When we refer to ‘‘the bonds’’ below, we mean both tranches of bonds listed above.

The bonds are to be issued under an indenture, to be dated as of September 19▲, 2000 between Marconi Corporation plc, Marconi plc and The Bank of New York, as trustee. The terms of the indenture are governed by the U.S. Trust Indenture Act of 1939. A copy of the indenture is ﬁled as an exhibit to the registration statement of which this prospectus is a part.

A global security representing an interest in 100% of the 2010 bonds and a global security representing an interest in 100% of the 2030 bonds will be deposited with The Bank of New York, as depositary. The global securities will be deposited when the bonds are issued, and will not have coupons for payment attached. The Bank of New York will hold the global securities for the beneﬁt of The Depository Trust Company or its successor or the nominee of either, as applicable. The global securities will be held under a deposit agreement to be dated as of

September 19, 2000, ▲among Marconi Corporation plc and the depositary. A copy of the deposit agreement is ﬁled as an exhibit to the registration statement of which this prospectus is a part.

The following is a summary of the indenture and the deposit agreement.

General The 2010 bonds: • are limited in aggregate principal amount to $▲900,000,000; • will mature on ▲September 15, 2010 at a price equal to 100% of their principal amount; and

• 3 will bear interest at the rate of ▲7 ⁄4% per annum, from September 19▲, 2000.

The 2030 bonds: • are limited in aggregate principal amount to $▲900,000,000▲; • will mature on ▲September 15, 2030 at a price equal to 100% of their principal amount; and

• 3 will bear interest at the rate of ▲8 ⁄8% per annum, from September 19▲, 2000.

Both the 2010 bonds and the 2030 bonds: • are senior unsecured obligations of Marconi Corporation plc; • rank equally with each other and at least equally with all other existing and future unsecured obligations of Marconi Corporation plc; • will be issued under the indenture; • will be deposited with the depositary, under the deposit agreement, on or about

▲September 19, 2000;

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• will have principal and interest, and any additional amounts, as deﬁned below, payable in U.S. dollars in immediately available funds; • will have interest payable semi-annually on ▲March 15 and ▲September 15 of each year beginning on ▲March 15, 2001, to the holders, as deﬁned below, at the close of business on the preceding ▲March 1 and ▲September 1, respectively; and • will be issued in denominations of $1,000 principal amount at maturity, and integral multiples of $1,000.

The United Kingdom could require that we withhold amounts from payments on the principal or interest of the bonds for taxes or any other governmental charges. If the United Kingdom were to require withholding of this type, we would be required under the indenture to pay you an additional amount so that the net amount you receive will be the amount speciﬁed in the terms of the bonds to which you are entitled. You should refer to ‘‘—Additional amounts’’ below for a list of the circumstances where we would not be required to pay these additional amounts.

As we discuss more fully below, the bonds may be redeemed, as a whole or in part, at any time at a redemption price we describe under ‘‘—Optional redemption’’ below, together with interest on the bonds to the date ﬁxed for redemption. In addition, the bonds may be redeemed, as a whole but not in part, at a redemption price equal to 100% of their principal amount, together with interest on the bonds to the date ﬁxed for redemption, if Marconi Corporation plc would be required to pay the additional amounts described in the preceding paragraph for the bonds. We describe these provisions more fully below under ‘‘— Optional tax redemption.’’

We make promises, or covenants, in the indenture. Some of our property may be subject to a mortgage or other legal mechanism that would give our lenders preferential rights in that property over other lenders, including you, if we fail to pay them back. These preferential rights are called liens. We promise in the indenture that neither Marconi Corporation plc nor any of its material subsidiaries will become obligated on debt for borrowed money that is secured by a lien on any property or any equity interests that Marconi Corporation plc or its material subsidiaries own, without granting an equivalent or higher-ranking lien on the same property to holders of the bonds. We also agree that we will not permit there to be any guarantees from Marconi plc of the categories of our debt securities we describe below unless an equivalent guarantee from Marconi plc is in place for the bonds. We do not need to comply with this restriction if the amount of all debt that would be secured by liens on this property or these equity interests, excluding permitted liens, plus attributable debt relating to sale and leaseback transactions, which we discuss below, is less than 15% of our consolidated shareholders’ equity. Some categories of liens, such as liens existing on or before the date of the indenture and liens arising as a matter of law, are not covered by this restriction. We discuss this restriction on liens and guarantees and list the categories of permitted liens and guarantees below under ‘‘—Certain covenants—Limitation on liens and guarantees.’’

In addition, we promise in the indenture that neither Marconi Corporation plc nor any of its material subsidiaries will engage in sale and leaseback transactions unless they comply with the terms of the indenture. A sale and leaseback transaction is an arrangement in which Marconi Corporation plc or a material subsidiary leases from another person a property that it previously had owned and sold to that person. We can enter into a sale and leaseback transaction if we would be able to grant a lien on the property without granting an equivalent or higher-ranking lien to the holders of the bonds. We can also enter into sale and leaseback transactions if we apply the money generated by the sale of the leased property or an amount equal to the fair value of the property, whichever is greater, either to an investment in another property or to the

103 3.8.7 29025 TX 104 Project Marlin Prospectus p15 AOGps 31 AUG 00 20:28 R. R. DONNELLEY LON(•• ) LON00000/20000 011 44 20 7330 1600 CB 01 SEP 00 22:30 retirement of indebtedness for money borrowed, incurred or assumed. We discuss this restriction in more detail below under ‘‘—Certain covenants—Limitations on sale and leaseback transactions.’’

When a principal or interest payment date, or a redemption date, falls on a Saturday, Sunday, legal holiday, or a day when banks are authorized or obligated to close in London, Luxembourg, or New York City, payment may be made on the next business day in London, Luxembourg, or New York City. Interest in respect of any period of less than one year will be calculated on the basis of a 360-day year of twelve 30-day months on an unadjusted basis. Neither the 2010 bonds nor the 2030 bonds will be entitled to the beneﬁt of any sinking fund.

Marconi Corporation plc has applied to list the bonds on the Luxembourg Stock Exchange.

Claims of investors in the bonds will be effectively subordinated to the claims of holders of debt of Marconi Corporation plc’s subsidiaries as to the assets of these subsidiaries. In addition, claims of investors in the bonds will be effectively subordinated to the claims of holders of secured debt of Marconi Corporation plc and its subsidiaries on the collateral securing these claims. Marconi Corporation plc does not at present have any secured debt. Claims of Marconi Corporation plc as the holder of general unsecured intercompany debt will be similarly effectively subordinated to claims of holders of secured debt of its subsidiaries.

Neither the indenture nor the bonds will contain provisions which will afford investors in the bonds protection in the event of a takeover, recapitalization or similar restructuring involving Marconi Corporation plc that could adversely affect the investors.

For a description of our principal current indebtedness other than the bonds, see ‘‘Description of Other Indebtedness.’’

Initial settlement for the bonds and settlement of any secondary market trades in the bonds will be made in same-day funds. Book-entry interests, described below, in the bonds will settle in DTC’s Same-Day Funds Settlement System.

Form of securities; settlement and clearance General Each tranche of the bonds will initially be represented by a global security in bearer form, without coupons attached, in a denomination equal to the aggregate principal amount of the outstanding bonds of the tranche to be represented by that global security. Title to the global security will pass by delivery. The holder of any certificate representing any bonds, including any global security (the ‘‘holder’’), is the person that has possession of the certificate, in the case of a bearer certificate, and the person in whose name the certificate is registered, in the case of a certificate in registered form.

The global securities will be deposited on issue with the depositary. Under the deposit agreement, the depositary will issue to DTC in New York certificateless depositary interests, which together represent a 100% interest in each underlying global security. The certificateless depositary interests will be registered in the name of DTC or its nominee. Upon acceptance by DTC of a certificateless depositary interest for entry into its book-entry settlement system, beneficial interests in the certificateless depositary interests will be issued by DTC and traded through DTC’s book-entry system.

Book-entry interests will be held by or through persons that have accounts with DTC (‘‘direct participants’’) or persons that hold interests through direct participants (‘‘indirect participants’’ and, together with direct participants, ‘‘participants’’). The laws of some states may require that

104 3.8.7 29025 TX 105 Project Marlin Prospectus p15 AOGps 23 AUG 00 20:38 R. R. DONNELLEY LON(•• ) LON44444/20000 011 44 20 7330 1600 CB 01 SEP 00 22:30 certain investors in securities take physical delivery of such securities in deﬁnitive form. These laws may impair the ability of investors to own book-entry interests.

Ownership of the book-entry interests will be shown on, and the transfer of ownership will be effected through, records maintained by DTC or its participants. Book-entry interests will be transferable only as units in the same authorized denominations as the bonds to which they correspond. Unless any tranche of the bonds is exchanged in whole or in part for other securities of Marconi Corporation plc, or the applicable global security is exchanged for bonds in definitive, registered form (‘‘definitive securities’’), the certificateless depositary interest representing the tranche held by DTC may not be transferred except as a whole between DTC, a nominee of DTC, a successor of DTC or a nominee of this successor.

So long as the depositary or its nominee is the holder of the global security representing a tranche of the bonds, the depositary or its nominee will be considered the sole holder of the global security for all purposes under the indenture. Except as we describe below under ‘‘— Issuance of deﬁnitive securities and termination of the deposit agreement,’’ no participant or other person will be entitled to have bonds registered in its name, receive or be entitled to receive physical delivery of deﬁnitive securities or be considered the owner or holder of the bonds under the indenture or the deposit agreement. Accordingly, each person owning a book- entry interest must rely on the procedures of the depositary and DTC and, if the person is not a direct participant in DTC, on the procedures of the direct participant or other securities intermediary through which the person owns its interest, to exercise any rights and obligations of a holder under the indenture, the bonds or the deposit agreement.

Payments on the global security Payments of any amounts relating to any global security will be made through the paying agent or paying agents, as we describe below, to the depositary, as the holder of the global security. Marconi Corporation plc and its agents will be discharged, by payment to or to the order of the depositary, from any responsibility or liability for each amount paid in this manner. Under the deposit agreement, the depositary will pay an amount equal to all these payments to DTC. None of Marconi Corporation plc, the trustee, the depositary or any of their agents will have any responsibility or liability for any aspect of the records relating to payments made by DTC or its participants on account of book-entry interests or for maintaining, supervising or reviewing any records relating to the book-entry interests.

Information regarding DTC, Euroclear and Clearstream Banking DTC, Euroclear and Clearstream, Luxembourg have advised Marconi Corporation plc of the following information:

DTC DTC is: • a limited-purpose trust company organized under the New York Banking Law; • a ‘‘banking organization’’ within the meaning of the New York Banking Law; • a member of the Federal Reserve System; • a ‘‘clearing corporation’’ within the meaning of the New York Uniform Commercial Code; and • a ‘‘clearing agency’’ registered under Section 17A of the Exchange Act.

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DTC was created to hold securities of its participants and to facilitate the clearance and settlement of transactions among its participants in these securities through electronic book-entry changes in accounts of the participants, eliminating the need for physical movement of securities certiﬁcates. Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. Some of these participants, along with some of their representatives and others, own DTC. Access to the DTC book-entry system is also available to others, such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, either directly or indirectly.

Marconi Corporation plc understands that DTC will take any action permitted to be taken by a holder of a beneﬁcial interest in the bonds only at the direction of participants to whose account with DTC book-entry interests are credited and only for the principal amount of the book-entry interests as to which these participants have given such direction.

Euroclear and Clearstream, Luxembourg

Some beneﬁcial owners of the bonds may hold their bonds through their accounts with Euroclear and Clearstream, Luxembourg, each of which is a participant in DTC. Euroclear and Clearstream, Luxembourg, each holds securities for its account holders and facilitates the clearance and settlement of securities transactions by electronic book-entry transfer between its account holders, eliminating the need for physical movements of certiﬁcates and any risk from lack of simultaneous transfers of securities.

Euroclear and Clearstream, Luxembourg, provide various services including safekeeping, administration, clearance and settlement of internationally traded securities and securities lending and borrowing. Euroclear and Clearstream, Luxembourg, also deal with domestic securities markets in several countries through established depositary and custodial relationships. Euroclear and Clearstream, Luxembourg, have established an electronic bridge between their two systems across which their account holders may settle trades with each other.

Account holders in Euroclear and Clearstream, Luxembourg, are world-wide ﬁnancial institutions including underwriters, securities brokers and dealers, banks, trust companies and clearing corporations. Indirect access to Euroclear and Clearstream, Luxembourg, is available to other institutions that clear through or maintain a custodial relationship with an account holder of either system.

Account holders’ overall contractual relations with Euroclear and Clearstream, Luxembourg, are governed by the respective rules and operating procedures of Euroclear and Clearstream, Luxembourg, and any applicable laws. Euroclear and Clearstream, Luxembourg, act under these rules and operating procedures only on behalf of their respective account holders. They have no record of or relationship with persons holding through their respective account holders.

The deposit agreement

Redemption

In the event that a global security or any portion of a global security is redeemed, the depositary will redeem an equal amount of the certiﬁcateless depositary interest or interests issued to DTC.

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Issuance of definitive securities and termination of the deposit agreement So long as DTC holds the certificateless depositary interest or interests representing a given tranche of the bonds, the book-entry interests will not be exchangeable for definitive securities except if: • DTC notifies the depositary that it is unwilling or unable to continue to hold the certificateless depositary interest or interests, or if at any time DTC is unable to or ceases to be a clearing agency registered under the Exchange Act, and a successor to DTC registered under the Exchange Act is not appointed by the depositary within 120 days; • the depositary notifies Marconi Corporation plc and the trustee that it is unwilling or unable to continue to act as depositary, and Marconi Corporation plc is unable to appoint a successor depositary within 120 days; • in the event of a winding-up of Marconi Corporation plc, Marconi Corporation plc fails to make a payment on a tranche of the bonds when due, or an event of default, as defined below, has occurred and is continuing; or • Marconi Corporation plc at its option and in its sole discretion determines that the global security representing a series of bonds should be exchanged for definitive securities.

To receive or direct the delivery of possession of any deﬁnitive securities, each person owning a book-entry interest must rely exclusively on the provisions of the deposit agreement, the rules or procedures of DTC and any agreement with any participant or any other securities intermediary through which that person holds its interest.

If definitive securities are issued by Marconi Corporation plc in exchange for a particular global security, the depositary will promptly notify DTC that the corresponding global security will be exchanged in whole or in part for definitive securities. Definitive securities will be issued in such names and amounts as DTC may specify upon cancellation of the corresponding certificateless depositary interests and all book-entry interests relating to the certificateless depositary interests. The depositary will promptly surrender the corresponding global security held by it to the trustee in connection with such exchange for cancellation.

Any definitive securities will be issued in registered form in the same authorized denominations as the bonds to which they correspond. Payments of principal, interest or other amounts in respect of the definitive securities will be made to the person in whose name the definitive securities are registered in the register. Payments on definitive securities in U.S. dollars will be payable at the Corporate Trust Office or agency of the trustee in New York City and at the specified office of the paying agent in Luxembourg maintained for such purposes, against surrender of the relevant definitive securities in the case of payment of principal, and at other offices as may be designated from time to time. In addition, payments may be made by check drawn on a bank in New York or, at the request of the holder, by transfer to an account of the holder in New York. Definitive securities should be presented to any paying agent▲ for redemption.

A definitive security may be transferred upon the surrender at the specified office of the transfer agent of the certificate representing the definitive security to be transferred, together with any forms and other evidence that the transfer agent may reasonably require. In the event of a partial transfer of definitive securities, new definitive securities in permitted denominations will be obtainable as soon as practicable at the office of the trustee ▲or any transfer agent. We will not be required to transfer any definitive security during the period of 15 days preceding the due date for any payment of principal, interest or other amounts, if any, due, or the date on which the bonds are scheduled for redemption.

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If any definitive security is mutilated, destroyed, stolen or lost, it may be replaced at the specified office of the trustee or any transfer agent or paying agent. Replacement will be made upon payment by the claimant of the expenses incurred by Marconi Corporation plc in connection with such replacement, including the fees and expenses of the trustee, transfer agent or paying agent, together with any indemnity that such parties and Marconi Corporation plc may reasonably require from the claimant. Mutilated definitive securities must be surrendered before replacements will be issued.

To the extent permitted by law, Marconi Corporation plc, the trustee and any agents of either of them will be entitled to treat the person in whose name any definitive securities are registered as the absolute owner of such definitive securities. Holders of or owners of interests in any of the bonds should be aware that, under current U.K. law, payments, including payments of interest, on definitive securities will be subject to withholding in respect of U.K. income tax, currently 20%, subject to the availability of double tax treaty relief, if any. Subject to the limitations we describe below, Marconi Corporation plc will, for either tranche of bonds, be required to pay additional amounts on any definitive securities representing that tranche and, if required to pay these additional amounts, may be entitled to redeem these bonds. See ‘‘—Additional amounts’’ and ‘‘—Optional tax redemption.’’

Reports The deposit agreement requires the depositary promptly to send to DTC a copy of any notices, reports and other communications received relating to Marconi Corporation plc or the bonds.

Action by depositary The deposit agreement requires the depositary to exercise any of its rights or powers vested in it by the deposit agreement as requested by DTC, so long as the depositary has been offered reasonable security or indemnity against the costs, expenses and liabilities that might be incurred by it in compliance with such request.

Amendment of deposit agreement The depositary and Marconi Corporation plc may only amend the deposit agreement without the consent of DTC or the owners of book-entry interests: • to cure any ambiguity, omission, defect or inconsistency in the deposit agreement; • to add to the covenants and agreements of the depositary or Marconi Corporation plc; • to evidence or effectuate the assignment of the depositary’s rights and duties to a qualiﬁed successor; • to comply with the Securities Act, the Exchange Act, the U.S. Investment Company Act of 1940, the U.S. Trust Indenture Act of 1939 or any other applicable law, rule or regulation; or • to modify, alter, amend or supplement the deposit agreement in a manner that is not adverse to the interests of DTC or the owners of book-entry interests.

Resignation or removal of depositary The depositary may at any time, following 60 days’ written notice to Marconi Corporation plc and DTC, resign as depositary. The depositary may be removed at any time upon 90 days’ written notice or, under certain circumstances, immediately. A resignation or removal will

108 3.8.7 29025 TX 109 Project Marlin Prospectus p15 AOGps 23 AUG 00 23:02 R. R. DONNELLEY LON(•• ) LON44444/20000 011 44 20 7330 1600 CB 01 SEP 00 22:30 become effective upon the appointment of a successor depositary. If Marconi Corporation plc is unable to appoint a successor depositary promptly, DTC or the depositary may, on behalf of itself and all others similarly situated, at the expense of Marconi Corporation plc, petition any court of competent jurisdiction for the appointment of a successor depositary, unless deﬁnitive securities have been issued for all outstanding bonds in accordance with the indenture.

Obligations of depositary The depositary will assume no obligation or liability under the deposit agreement or any agreement with DTC other than to use good faith and reasonable care in the performance of its duties under the deposit agreement. Marconi Corporation plc will agree to indemnify the depositary against certain liabilities incurred by it under the deposit agreement.

Status of the bonds The bonds will constitute direct, unconditional, unsubordinated and, subject to the provisions set forth below under ‘‘—Certain covenants—Limitations on liens and guarantees,’’ unsecured obligations of Marconi Corporation plc. The bonds will rank equally among themselves and at least equally with all other present and future unsecured and unsubordinated obligations of Marconi Corporation plc, but in the event of insolvency, only to the extent permitted by applicable laws relating to creditors’ rights.

Because Marconi Corporation plc is a holding company, its rights and the rights of its creditors to participate in the distribution of the assets of any of its subsidiaries upon their liquidation or recapitalization will be subject to the prior claims of any of their creditors, except to the extent that Marconi Corporation plc may itself be a creditor with recognized claims against that subsidiary.

The guarantee Marconi plc, which indirectly holds 100% of the capital stock of Marconi Corporation plc, will fully and unconditionally guarantee all payments of sums payable under the bonds by Marconi Corporation plc. Marconi plc guarantees the payments of these amounts when they become due and payable. You do not need to proceed against Marconi Corporation plc before you can proceed against Marconi plc under the guarantee.

The guarantee will terminate on the date on which Marconi plc is unconditionally and irrevocably released from all its obligations as guarantor under the following facilities: • the syndicated credit facility dated March 25, 1998 among Marconi Corporation plc, Marconi plc and the banks named in that facility; • the syndicated credit facility dated June 4, 1999 among Marconi Corporation plc, Marconi plc and the banks named in that facility; and • the eurobond trust deeds dated March 30, 2000 among Marconi Corporation plc, The Law Debenture Trust Corporation p.l.c. and Marconi plc.

The 1998 and 1999 credit facilities do not currently provide for circumstances in which Marconi plc would be released as a guarantor under the facilities. However, each facility could be amended at any time with the consent of all the banks under the facility to release Marconi plc from its obligations as guarantor. In addition, unless the 1998 syndicated credit facility is amended or extended, Marconi plc will be released from its obligations as guarantor under that facility when it terminates on March 25, 2003. Unless the 1999 syndicated credit facility is

109 3.8.7 29025 TX 110 Project Marlin Prospectus p15 AOGps 14 SEP 00 21:09 R. R. DONNELLEY LON(•• ) ATL26696/20000 011 44 20 7330 1600 CB 01 SEP 00 22:30 amended or extended, Marconi plc will be released from its obligations as guarantor under that facility when it terminates on June 2, 2001. Marconi plc will be released from its obligations as guarantor under the eurobond trust deeds when it is released from its obligations as guarantor under the 1998 and 1999 credit facilities. If the bonds are listed on the Luxembourg Stock Exchange at the time the guarantees are released and the rules of that stock exchange require us to do so, we will publish notice to holders in Luxembourg and notify the stock exchange in the manner described below under ‘‘—Notices and reports.’’

Paying agents Marconi Corporation plc will maintain one or more paying agents for payments relating to each tranche of the bonds. The Corporate Trust Office of the trustee in New York City will be designated as a paying agent. While any of the bonds are outstanding and listed on the Luxembourg Stock Exchange, Marconi Corporation plc will also maintain a paying agent and a transfer agent in Luxembourg through which payment of principal, interest and other amounts, if any, may be made and through which the registration of transfer of bonds in definitive form, if any, may be effected. The paying and transfer agent in Luxembourg is Banque Internationale a` Luxembourg, socie´te´ anonyme, 69 route d’Esch, L-2953 Luxembourg. Marconi Corporation plc may at any time designate additional paying agents, rescind the designation of any paying agent or approve a change in the ofﬁce through which any paying agent acts. Marconi Corporation plc will be required to maintain a paying agent in each place of payment for the bonds. The Company may not, however, at any time appoint or maintain a paying agent in the United Kingdom. So long as the bonds are listed on the Luxembourg Stock

Exchange and the rules of that stock exchange require ▲us to do so, Marconi Corporation plc will publish notice of any change in agents to holders in Luxembourg and notify the stock exchange in the manner described below under ‘‘—Notices and reports.’’ All monies paid by Marconi Corporation plc to a paying agent for the payment of principal, premium, if any, interest or other amount which remain unclaimed at the end of two years after the principal, premium if any, interest or other amount has become due and payable will be repaid to Marconi Corporation plc. The holder of the affected bonds after this repayment may look only to Marconi Corporation plc for payment.

Additional amounts All payments of principal, premium, if any, and interest made by Marconi Corporation plc on the bonds will be made without withholding or deduction for, or on account of, any present or future taxes, duties, assessments or governmental charges of whatever nature imposed or levied by or on behalf of the United Kingdom or by or within any political subdivision of the United Kingdom or any authority in the United Kingdom with the power to tax (each, a ‘‘taxing jurisdiction’’). Marconi Corporation plc will, however, withhold or deduct taxes, duties, assessments or governmental charges if it is required by law to do so. If any deduction or withholding will at any time be required from any amounts to be paid by Marconi Corporation plc on any of the bonds, Marconi Corporation plc will pay to each holder of the bonds additional amounts as may be necessary in order that the net amounts paid to the holder after deduction or withholding will be at least equal to the amounts speciﬁed in the bonds as the amount to which the holder is entitled. Marconi Corporation plc will not, however, be required to make any payment of additional amounts to a holder for or on account of: 1. any tax, duty, assessment or other governmental charge which was imposed, withheld or deducted because of: (a) the existence of any present or former connection between the holder or beneﬁcial owner of the bonds and the relevant taxing jurisdiction other than the holding or

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ownership of bonds or the collection of principal of and interest if any, on, or the enforcement of, bonds; or (b) where presentation is required, the presentation of a bond for payment: (1) in the United Kingdom; or (2) on a date more than 30 days after the date on which the payment became due and payable or the date on which the payment is duly provided for, whichever occurs later, except to the extent that the holder would have been entitled to additional amounts if it had presented such bond for payment before the end of the 30-day period; 2. any tax, duty, assessment or other governmental charge that is imposed, deducted or withheld because of the failure to comply by the holder or the beneficial owner of a bond or the beneficial owner of any payment on such bond with a request of Marconi Corporation plc addressed to the holder or the beneficial owner, including a request of Marconi Corporation plc related to a claim for relief under any applicable double tax treaty: (a) to provide information concerning the nationality, residence, identity or connection with a taxing jurisdiction of the holder or beneficial owner; or (b) to make any declaration or other similar claim to satisfy any information or reporting requirement, if the information or declaration is required or imposed by a statute, treaty, regulation, ruling or administrative practice of the taxing jurisdiction as a precondition to exemption from withholding or deduction of all or part of the tax, duty, assessment or other governmental charge; 3. any tax, duty, assessment or other governmental charge which would not have been imposed, withheld or deducted if presentation for payment had been made to a paying agent other than the paying agent to which the presentation was made; 4. any state, inheritance, gift, sale, transfer, personal property, wealth or other similar tax, duty assessment or other governmental charge; or 5. any combination of items 1, 2, 3 and 4 above. You should understand any reference to any payment of principal, premium or interest on the bonds in this prospectus to also include any payment of additional amounts on the bonds that we may be required to make under the indenture, whether or not we mention additional amounts.

Optional redemption Marconi Corporation plc may redeem any or all of the bonds of either tranche at any time upon notice to holders. If it decides to do so, Marconi Corporation plc will redeem these bonds at a redemption price equal to the greater of: • 100% of the principal amount of bonds to be redeemed; or • the sum of the present values of the remaining scheduled payments of principal and interest on the bonds to be redeemed discounted to the date of redemption on a semiannual basis, assuming a 360-day year consisting of twelve 30-day months, at the

Treasury rate plus ▲25 basis points, in the case of the 2010 bonds, and ▲30 basis points, in the case of the 2030 bonds; plus in each case accrued and unpaid interest to the date of redemption. The Treasury rate is equal to the yield, as published by the Board of Governors of the Federal Reserve System, on actively traded U.S. Treasury securities with a maturity comparable to the remaining life of the bonds to be redeemed, as selected by Morgan Stanley & Co. Incorporated. If there is no such

111 3.8.7 29025 TX 112 Project Marlin Prospectus p15 AOGps 14 SEP 00 20:42 R. R. DONNELLEY LON(•• ) LONHTS /20000 011 44 20 7330 1600 CB 01 SEP 00 22:30 publication of this yield during the week preceding the calculation date, the Treasury rate will be calculated by reference to quotations from selected primary U.S. Government securities dealers in New York City. The Treasury rate will be calculated on the third business day preceding the redemption date. Marconi Corporation plc must give notice of redemption of the bonds between 30 and 60 days before the date ﬁxed for redemption. As long as the bonds being redeemed are listed on the Luxembourg Stock Exchange and the rules of that stock exchange require it to do so, Marconi Corporation plc will publish the notice to holders in Luxembourg in the manner described below under ‘‘—Notices and reports.’’▲

Optional tax redemption If at any time Marconi Corporation plc determines that: • it would be obligated to pay additional amounts on a tranche of the bonds as a result of any change in, or amendment to, the laws or any regulations or rulings promulgated under the laws of any taxing jurisdiction, or any change in official position regarding application or interpretation of the laws, regulations or rulings, including a holding by a court of competent jurisdiction; • the change, amendment, application or interpretation became effective on or after the date of this prospectus; and it cannot avoid the obligation to pay additional amounts on a tranche of the bonds by taking reasonable measures available to it then Marconi Corporation plc may redeem all but not just some of the bonds of that tranche, after giving notice to holders, at a redemption price equal to 100% of the principal amount of the bonds, together with accrued interest to the date fixed for redemption, if any. Before giving any notice of redemption of the bonds, Marconi Corporation plc must deliver to the trustee: • an opinion of independent legal counsel of recognized standing stating that Marconi Corporation plc is entitled under the indenture to effect such redemption; and • a certificate setting forth a statement of facts showing the necessary conditions before Marconi Corporation plc can exercise its right to redeem have been satisfied. In the event that the obligations of Marconi Corporation plc under either tranche of the bonds are assumed in accordance with the indenture by any successor corporation organized under the laws of a jurisdiction other than the United Kingdom, the successor will be entitled to redeem the bonds subject to the terms of the preceding two paragraphs, substituting the name of the successor corporation’s jurisdiction for the United Kingdom and the date of such assumption for the date of this prospectus. The successor corporation will not have this entitlement, however, if on or before the date of its assumption the relevant taxing authority had publicly announced that a change was to occur. Marconi Corporation plc must give notice of redemption of any series of the bonds as provided above between 30 and 60 days before the date fixed for redemption. However, Marconi Corporation plc may not give notice of redemption more than 60 days before the earliest date on which it would be required to pay additional amounts if a payment under the bonds was then due. As long as the bonds being redeemed are listed on the Luxembourg Stock Exchange and the rules of that stock exchange require it to do so, Marconi Corporation plc will publish the notice to holders in Luxembourg in the manner described below under ‘‘—Notices and reports.’’ After Marconi Corporation plc has given notice, the bonds of the relevant tranche will become due and payable on the date fixed for redemption.

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In that event, the bonds will be paid:

• at the redemption price;

• together with accrued interest to the date ﬁxed for redemption;

• at the place or places of payment; and

• in the manner speciﬁed in the indenture.

Starting on the redemption date, if moneys for the redemption of the bonds called for redemption have been made available as provided in the indenture on the redemption date, the bonds being redeemed will cease to bear interest, and the only right of the holders of the bonds will be to receive payment of the redemption price and all unpaid interest accrued to the date of redemption.

Certain covenants

The following covenants apply to the bonds.

Consolidation, merger, sale, conveyance or other transfer of assets

Under the bonds and the indenture, Marconi Corporation plc may consolidate with or merge into any other person, or sell, convey or transfer all or substantially all of its assets to any other person, and may permit any of its subsidiaries to enter into any of these transactions, if the transactions would in the aggregate result in the consolidation, merger, sale, conveyance or transfer of all or substantially all of the consolidated assets of Marconi Corporation plc and its subsidiaries, without the consent of the holders, so long as:

1. immediately after giving effect to such transaction or transactions, no event of default, and no event which, after notice or lapse of time or both, would become an event of default, has occurred and is continuing; and

2. the purchasing or transferee person, or the successor, continuing or resulting person in the case of a merger or consolidation where Marconi Corporation plc is not the surviving person, as the case may be:

(a) expressly assumes, by an amendment to the indenture and the bonds, the obligations of Marconi Corporation plc under the indenture and the bonds and the due and punctual performance and observance of all the covenants and conditions to be performed or observed by Marconi Corporation plc under the indenture and the bonds; and

(b) if the person is organized under the laws of a jurisdiction other than the United Kingdom, agrees to assume Marconi Corporation plc’s obligations under the bonds to pay additional amounts as discussed under ‘‘—Additional amounts’’ above, substituting the name of the successor jurisdiction for the United Kingdom each place that it appears in that section.

When a purchasing or transferee person or the successor, continuing or resulting person, in the case of a merger or consolidation where Marconi Corporation plc is not the surviving person, assumes all the obligations of Marconi Corporation plc under the indenture and the bonds in accordance with this section, and all other requirements of this covenant have been met, Marconi Corporation plc will, without further action, be released from those obligations.

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An assumption of Marconi Corporation plc’s obligations under the bonds by any person might be deemed for U.S. federal income tax purposes to be an exchange of the bonds for new bonds by the investors in the bonds, resulting in the recognition of gain or loss and possibly other adverse tax consequences to the investors. Investors in the bonds should consult their own tax advisors regarding the tax consequences of an assumption.

Limitations on liens and guarantees The indenture provides that, for so long as any of the bonds remains outstanding, neither Marconi Corporation plc nor any of its material subsidiaries will create, incur or assume any Debt secured by an encumbrance on any property or equity interests of Marconi Corporation plc or any of its material subsidiaries without effectively providing, when the Debt is created, incurred or assumed, that the bonds will be secured equally or prior to such Debt. Marconi Corporation plc or that material subsidiary, as the case may be, may also choose to provide this security for any other of its existing or future Debt ranking at least equally with the bonds.

In addition, Marconi Corporation plc will not permit to exist, other than the guarantee of the bonds described above under ‘‘—The guarantee,’’ any guarantee or indemnity from Marconi plc or any arrangement having a similar effect relating to any Debt Securities of Marconi Corporation plc, without providing that the bonds will benefit from that guarantee, indemnity or similar arrangement. Marconi Corporation plc may also choose to extend the benefit of that guarantee, indemnity or similar arrangement to any other of its existing or future Debt Securities ranking at least equally with the bonds. As long as the guarantee remains in effect, Marconi plc may guarantee any additional Debt Securities of Marconi Corporation plc or provide an indemnity relating to any additional Debt Securities of Marconi Corporation plc, or make any arrangement having a similar effect relating to any additional Debt Securities of Marconi Corporation plc, if Marconi Corporation plc certifies to the trustee that the guarantee of the bonds is substantially equivalent to the guarantee of or indemnity or arrangement relating to those additional Debt Securities.

This restriction on liens and guarantees will not apply, however, to: 1. encumbrances: • on property or equity interests existing at the time of acquisition of the property or equity interests; • to secure the payment of all or part of the cost of the improvement, construction, alteration or repair of the property; • in the case of equity interests, to secure any Debt incurred before, at the time of or within twelve months after the acquisition of the equity interests for the purpose of ﬁnancing all or any part of the purchase price of the equity interests; or • in the case of other property, to secure any Debt incurred before the later of: —the acquisition of the property; —the completion of construction of the property, including any improvements, alterations or repairs on an existing property; or —the commencement of commercial operations of the property; for the purpose of ﬁnancing all or any part of the purchase price of the property or all or any part of the cost of improvement, construction, alteration or repair of the property.

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2. encumbrances existing at the date of the indenture; 3. guarantees or indemnities or arrangements having a similar effect of Marconi plc existing at the date of the indenture; 4. encumbrances on property owned or held by any person or on equity interests of any person, in any case existing at the time: • such person is merged into or consolidated or amalgamated with Marconi Corporation plc or the material subsidiary, as the case may be; or • of a sale, lease or other disposition of all or substantially all of the property or stock of such person to Marconi Corporation plc or the material subsidiary, as the case may be; provided that the encumbrance was not incurred in anticipation of such merger, consolidation or amalgamation or sale, lease or other disposition; 5. encumbrances arising by operation of law; 6. any encumbrance arising out of or in connection with any pre-judgment legal process or a judgment or judicial award relating to security for legal costs; 7. any encumbrance the principal purpose and effect of which is to allow the setting-off or netting of obligations (a) with those of a ﬁnancial institution or (b) under swaps or other derivative ﬁnancial instruments, in each case arising or entered into in the ordinary course of the cash management activities of the Marconi group; 8. encumbrances arising in the ordinary course of business; 9. any retention of title reserved by any seller of goods or any encumbrance imposed, reserved or granted over goods supplied by a seller in the ordinary course of business; and 10. any extension, renewal or replacement or successive extensions, renewals or replacements, as a whole or in part, of any encumbrance referred to in clauses (1) to (9) above or of any Debt secured by any of these encumbrances, so long as the principal amount of Debt secured by the encumbrance does not exceed the principal amount of Debt so secured at the time of such extension, renewal or replacement, plus any related fees and expenses.

Marconi Corporation plc and its material subsidiaries may, however, create, incur or assume Debt secured by an encumbrance or encumbrances on property or equity interests which would otherwise be subject to the restrictions listed above so long as the aggregate amount of such Debt, together with all other such Debt of Marconi Corporation plc and its material subsidiaries and their Attributable Debt in respect of sale and leaseback transactions, does not at the time exceed 15% of Consolidated Shareholders’ Equity. The reference to Attributable Debt in the previous sentence does not include Attributable Debt for sale and leaseback transactions covered by clauses (1), (2) or (3) under ‘‘—Limitations on sale and leaseback transactions’’ below.

There is no limitation in the indenture on the ability of any subsidiaries of Marconi Corporation plc that are not material subsidiaries to create, incur, guarantee or assume any secured or unsecured indebtedness. As of the date of this prospectus, subsidiaries of Marconi Corporation plc conduct substantially all of the operations and directly own substantially all of the assets of the Marconi group.

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Limitations on sale and leaseback transactions The indenture provides that neither Marconi Corporation plc nor any of its material subsidiaries may enter into any arrangement with any person, other than a subsidiary, providing for the leasing by Marconi Corporation plc or the material subsidiary, as the case may be, for a period, including renewals, in excess of three years, of any property which has been owned by Marconi Corporation plc or the material subsidiary, as the case may be, for more than 180 days and which has been or is to be sold or transferred by Marconi Corporation plc or the material subsidiary, as the case may be, to that person (a ‘‘sale and leaseback transaction’’). Marconi Corporation plc and its material subsidiaries may, however, enter into a sale and leaseback transaction if, after giving effect to the sale and leaseback transaction, the aggregate amount of all Attributable Debt relating to all of their sale and leaseback transactions plus all secured Debt created, incurred or assumed by Marconi Corporation plc and its material subsidiaries does not exceed 15% of Consolidated Shareholders’ Equity. The reference to Debt in the previous sentence does not include secured Debt that Marconi Corporation plc and its material subsidiaries would be entitled to create, incur or assume without equally and ratably securing the bonds under the indenture referred to under ‘‘—Limitation on liens and guarantees’’ above.

This restriction will not apply to a given sale and leaseback transaction where: 1. Marconi Corporation plc or the material subsidiary, as the case may be, would be entitled to create, incur or assume Debt secured by an encumbrance on the property subject to the sale and leaseback transaction without equally and ratably securing the bonds; 2. within 180 days after the consummation of the sale and leaseback transaction, we will expend for any property, including capital improvements on the property, an amount equal to: (a) the ‘‘Net Proceeds’’ of the sale and leaseback transaction, which we deﬁne as the greater of: (x) the net proceeds we receive from the sale and leaseback transaction; and (y) the fair market value of the property sold at the time of entering into the transaction, as determined in good faith by the board of directors of Marconi Corporation plc; or (b) a part of the Net Proceeds, so long as we elect to apply the balance of the Net Proceeds in the manner described in the following clause (3); or 3. within 180 days after the consummation of any sale and leaseback transaction, we apply an amount equal to the Net Proceeds, less any amount elected under clause (2)(b) above, to the retirement or repayment of Funded Debt, as deﬁned below, of Marconi Corporation plc ranking equally with the bonds or Funded Debt of a subsidiary. No retirement referred to in this clause (3) may be effected by payment at maturity or under any mandatory sinking fund or prepayment provision, unless repayment is required because of the receipt of the Net Proceeds.

Certain deﬁnitions For the purposes of these covenants, we deﬁne certain terms as follows:

‘‘Attributable Debt’’ means, for any lease as part of a sale and leaseback transaction, as of the date of determination, the lesser of: • the fair value of the property subject to the sale and leaseback transaction, as determined in good faith by the board of directors of Marconi Corporation plc; and

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• the present value, discounted at the weighted average annual interest rate borne by all bonds outstanding at that time, compounded semi-annually, of the total amount of rent required to be paid under such lease during its remaining term, including any period for which such lease has been extended. Such rental payments do not include amounts payable by or on behalf of the lessee on for maintenance and repairs, insurance, taxes, assessments, water rates and similar charges.

‘‘Consolidated Shareholders’ Equity’’ means the aggregate from time to time of consolidated equity shareholders’ interests of Marconi Corporation plc and its subsidiaries, as determined in accordance with applicable accounting standards from time to time used in the preparation of the U.K. GAAP audited consolidated annual accounts of Marconi Corporation plc and its subsidiaries. As of March 31, 2000, this amount equalled £4,419 million.

‘‘Debt’’ means any indebtedness, whether as principal, guarantor or surety, for or in respect of money borrowed, including amounts raised by acceptances under any acceptance credit, bills, bonds, debentures and similar securities and finance leases arranged primarily to raise finance, and the net amount of any liability under any treasury transaction with a bank or financial institution. ‘‘Debt’’ does not, however, include any indebtedness:

• arising for or in respect of assets or services acquired or sold in the ordinary course of business, except to the extent it is a treasury transaction or would be treated as a loan, overdraft or obligation under a ﬁnance lease in the audited consolidated annual accounts of Marconi Corporation plc and its subsidiaries; or

• owed by Marconi Corporation plc or a material subsidiary, as the case may be, to Marconi Corporation plc or to any subsidiary of Marconi Corporation plc.

‘‘Debt Securities’’ means any present or future indebtedness, whether principal, premium, interest or other amounts, for or in respect of any notes, bonds, debentures, debenture stock, loan stock or other securities which, with the consent of the issuer of such Debt Securities, are for the time being quoted, listed or ordinarily dealt in on any stock exchange or other securities market, including any guarantee or indemnity in respect of such indebtedness or any arrangement having a similar effect. In addition, Debt Securities must be either:

• denominated in a currency other than the pound sterling or, with effect from the Participation Date, other than euro; or

• denominated in pounds sterling or, with effect from the Participation Date, euro, and initially distributed primarily outside the United Kingdom.

‘‘Funded Debt’’ means any indebtedness which by its terms or by the terms of any instrument or agreement relating to such indebtedness matures, or which is otherwise payable or unpaid, more than one year from, or is directly or indirectly renewable or extendible to a date more than one year from, the date of creation of such indebtedness. ‘‘Funded Debt’’ also includes any indebtedness which by its terms or by the terms of any instrument or agreement relating to the indebtedness is repayable less than one year from the date of creation of that indebtedness, so long as the indebtedness is capable of being reborrowed, so that the ﬁnal maturity of the indebtedness, as reborrowed from time to time, may fall one year or later from the date of its creation.

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‘‘material subsidiary’’ means any subsidiary of Marconi Corporation plc:

(1) whose equity shareholders’ interests equal at least 15% of Consolidated Shareholders’ Equity, all as calculated by reference to the most recent audited ﬁnancial statements of the subsidiary and the most recent audited consolidated ﬁnancial statements of Marconi Corporation plc; or

(2) to which is transferred all or substantially all of the business, undertakings and assets of another subsidiary which immediately prior to the transfer was itself a material subsidiary. When the transfer occurs, the transferring subsidiary ceases to be a material subsidiary, and the receiving subsidiary becomes and remains a material subsidiary until the next publication of its audited ﬁnancial statements. At that time, the receiving subsidiary remains a material subsidiary only if it meets the qualiﬁcation described in clause (1) above.

‘‘Participation Date’’ means the date on which the United Kingdom participates in the third stage of European economic and monetary union under the Treaty establishing the European Community as amended by the Treaty on European Union or otherwise participates in European economic and monetary union in a manner with similar effect to this third stage.

‘‘person’’ means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision of a government or any other entity.

‘‘property’’ means any and all land, buildings, ﬁxtures, machinery, equipment and other tangible assets owned by Marconi Corporation plc or a material subsidiary, and any and all leasehold interests of Marconi Corporation plc or a material subsidiary in any of the above to the extent any are leased by Marconi Corporation plc or that material subsidiary, and any and all leasehold improvements in respect of the above.

‘‘subsidiary’’ means a subsidiary within the meaning of Section 736 of the Companies Act 1985, as amended by Section 144 of the Companies Act 1989.

Defeasance Marconi Corporation plc may elect, at its option and at any time, to have the provisions relating to defeasance and discharge of indebtedness, or those relating to defeasance of certain covenants in the indenture, applied to either tranche of the bonds, or to any speciﬁed part of the bonds.

Legal defeasance The indenture will provide that if Marconi Corporation plc exercises its defeasance option for either tranche of the bonds, Marconi Corporation plc will be discharged from all its obligations for those bonds. However, Marconi Corporation plc will retain certain obligations to exchange or register the transfer of bonds, to replace stolen, lost or mutilated bonds, to maintain paying agencies and to hold moneys for payment in trust, upon the deposit in trust for the beneﬁt of the holders of the bonds, cash or U.S. government obligations, or both. The payment of principal of and interest on the cash or obligations must provide funds in an amount sufﬁcient to pay the principal of and any premium, interest and other amounts on the bonds on their respective stated maturities in accordance with the terms of the indenture and the bonds.

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Defeasance or discharge may occur only if, among other things, Marconi Corporation plc has delivered to the trustee an opinion of counsel to the effect that: • neither the trust nor the trustee will be required to register as an investment company under the U.S. Investment Company Act of 1940; and • there has been a U.S. Internal Revenue Service ruling or a change in tax law to the effect that holders of the bonds will not recognize gain or loss for U.S. federal income tax purposes as a result of deposit, defeasance and discharge and will be subject to U.S. federal income tax on the same amount, in the same manner and at the same times as would have been the case if the deposit, defeasance and discharge were not to occur. Marconi Corporation plc must also deliver a certiﬁed copy of the ruling to the trustee.

Covenant defeasance The indenture will provide that, upon Marconi Corporation plc’s exercise of its option to have the covenant defeasance section applied to either tranche of the bonds, Marconi Corporation plc can choose not to comply with the covenants described above under ‘‘—Certain covenants.’’ This noncompliance will not be deemed to be, or result in, an event of default. In order to exercise this option, Marconi Corporation plc must deposit, in trust, for the beneﬁt of the holders of the bonds, cash or U.S. government obligations, or both. The payment of principal and interest on the cash and U.S. government obligations must provide funds in an amount sufﬁcient to pay the principal of and any premium, interest and other amounts on the bonds on their respective stated maturities.

Marconi Corporation plc will also be required, among other things, to deliver to the trustee an opinion of counsel to the effect that: • neither the trust nor the trustee will be required to register as an investment company under the U.S. Investment Company Act of 1940; and • holders of the bonds will not recognize gain or loss for U.S. federal income tax purposes as a result of deposit and defeasance of certain obligations and will be subject to U.S. federal income tax on the same amount, in the same manner and at the same times as would have been the case if the deposit and defeasance were not to occur.

In the event Marconi Corporation plc were to exercise this option and the bonds covered by the option were declared due and payable because of the occurrence of any event of default, the amount of cash and U.S. government obligations deposited in trust would be sufﬁcient to pay amounts due on the bonds at the time of their stated maturities but might not be sufﬁcient to pay amounts due on the bonds upon any acceleration resulting from the event of default. In that case, Marconi Corporation plc would remain liable for such payments.

Events of default The following will be events of default for either tranche of the bonds: 1. Marconi Corporation plc defaults in payment of all or any part of the principal of, or any premium, interest or additional amounts on, the bonds when they become due and payable, whether at the stated maturity of the principal or any installment of interest, by acceleration, by notice of redemption or otherwise. In the case of interest or additional amounts, default in payment will be an event of default only when the default has continued for a period of 14 days or more;

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2. except as provided above in clause (1), Marconi Corporation plc or, for so long as the guarantee remains in force, Marconi plc, defaults for 30 days or more after notice has been given to it in the performance or observance of any other covenant contained in any bonds or the indenture, other than a covenant included in the indenture expressly for the benefit solely of the other tranche of bonds; 3. either: (a) any Debt of Marconi Corporation plc or, for so long as the guarantee of Marconi plc remains in force, any Debt of Marconi plc becomes due and payable prematurely by reason of any event of default relating to that Debt; or (b) Marconi Corporation plc or, for so long as the guarantee remains in force, Marconi plc, fails to make any payment on any Debt within five business days of the due date for payment or, if longer, within any applicable grace period. Neither (a) nor (b) above will be an event of default, however, if: (x) the aggregate amount of the Debt is less than the greater of (A) €50,000,000 or its equivalent in any other currency or (B) 1.0% of Marconi Corporation plc’s Consolidated Shareholders’ Equity; or (y) the payment in question is being contested in good faith by Marconi Corporation plc or Marconi plc, as the case may be. 4. Marconi Corporation plc or, for so long as the guarantee remains in force, Marconi plc, stops payment on, or is unable to pay, its debts as they fall due; 5. the guarantee, otherwise than following its release in accordance with its terms, ceases to be, or is claimed by Marconi plc not to be, in full force and effect; 6. an order is made by a competent court or a resolution is passed for the winding up or dissolution of Marconi Corporation plc or, for so long as the guarantee remains in force, Marconi plc, other than for the purpose of a voluntary winding up, amalgamation, reconstruction or reorganization not involving a bankruptcy or insolvency on terms approved by the trustee or by holders of 25% in aggregate principal amount of the bonds; 7. Marconi Corporation plc or, for so long as the guarantee remains in force, Marconi plc agrees to any kind of composition, rescheduling, scheme, compromise or other arrangement with its creditors generally, or any class of its creditors, other than for the purposes of a reorganization not involving a bankruptcy or insolvency on terms approved by the trustee or by holders of 25% in aggregate principal amount of the bonds; or 8. an administrator or other receiver, manager, administrator or other similar official is appointed in relation to substantially all of the assets of Marconi Corporation plc or, for so long as the guarantee remains in force, Marconi plc, or an encumbrancer takes possession of, or an execution or distress is levied against, substantially all of the assets of Marconi Corporation plc or, for so long as the guarantee remains in force, Marconi plc, in all cases (a) for Debt and (b) which is not discharged within 30 days after such appointment, taking of possession or levy. If an event of default has occurred and is continuing, other than an event of default by Marconi Corporation plc specified in clauses (6), (7) and (8) above, the trustee, by written notice to Marconi Corporation plc, or the holders of at least 25% in aggregate principal amount of the outstanding bonds of the relevant tranche, by written notice to Marconi Corporation plc and the trustee, may declare the principal of and all accrued interest and additional amounts on the bonds to be due and payable. These amounts will be due and payable on the date that written notice is received by or on behalf of Marconi Corporation plc, unless before that date all events of default relating to all bonds of the affected tranche have been cured.

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Upon a declaration of amounts due, as just described, the holders of a majority in the principal amount of the bonds of the relevant tranche may provide notice to Marconi Corporation plc and the trustee to rescind an acceleration and its consequences. Rescission will be effective only if it would not conflict with any judgment or decree by a court of competent jurisdiction, and if all existing events of default have been cured or waived except non-payment of principal that has become due solely because of the acceleration. If an event of default in respect of Marconi Corporation plc specified in clauses (6), (7) or (8) above occurs, the principal of and accrued interest and additional amounts on the applicable tranche of bonds will be immediately due and payable without any declaration or other act on the part of the trustee or any holder of the bonds. Subject to the provisions of the indenture relating to the duties of the trustee in case an event of default occurs and is continuing, the trustee will be under no obligation to exercise any of its rights or powers under the indenture at the request or direction of any of the holders, unless the holders have offered the trustee reasonable indemnity. Subject to the provisions for the indemnification of the trustee, the holders of a majority in aggregate principal amount of the outstanding bonds of either tranche will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the trustee or exercising any trust or power conferred on the trustee on the bonds of the relevant tranche. No holder of any bonds will have any right to institute any proceeding under the indenture, for any remedy other than proceedings for payment of overdue principal, interest or other amounts for a holder’s bonds, unless: • a holder has previously given to the trustee written notice of a continuing event of default on bonds of the same tranche; • the holders of at least 25% in aggregate principal amount of the outstanding bonds of that tranche have made written request to the trustee to institute proceedings; • the holders have offered to the trustee reasonable indemnity; • the trustee has not received from the holders of a majority in aggregate principal amount of the applicable tranche of bonds outstanding a direction inconsistent with the request; and • the trustee has failed to institute proceedings within 60 days. The limitations above do not apply to a suit instituted by a holder of bonds for the enforcement of payment of the principal of or interest or additional amounts on bonds on or after the applicable due dates for such payments. The indenture contains Marconi Corporation plc’s promise that it will file annually with the trustee a certificate stating whether or not it is in default under the indenture. If Marconi Corporation plc is in default under the indenture it will include in the certificate a description of the nature and status of the default.

Modification, amendment and waiver of indenture terms; meetings of Holders Modifications of and amendments to the indenture or to the terms and conditions of either tranche of the bonds may be made, and future compliance with the indenture or the terms and conditions of the bonds or past default by Marconi Corporation plc or Marconi plc may be waived, with the consent of the holders of at least a majority in aggregate principal amount at the time outstanding of the bonds of the applicable tranche. However, without the consent of the holder of each bond affected, modification, amendment, waiver or consent may not: • change the stated maturity of the principal or any installment of interest on the bonds or any additional amounts payable on the bonds;

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• reduce the principal amount of or interest on the bonds or additional amounts payable on the bonds or reduce the amount payable in the event of redemption or default; • change the currency or place of payment of principal, interest or additional amounts on the bonds; • change the obligation of Marconi Corporation plc to pay additional amounts on the bonds, except as otherwise permitted by the indenture; • impair the right to institute suit for the enforcement of any payment on the bonds; • reduce any percentage of aggregate principal amount of bonds outstanding necessary to modify or amend the indenture or the terms and conditions of the bonds or to waive any future compliance or past default; or • reduce the percentage of aggregate principal amount of bonds outstanding necessary to rescind or annul any declaration of the principal of and accrued interest and additional amounts on the bonds to be due and payable. Any modifications, amendments or waivers to the indenture or to the terms and conditions of the bonds will be conclusive and binding on all holders of the bonds of such tranche, whether or not they have given consent, and on all future holders of the bonds, whether or not notation of such modification, amendments or waivers is made upon the bonds. Any instrument given by or on behalf of any holder of bonds of a given tranche for a consent to any modification, amendment or waiver will be irrevocable once given and will be conclusive and binding on all future holders of the bonds. The indenture contains provisions permitting Marconi Corporation plc and the trustee to enter into one or more supplemental indentures without the consent of the holders in order to: • evidence the succession of another corporation to Marconi Corporation plc and the assumption by the successor corporation of the covenants, agreements and obligations of Marconi Corporation plc, in accordance with to the provisions of the indenture and the bonds as described above under ‘‘—Certain covenants—Consolidation, merger, sale, lease, conveyance or other dispositions of assets’’; • add to the covenants of Marconi Corporation plc for the benefit of the holders of the bonds or surrender any right or power of Marconi Corporation plc; • add additional events of default; • secure the bonds; • ▲on or after April 1, 2001, make any changes necessary to effect a change in the form of the global security from bearer form to registered form and amend any provisions of the indenture relating to the deposit agreement; • evidence and provide for the acceptance of appointment under the indenture of a successor trustee; and • cure any ambiguity, or to correct or supplement any provision of the indenture which may be inconsistent with any other provision of the indenture or make any other provision for matters or questions arising under the indenture as long as any such action will not adversely affect the interests of holders. The indenture will provide that in determining whether the holders of the requisite principal amount of the outstanding bonds of a given tranche have given any direction, notice, consent, waiver or other action under the indenture as of any date, certain bonds, including those for whose payment or redemption money has been deposited or set aside in trust for the holders and those that have been fully defeased, will not be deemed to be outstanding. The indenture contains provisions for convening meetings of the holders of bonds of either tranche for any of the following purposes:

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• to give any notice to Marconi Corporation plc or to the trustee, or to give any directions to the trustee, or to consent to the waiving of any default under the indenture and its consequences, in each case relating to the bonds held by such holders, or to take any other action authorized to be taken by holders under the indenture; • to remove the trustee and appoint a successor trustee; • to consent to the execution of a supplemental indenture; or • to waive any covenants, before the time for compliance with such covenants, added after the date of the indenture for the beneﬁt of holders of all or either tranche of the bonds.

The quorum at any meeting will be the presence of persons holding or representing bonds of the relevant tranche in an aggregate principal amount sufﬁcient under the appropriate provision of the indenture to take action upon the business for the transaction of which the meeting was called. No action at a meeting of holders will be effective unless approved by persons holding or representing bonds of the relevant tranche in the aggregate principal amount required by the provision of the indenture. At any meeting of holders, each holder or proxy shall be entitled to one vote for each $1,000 principal amount of outstanding bonds of the relevant tranche held or represented.

Return of money unclaimed; discharge of trust Money may be deposited with the trustee or any paying agent, or held by Marconi Corporation plc, in trust for the payment of principal, interest or other amounts due. If this money remains unclaimed for two years after such principal, interest or other amounts have become due and payable, the money will be paid to Marconi Corporation plc upon request, or, if then held by Marconi Corporation plc, will be discharged from such trust. The holder of the affected bonds may afterwards, as an unsecured general creditor, look only to Marconi Corporation plc for payment. Furthermore, all liability of the trustee or paying agent for the trust money, and all liability of Marconi Corporation plc as trustee of this money, will at that time cease.

Notices and reports In the event that definitive securities are issued, notices to holders of definitive securities will be mailed to them or the first named of joint holders by first class mail, or, if first class mail is unavailable, by airmail, at their respective addresses in the register. Notices will be deemed to have been given on the fourth weekday after the date of mailing.

As long as the bonds are listed on the Luxembourg Stock Exchange and the rules of that stock exchange so require, notices relating to the bonds will be published in a leading newspaper having general circulation in Luxembourg, which is expected to be the Luxembourg Wort. This notice will be deemed to have been given on the date of publication or, if published more than once on different dates, on the ﬁrst date on which publication is made.

As long as the bonds are listed on the Luxembourg Stock Exchange and the rules of that stock exchange so require, reports ﬁled by Marconi Corporation plc with the SEC or required to be provided to the holders of the bonds under the indenture may be obtained at the ofﬁce of the paying agent in Luxembourg.

Governing law and consent to jurisdiction The bonds and the indenture will be governed by and will be construed in accordance with the laws of the State of New York. Marconi Corporation plc has agreed:

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• that any action arising out of or based upon the indenture, the deposit agreement or any of the bonds may be instituted in any state or federal court in the Borough of Manhattan, New York City; • that it will irrevocably submit to the non-exclusive jurisdiction of any such court in any such action; and • that it will appoint an authorized agent upon which process may be served in any such action.

Concerning the trustee The trustee for the bonds is The Bank of New York, which is also serving as the depositary under the deposit agreement.

Under the terms of the deposit agreement, the party serving as depositary will at all times be the party serving as trustee under the indenture.

If the trustee is deemed to have a conﬂicting interest relating to the bonds for purposes of the Trust Indenture Act of 1939, then unless the trustee is able to eliminate the conﬂicting interest, the trustee may be required to resign as trustee under the indenture. In that event, Marconi Corporation plc would be required to appoint a successor trustee under the indenture.

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TAXATION

The statements below are based on the laws in force in the United Kingdom and the United States as of the date of this prospectus. They are subject to any subsequent changes in law. Changes could be made on a retroactive basis. The following summary does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a decision to acquire, hold or dispose of bonds. It does not purport to deal with the tax consequences applicable to all categories of investors. Some investors may be subject to special rules. We are not making any representations with respect to the tax consequences to any particular bond holder. You should consult your own tax advisors concerning the overall tax consequences of your ownership of bonds.

United Kingdom

Introduction

The following describes certain U.K. tax consequences of the ownership of bonds as of the date of this prospectus, assuming that the interest paid on bonds will not exceed a reasonable commercial return. Except where noted, it relates only to the position of persons who are the absolute beneﬁcial owners of their bonds and may not apply to special situations, such as those of dealers in securities.

Payments on the bonds

No withholding or deduction on account of U.K. income tax will be required from payments of principal. For so long as bonds are represented by the global bonds, remain in bearer form and are listed on the Luxembourg Stock Exchange or some other stock exchange recognized by the U.K. Inland Revenue, no withholding or other deduction on account of U.K. income tax will be required from payments of interest where:

• the payment of interest is made through a paying agent who is not in the United Kingdom; or

• the payment of interest is made by or through a paying agent who is in the United Kingdom and either:

(1) the person beneﬁcially entitled to the interest is not resident in the United Kingdom and beneﬁcially owns the bonds from which the interest derives; or

(2) the bonds are held in a recognized clearing system,

and any other administrative conditions prescribed by regulations are satisﬁed.

In all other cases, and in particular where paid in respect of the deﬁnitive bonds in registered form, interest will, subject to what we say below, be paid after deduction of income tax at the lower rate, currently 20%, subject to any direction to the contrary by the U.K. Inland Revenue under an applicable double taxation treaty.

Where any person in the United Kingdom, acting in the course of a trade or profession:

• acts as custodian of the bonds, in respect of which he receives any interest or interest is paid at his direction or with his consent; or

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• collects or secures payments of or receives interest on the bonds for another person, except in any case by means only of clearing a check or arranging for the clearing of a check; or

• otherwise acts for another person in arranging to collect or secure payment of interest on the bonds;

the person will withhold on account of U.K. income tax at the lower rate, currently 20%, on interest and is entitled to deduct an amount to pay the U.K. withholding tax from interest or other sums due from the person or to the holder unless:

• the relevant bonds are held in a recognized clearing system and the person either:

(1) pays or accounts for the interest directly or indirectly to the recognized clearing system; or

(2) is acting as depository for the recognized clearing system;

• the person beneﬁcially entitled to the interest is not resident in the United Kingdom and beneﬁcially owns the bonds; or

• the interest arises to trustees not resident in the United Kingdom of certain discretionary or accumulation trusts, for example, where none of the beneﬁciaries of the trust are resident in the United Kingdom; or

• the person beneﬁcially entitled to the interest is eligible for relief from tax on the interest; or

• the interest falls to be treated as the income of, or of the government of, a sovereign power or of an international organization; or

• the bonds and the interest are beneﬁcially owned by a person falling into a category, prescribed by regulations made under the Income and Corporation Taxes Act 1988 or another circumstance prescribed by that Act applies.

In the case of each of the above exceptions (except sub-paragraph (2) above), further administrative conditions imposed by regulations, for instance, as to the making of a declaration in the required form, may have to be satisﬁed for the relevant exception to be available.

Interest on bonds constitutes U.K. source income for tax purposes and, as such, may be subject to income tax by direct assessment even where paid without withholding. However, except for any income tax deducted as described above, a holder who is not resident for tax purposes in the United Kingdom will not be liable to U.K. tax on interest on bonds unless that holder is chargeable to income tax or corporation tax on a branch or agency in the United Kingdom through which it carries on a trade, profession or vocation and in connection with which the interest is received or to which bonds are attributable. There are exemptions for interest received by speciﬁed categories of agent (such as some brokers and investment managers).

The Finance Act 2000 contains provisions that repeal Part IV, Chapter VIIA of the Income and Corporation Taxes Act (which contains the paying and collecting agency rules) and section 124, dealing with interest on quoted Eurobonds with effect from April 1, 2001 and replaces these obligations with the requirement to provide information to the U.K. Inland Revenue in relation to interest payments in relation to amounts paid or received on or after April 6, 2001. In addition,

126 3.8.7 29025 TX 127 Project Marlin Prospectus p15 AOGps 18 AUG 00 00:52 R. R. DONNELLEY LON(•• ) LON00000/20000 011 44 20 7330 1600 CB 01 SEP 00 22:30 with effect from April 1, 2001 these provisions allow quoted Eurobonds to be in registered form and remove the speciﬁc conditions that must currently be satisﬁed for interest on quoted Eurobonds to be payable without withholding; instead, all interest on quoted Eurobonds will be excluded from the withholding obligation contained in section 349 of the Income and Corporation Taxes Act.

U.K. corporation taxpayers In general, bondholders which are within the charge to U.K. corporation tax will be charged to tax as income on all returns on and ﬂuctuations in value of bonds broadly in accordance with their statutory accounting treatment. Bondholders will also generally be charged to tax in each accounting period by reference to interest accrued in that period.

Other U.K. taxpayers—taxation of chargeable gains Save as described below in relation to connected persons, the bonds will not constitute qualifying corporate bonds within the meaning of section 117 in the Taxation of Chargeable Gains Act 1992. Therefore a disposal (including a redemption) of a bond by a bondholder who is not subject to U.K. corporation tax in respect of the bond may give rise to a chargeable gain or an allowable loss for the purposes of U.K. taxation of chargeable gains.

The bonds will, however, be treated as relevant discounted securities where they are acquired by a person who is connected with Marconi Corporation plc or held by a person who becomes connected with Marconi Corporation plc for so long as they are held by the person. In determining whether a person is connected with Marconi Corporation plc for these purposes the test in section 839 in the Income and Corporation Taxes Act is to be used, except that no account will be taken of his rights under the bonds.

If the bonds are treated as relevant discounted securities, the bonds will represent qualifying corporate bonds. In this case, a disposal by a bondholder would not give rise to a chargeable gain or an allowable loss for the purposes of the U.K. taxation of chargeable gains.

Other U.K. taxpayers—accrued income scheme On a disposal of bonds by a bondholder, any interest which has accrued since the last interest payment date may be chargeable to tax as income if that bondholder is resident or ordinarily resident in the United Kingdom or carries on a trade in the United Kingdom through a branch or agency to which the bonds are attributable.

Stamp duty and stamp duty reserve tax No U.K. stamp duty or stamp duty reserve tax is payable on the issue or the transfer of the global bond.

Proposed EU withholding tax directive In June 1998, the European Commission presented to the Council of Ministers of the EU a proposal to oblige member states to adopt either a ‘‘withholding tax system’’ or an ‘‘information reporting system’’ in relation to interest, discounts and premiums. It is unclear whether this proposal will be adopted, and if it is adopted, whether it will be adopted in its current form. The ‘‘withholding tax system’’ would require a paying agent established in a member state to

127 3.8.7 29025 TX 128 Project Marlin Prospectus p15 AOGps 24 AUG 00 00:06 R. R. DONNELLEY LON(•• ) LON00000/20000 011 44 20 7330 1600 CB 01 SEP 00 22:30 withhold tax at a minimum rate of 20% from any interest, discount or premium paid to an individual resident in another member state unless the individual presents a certificate obtained from the tax authorities of the member state in which he or she is resident confirming that those authorities are aware of the payment due to the individual. The ‘‘information reporting system’’ would require a member state to supply, to other member states, details of any payment of interest, discount or premium made by paying agents within its jurisdiction to an individual resident in another member state. For these purposes, the term ‘‘paying agent’’ is broadly defined and includes an agent who collects interest, discounts or premiums on behalf of an individual. If this proposal is adopted, it will not apply to payments of interest, discounts and premiums made before January 1, 2001. It appears, however, from a report by the ECOFIN Council to the European Council dated June 20, 2000 that the proposals will not be adopted in their present form. The ECOFIN Council has agreed that the ultimate objective of any EU directive is the exchange of information between member states. Member states would be permitted temporarily to operate a withholding tax system if they so wish provided that an appropriate share of the tax collected is transferred to the member state in which the relevant payee is resident. The European Council has endorsed the ECOFIN Council’s report and agreement concerning the ultimate objective of any EU directive.

Payment by Marconi plc as guarantor As a matter of U.K. tax law, it is possible that payments made by Marconi plc as guarantor would be subject to withholding on account of U.K. tax. This withholding would be subject to any claim which would be made under any applicable double tax treaty.

United States

Introduction The following summarizes the principal U.S. federal income tax consequences of acquiring, holding and disposing of bonds. The discussion is based on currently existing provisions of the U.S. Internal Revenue Code of 1986, as amended, existing and proposed U.S. Treasury regulations, and current administrative rulings and court decisions, all of which are subject to change, potentially with retroactive effect. The following does not consider: • other U.S. federal taxes (such as the estate tax) or state, local or foreign tax aspects of acquiring, holding, or disposing of bonds; • speciﬁc facts and circumstances that may be relevant to particular holders in light of their personal investment circumstances or status; • special tax rules that may apply to holders, including, without limitation, tax-exempt organizations, ﬁnancial institutions, insurance companies and dealers in securities or foreign currencies; • special tax rules that may apply to holders that hold bonds as part of straddles, hedging transactions, constructive sales or conversion transactions; or • holders that did not purchase bonds as part of the initial distribution or that hold bonds other than as capital assets within the meaning of Internal Revenue Code Section 1221.

United States federal income tax consequences to U.S. bondholders The following applies to U.S. bondholders. A U.S. bondholder is a beneﬁcial owner of bonds who for U.S. federal income tax purposes is: • a citizen or resident of the United States;

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• a corporation or other entity taxable as a corporation created or organized in or under the laws of the United States or any political subdivision of the United States; • an estate whose income is subject to U.S. federal income tax regardless of its source; or • a trust if a court within the United States is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all substantial decisions of the trust.

Payments of interest on bonds Interest paid on bonds generally may be included in a U.S. bondholder’s gross income as ordinary interest income at the time payments are accrued or are received (in accordance with the U.S. bondholder’s usual method of tax accounting). Should any U.K. tax be withheld, those amounts (including additional amounts) will be included in the U.S. bondholder’s gross income.

Subject to certain limitations, you may credit against your U.S. federal tax liability or take as a deduction against your federal taxable income the amount of any U.K. tax withheld under U.K. law or the U.K. tax treaty. Interest paid on a bond will be treated as foreign source income, which may be relevant in calculating your foreign tax credit limitation. The limitation on foreign taxes eligible for credit is calculated separately with respect to speciﬁc classes of income. For this purpose, interest paid on a bond generally will constitute ‘‘passive income’’ or, in the case of certain holders, ‘‘ﬁnancial services income.’’

Sale, exchange, redemption or retirement of bonds Upon the sale, exchange, redemption or retirement of a bond, any gain or loss realized by a U.S. bondholder generally will be capital gain or loss and will be long-term capital gain or loss in the case of bonds held for more than one year. In the case of non-corporate U.S. bondholders, the maximum tax rate on capital gains arising on the disposition of assets held for more than one year is 20%. Gain on the sale, exchange, redemption or retirement of bonds by a U.S. bondholder generally will be U.S. source income. Your ability to deduct capital losses is subject to limitations.

Information reporting and backup withholding requirements with respect to U.S. bondholders U.S. information reporting requirements may apply with respect to the payment of interest on bonds. No backup withholding is required for interest payments by Marconi Corporation plc to corporate U.S. bondholders. Non-corporate U.S. bondholders may be subject to backup withholding at the rate of 31% with respect to interest when a non-corporate U.S. bondholder: • fails to furnish or certify a correct taxpayer identification number to the payor or its agent in the manner required; • is notified by the Internal Revenue Service that it has failed to report payments of interest or dividends properly; or • fails, under certain circumstances, to certify that it has not been notified by the IRS that it is subject to backup withholding for failure to report interest and dividend payments.

United States federal income tax consequences to non-U.S. bondholders The following discussion summarizes the U.S. federal income tax consequences of acquiring, holding and disposing of bonds by a foreign bondholder, that is, a holder that is not a U.S. person.

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Payments of interest on and sale, exchange, redemption or retirement of bonds

Subject to the discussion below for U.S. backup withholding, a foreign bondholder generally will not be subject to U.S. federal income tax on payments of interest on bonds, or gain from the sale, exchange, redemption or retirement of bonds unless:

• the income is effectively connected with the conduct by the foreign bondholder of a U.S. trade or business or, in the case of a resident of a country which has a treaty with the United States, the income is attributable to a permanent establishment (or in the case of an individual, a ﬁxed place of business) in the United States, in which case the foreign bondholder will be taxed on the income like a U.S. bondholder, or

• for any gain on the sale, exchange, redemption or retirement of bonds, the foreign bondholder is present in the United States for 183 days or more in the taxable year of the sale and meets certain other conditions, in which case the foreign bondholder generally will be taxed on the gain like a U.S. bondholder.

If you are a corporate foreign bondholder, effectively connected income may, under certain circumstances, be subject to an additional branch proﬁts tax at a 30% rate or at a lower rate if you are eligible for the beneﬁts of an income tax treaty that provides for a lower rate.

Information reporting and backup withholding requirements with respect to foreign bondholders

For payments made on or before December 31, 2000.

U.S. information reporting requirements and backup withholding will not apply to interest on bonds paid to foreign bondholders at an address outside the United States (provided that the payor does not have definite knowledge that the payee is a U.S. person). As a general matter, information reporting and backup withholding will not apply to a payment of proceeds from a disposition of bonds effected outside the United States by a foreign office of a foreign broker. However, information reporting requirements, but not backup withholding, will apply to a payment of the proceeds of a disposition effected outside the United States of bonds through a U.S. broker, unless the broker has documentary evidence in its records that the holder is not a U.S. person and has no actual knowledge that the evidence is false, or the foreign bondholder otherwise establishes an exemption. For purposes of the preceding sentence, a U.S. broker is a broker that is a U.S. person or has other connections to the United States. Payment by a broker of the proceeds of a disposition of bonds effected inside the United States is subject to both backup withholding at a rate of 31% and information reporting unless the foreign bondholder certifies under penalties of perjury that he is not a U.S. person and provides his name and address or the foreign bondholder otherwise establishes an exemption. Any amounts withheld under the backup withholding rules from a payment to a foreign bondholder will be allowed as a refund or a credit against the foreign bondholder’s U.S. federal income tax, provided that the required information is furnished to the IRS.

For payments made after December 31, 2000.

On October 6, 1997, the IRS issued ﬁnal regulations relating to withholding, backup withholding and information reporting that unify current certiﬁcation procedures and forms and clarify reliance standards. These regulations generally will be effective for payments made after December 31, 2000.

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UNDERWRITING Under the terms and subject to the conditions contained in an underwriting agreement dated the date of this prospectus (the ‘‘Underwriting Agreement’’), the underwriters named below, for whom Morgan Stanley & Co. Incorporated is acting as representative, have severally agreed to purchase, and Marconi Corporation plc has agreed to sell to them, severally, the respective principal amounts of the bonds set forth opposite their respective names below: Principal Principal amount of 2010 amount of 2030 Name bonds bonds Morgan Stanley & Co. Incorporated ...... $495,000,000 $495,000,000 Credit Suisse First Boston Corporation ...... 81,000,000 81,000,000 J.P. Morgan Securities Inc...... 81,000,000 81,000,000 Merrill Lynch, Pierce, Fenner & Smith Incorporated ...... 81,000,000 81,000,000 Salomon Smith Barney Inc...... 81,000,000 81,000,000 UBS Warburg LLC ...... 81,000,000 81,000,000 Total ...... $900,000,000 $900,000,000

Morgan Stanley & Co. Incorporated is acting as the global coordinator and sole bookrunner of this offering. Sales made in the United States will be made through afﬁliates of the underwriters listed above who are broker-dealers registered under the Exchange Act. The underwriting agreement provides that the obligations of the several underwriters to purchase and accept delivery of the bonds offered hereby are subject to the approval of certain legal matters by their counsel and to certain other conditions. The underwriters are obligated to take and pay for all of the bonds if any are taken. No action has been or will be taken in any jurisdiction by us or any underwriter that would permit an offering to the general public of the bonds offered hereby in any jurisdiction other than the United States. The underwriters initially propose to offer part of the bonds directly to the public at the public offering price set forth on the cover page of this prospectus and part to certain dealers at prices that represent a concession not to exceed ▲.400% of the principal amount of the 2010 bonds and .500% of the principal amount of the 2030 bonds. Any underwriter may allow, and any such dealers may reallow, a concession to other underwriters or certain other dealers not to exceed ▲.250% of the principal amount of the 2010 bonds and the 2030 bonds. After the initial offering of the bonds, the offering price and other selling terms may from time to time be varied by the representative of the underwriters. The underwriters have agreed to reimburse Marconi for certain expenses relating to the offering. The bonds are a new issue of securities with no established trading market. We have applied to list the bonds on the Luxembourg Stock Exchange. We do not intend to apply for the listing of the bonds on a U.S. national securities exchange. We have been advised by the underwriters that they intend to make a market in the bonds. However, the underwriters are not obligated to do so and may discontinue the market making at any time without notice. No assurance can be given as to the liquidity of the trading market for the bonds. We and Marconi plc have agreed with the underwriters that, without the prior written consent of Morgan Stanley & Co. Incorporated, on behalf of the underwriters, we will not, during the period ending 30 days after the date of this prospectus, offer, sell, contract to sell, or otherwise dispose of any debt securities of or guaranteed by Marconi plc or ourselves which are substantially similar to the bonds, other than any debt securities that are offered or sold outside the United States.

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Each underwriter has represented that:

(1) it has not offered or sold and, prior to the date six months after the latest closing date, will not offer or sell any bonds to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995, as amended (the ‘‘Regulations’’);

(2) it has complied and will comply with all applicable provisions of the Financial Services Act 1986 and the Regulations with respect to anything done by it in relation to the Bonds in, from or otherwise involving the United Kingdom; and

(3) it has only issued or passed on, and will only issue or pass on, in the United Kingdom any document received by it in connection with the sale of the bonds, to a person who is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996, or is a person to whom the document may otherwise be lawfully be issued or passed on.

In order to facilitate the offering of the bonds, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the bonds. Speciﬁcally, the underwriters may over-allot in connection with the offering, creating a short position in the bonds for their own account. In addition, to cover over-allotments or to stabilize the price of the bonds, the underwriters may bid for, and purchase, bonds in the open market. Finally, the underwriting syndicate may reclaim selling concessions allowed to an underwriter or a dealer for distributing the bonds in the offering if the syndicate repurchases previously distributed bonds in transactions to cover syndicate short positions, in stabilization transactions or otherwise. Any of these activities may stabilize or maintain the market price of the bonds above independent market levels. The underwriters are not required to engage in these activities and may end any of these activities at any time.

We have agreed to indemnify the several underwriters against certain liabilities, including liabilities under the Securities Act.

Morgan Stanley Dean Witter will be facilitating internet distribution for this offering to certain of its internet subscription customers. Morgan Stanley Dean Witter may make an electronic prospectus available on its website for these customers. Other than the prospectus in electronic format, the information on this website relating to this offering is not a part of this prospectus.

Certain of the underwriters and their respective affiliates have, from time to time, performed various investment or commercial banking and financial advisory services for us. In particular, Credit Suisse First Boston, Morgan Guaranty Trust Company of New York, Citibank N.A. and UBS AG, each of which is an affiliate of one of our underwriters, are lenders under the 1998 credit facility and will receive a portion of the amounts repaid under that credit facility with the net proceeds of the offering. See ‘‘Use of Proceeds’’. Because over 10% of the net proceeds is intended to be paid to affiliates of members of the National Association of Securities Dealers, Inc. that are participating in the distribution of the bonds, the offering is being made pursuant to Rule 2710(c)(8) of the Conduct Rules of the NASD.

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NOTICE TO CANADIAN RESIDENTS Resale Restrictions The distribution of the bonds in Canada is being made only on a private placement basis exempt from the requirement that we prepare and ﬁle a prospectus with the securities regulatory authorities in each province where trades of bonds are effected. Accordingly, any resale of the bonds in Canada must be made in accordance with applicable securities laws which will vary depending on the relevant jurisdiction, and which may require resales to be made in accordance with available statutory exemptions or pursuant to a discretionary exemption granted by the applicable Canadian securities regulatory authority. Purchasers are advised to seek legal advice prior to any resale of the bonds.

Representatives of Purchasers Each purchaser of bonds in Canada who receives a purchase confirmation will be deemed to represent to us and the dealer from whom that purchaser confirmation is received that (i) he is entitled under applicable provincial securities laws to purchase the bonds without the benefit of a prospectus qualified under securities laws, (ii) where required by law, that he is purchasing as principal and not as agent, and (iii) he has reviewed the text above under ‘‘Resale Restrictions’’.

Rights of Action (Ontario Purchasers) The securities being offered are those of a foreign issuer and Ontario purchasers will not receive the contractual rights of action prescribed by Ontario securities law. As a result, Ontario purchasers must rely on other remedies that may be available, including common law rights of action for damages or rescission or rights of action under the civil liability provisions of the U.S. federal securities laws. Following a decision of the U.S. Supreme Court, it is possible that Ontario purchasers will not be able to rely upon the remedies set out in Section 12(a)(2) of the U.S. Securities Act of 1933 where securities are being offered under a U.S. private placement memorandum such as this document.

Enforcement of Legal Rights All of our directors and ofﬁcers as well as the experts named in this offering memorandum may be located outside of Canada and, as a result, it may not be possible for Canadian purchasers to effect service of process within Canada upon us or those persons. All or a substantial portion of our assets and those persons may be located outside of Canada and, as a result, it may not be possible to satisfy a judgement against us or those persons in Canada or to enforce a judgement obtained in Canadian courts against us or persons outside of Canada.

Notice of British Columbia Residents A purchaser of bonds to whom the Securities Act (British Columbia) applies is advised that he is required to ﬁle with the British Columbian Securities Commission a report within ten days of the sale of any bonds acquired by him pursuant to this offering. This report must be in the form attached to the British Columbia Securities Commission Blanket Order BOR #95/17, a copy of which may be obtained from us. Only one report must be ﬁled in respect of bonds acquired on the same date and under the same prospectus exemption.

Taxation and Eligibility for Investment Canadian purchasers of bonds should consult their own legal and tax advisors with respect to the tax consequences of an investment in the Bonds in their particular circumstances and with respect to eligibility of the notes for investment by the purchaser under relevant Canadian legislation.

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LEGAL MATTERS

Freshﬁelds Bruckhaus Deringer, U.K. counsel for Marconi Corporation plc and Marconi plc, and Cleary, Gottlieb, Steen & Hamilton, counsel for the underwriters, will pass upon certain matters under English law. Cravath, Swaine & Moore, U.S. counsel for Marconi Corporation plc and Marconi plc, and Cleary, Gottlieb, Steen & Hamilton, counsel for the underwriters, will pass upon certain matters under U.S. law.

EXPERTS

The consolidated ﬁnancial statements of Marconi plc as of March 31, 1999 and 2000 and for the years then ended included in the prospectus have been audited by Deloitte & Touche, independent auditors, as stated in their report appearing in this prospectus, and are included in reliance upon the reports of such ﬁrm given upon their authority as experts in accounting and auditing.

The consolidated ﬁnancial statements of Fore Systems as of March 31, 1999, and for the year then ended included in this prospectus have been so included in reliance on the report PricewaterhouseCoopers LLP, independent accountants, have given on the authority of said ﬁrm as experts in accounting and auditing.

SERVICE OF PROCESS AND ENFORCEMENT OF CIVIL LIABILITIES

We are organized under the laws of England and Wales. Most of our directors, executive officers and certain of the experts named in this prospectus are residents outside the United States. A substantial portion of our assets and those of such directors, officers and experts are located outside the United States. As a result, it may be difficult for you: • to effect service of process within the United States upon us or such persons; • to enforce outside the U.S. judgments obtained against such persons in U.S. courts; or • to enforce in U.S. courts judgments obtained against such persons in courts in jurisdictions located outside the United States; in each case in any action, including actions predicated upon the civil liability provisions of U.S. securities laws.

In addition, it may be difﬁcult for you to enforce, in original actions brought in courts in jurisdictions located outside the United States, rights predicated upon the U.S. securities laws.

We have designated Patricia A. Hoffman of Marconi Inc., 1500 Mittel Boulevard, Wood Dale, Illinois, U.S.A. 60191-1073 (telephone: 680-238-3995), as our agent for service of process in the United States with respect to the bonds.

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WHERE YOU CAN FIND MORE INFORMATION

We have ﬁled with the SEC a registration statement on Form F-1 under the Securities Act and the related rules and regulations concerning the bonds we propose to sell in this offering. This prospectus, which forms a part of the registration statement, does not contain all the information set forth in the registration statement, certain parts of which have been omitted as permitted by SEC rules and regulations. For further information about us and the bonds we propose to sell in this offering, you should refer to the registration statement and the exhibits and schedules ﬁled as a part of the registration statement.

Marconi plc is presently subject to the information and periodic reporting requirements of the Exchange Act. As a result of the offering of bonds under this prospectus, ▲Marconi Corporation plc will become subject to the information and periodic reporting requirements of the Exchange Act. We are exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements to shareholders, and our officers, directors and principal shareholders are exempt from the reporting and ‘‘short swing’’ profit recovery provisions contained in Section 16 of the Exchange Act. As a foreign private issuer, we are not required by the Exchange Act to publish financial statements as frequently or promptly as U.S. companies. We will, however, fulfill our obligations with respect to such requirements by filing periodic reports and other information with the SEC. We intend to furnish annual reports containing consolidated financial statements certified by an independent public accounting firm.

You may read and copy all or any portion of the registration statement and its exhibits at the public reference facilities maintained by the SEC, 450 Fifth Street, N.W., Judiciary Plaza, Room 1024, Washington, D.C. 20549, and at its regional offices at Seven World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. You may request copies of all or any portion of these documents, upon payment of a duplication fee, by writing to the public reference section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain more information about the public reference room by calling the SEC at 1-800-SEC-0330. We do not file electronically with the SEC and, consequently, the registration statement and other reports and information we file with the SEC are not available on the website maintained by it.

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Marconi plc and subsidiaries Consolidated ﬁnancial statements for the years ended March 31, 1999 and 2000

Page Independent auditors’ report ...... F-2 Consolidated balance sheets ...... F-3 Consolidated statements of income ...... F-4 Consolidated statements of cash ﬂows ...... F-5 Consolidated statements of comprehensive income/(loss) ...... F-6 Consolidated statements of shareholders’ equity ...... F-6 Notes to consolidated ﬁnancial statements ...... F-7

Fore Systems, Inc. Consolidated ﬁnancial statements for the year ended March 31, 1999

Report of independent accountants ...... F-43 Consolidated statement of operations ...... F-44 Consolidated balance sheet ...... F-45 Consolidated statement of changes in common stock and stockholders’ equity ...... F-46 Consolidated statement of cash ﬂows ...... F-47 Statement of comprehensive income (loss) ...... F-48 Notes to consolidated ﬁnancial statements ...... F-49

F-1 3.8.7 29025 FIN 2 Project Marlin Prospectus p15 AOGps 07 AUG 00 21:02 R. R. DONNELLEY LON(•• ) LON00000/20000 011 44 20 7330 1600 CB 01 SEP 00 22:30

INDEPENDENT AUDITORS’ REPORT

To the board of directors and shareholders of Marconi plc

We have audited the accompanying consolidated balance sheets of Marconi plc and subsidiaries (‘‘Marconi’’) as of March 31, 1999 and 2000 and the related consolidated statements of income, cash flows, comprehensive income and shareholders’ equity for each of the two fiscal years in the period ended March 31, 2000. These consolidated financial statements are the responsibility of Marconi’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Marconi as of March 31, 1999 and 2000, and the consolidated results of its operations and its cash flows for each of the two fiscal years in the period ended March 31, 2000 in conformity with accounting principles generally accepted in the United States of America.

DELOITTE &TOUCHE

London, England August 7, 2000

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Marconi plc and subsidiaries CONSOLIDATED BALANCE SHEETS March 31, 1999 £ 2000 £ 2000 U.S.$ (In millions, except share data) ASSETS Current assets Cash and cash equivalents ...... 1,418 555 884 Marketable securities ...... 80 178 283 Accounts receivable, net of allowance for doubtful accounts ...... 1,303 1,906 3,035 Inventories ...... 616 946 1,506 Prepaid expenses and other current assets ...... 65 91 145 Net assets of discontinued operations ...... 2,508 — — Total current assets ...... 5,990 3,676 5,853 Property, plant and equipment, net ...... 470 758 1,207 Marketable securities ...... 78 14 22 Investments in afﬁliates ...... 470 574 914 Deferred income taxes ...... 86 31 49 Goodwill and other intangibles, net ...... 1,174 4,843 7,711 Other noncurrent assets ...... 24 103 163 TOTAL ASSETS ...... 8,292 9,999 15,919 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities Short-term borrowings ...... 836 1,821 2,899 Current maturities of long-term debt...... 15 9 14 Accounts payable ...... 561 825 1,314 Accrued expenses and other current liabilities ...... 1,086 1,652 2,630 Deferred income taxes ...... 104 537 855 Total current liabilities ...... 2,602 4,844 7,712 Long-term debt ...... 53 939 1,495 Other liabilities ...... 79 139 221 Commitments and contingencies (Note 21) Minority interests ...... 11 16 25 Shareholders’ equity Ordinary shares, £0.05 par value; Authorized: 3,500,000,000 shares in 1999 and 6,000,000,000 shares in 2000; Issued and outstanding: 2,677,305,566 shares in 1999 and 2,723,996,450 shares in 2000 ...... 134 136 217 Additional paid-in capital ...... 280 486 774 Retained earnings ...... 5,416 3,577 5,695 Accumulated other comprehensive income/(loss) ...... (283) (138) (220) Total shareholders’ equity ...... 5,547 4,061 6,466 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY ...... 8,292 9,999 15,919

See notes to consolidated ﬁnancial statements.

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Marconi plc and subsidiaries CONSOLIDATED STATEMENTS OF INCOME

Fiscal year ended March 31, 1999 £ 2000 £ 2000 U.S.$ (In millions, except share data) Revenues ...... 3,789 5,437 8,657 Direct costs ...... 2,510 3,497 5,568 Gross proﬁt ...... 1,279 1,940 3,089 Operating expenses Selling, general and administrative ...... 597 1,066 1,697 Research and development ...... 214 384 611 Amortization of goodwill and other intangibles ...... 92 495 788 Purchased in-process research and development ...... — 277 441 Total operating expenses ...... 903 2,222 3,537 Operating income/(loss) ...... 376 (282) (448) Other income/(expense) Gain on sale of investments ...... 850 4 6 Equity in net income of afﬁliates ...... 87 83 132 Interest income ...... 93 106 169 Interest expense ...... (55) (214) (341) Income/(loss) from continuing operations before income taxes and minority interests ...... 1,351 (303) (482) Income tax provision ...... (458) (84) (134) Minority interests ...... (12) (3) (5) Income/(loss) from continuing operations ...... 881 (390) (621) Discontinued operations Income from discontinued operations, net of income tax ...... 248 — — Gain on discontinued operations, net of income tax ...... — 675 1,075 Net income ...... 1,129 285 454

Earnings per share—basic Income/(loss) from continuing operations ...... £ 0.32 £ (0.14) $ (0.23) Income from discontinued operations...... £ 0.09 £ 0.00 $ 0.00 Gain on discontinued operations ...... £ — £ 0.25 $ 0.40 Net income ...... £ 0.41 £ 0.11 $ 0.17 Earnings per share—diluted Income/(loss) from continuing operations ...... £ 0.32 £ (0.14) $ (0.23) Income from discontinued operations...... £ 0.09 £ 0.00 $ 0.00 Gain on discontinued operations ...... £ — £ 0.24 $ 0.39 Net income ...... £ 0.41 £ 0.10 $ 0.16

See notes to consolidated ﬁnancial statements.

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Marconi plc and subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended March 31, 1999 £ 2000 £ 2000 U.S.$ (In millions) Cash flows from operating activities: Net income ...... 1,129 285 454 Adjustments to reconcile net income to net cash provided by/(used for) operating activities: Income from discontinued operations ...... (248) — — Depreciation and amortization ...... 200 650 1,035 Purchased in-process research and development ...... — 277 441 Provision for doubtful accounts ...... 14 32 51 Change in deferred income taxes ...... 133 (110) (175) Equity in net income of affiliates ...... (87) (83) (132) Change in minority interests ...... (12) 3 5 Gain on sale of discontinued operations ...... — (675) (1,075) Gain on sale of investments in affiliates ...... (850) — — Changes in operating assets and liabilities, net of the effect of acquisitions: Accounts receivable ...... (169) (311) (495) Inventories ...... (40) (105) (167) Prepaid expenses and other assets ...... (8) 82 130 Accounts payable ...... 29 (292) (465) Accrued expenses and other liabilities ...... (240) 678 1,079 Net cash provided by/(used for) operating activities ...... (149) 431 686 Cash flows from investing activities: Maturities of marketable securities ...... 147 147 234 Purchases of marketable securities ...... (3) (5) (8) Dividends received from affiliates ...... 426 68 108 Proceeds from the sale of investments in affiliates ...... 1,049 — — Purchases of property, plant and equipment ...... (171) (299) (476) Proceeds from the sale of property, plant and equipment ...... 93048 Net proceeds from the separation of discontinued operations ...... — 1,179 1,877 Change in other noncurrent assets ...... 46 10 Net cash paid for investments in affiliates ...... — (132) (210) Net cash paid for acquisitions ...... (958) (3,974) (6,328) Net cash provided by/(used for) investing activities ...... 503 (2,980) (4,745) Cash flow from financing activities: Short-term borrowings/(repayments), net ...... 694 1,208 1,924 Term loan borrowings/(repayments), net ...... (4) 657 1,046 Dividends paid...... (218) (397) (632) Deferred compensation ...... —4775 Issuances of common stock ...... 27 161 256 Repurchases of common stock ...... (310) — — Net cash provided by financing activities ...... 189 1,676 2,669 Cash provided by/(used in) discontinued operations ...... (135) 165 263 Effects of exchange rate changes on cash ...... (16) (155) (247)

Net increase/(decrease) in cash and cash equivalents ...... 392 (863) (1,374) Cash and cash equivalents, beginning of year ...... 1,026 1,418 2,258 Cash and cash equivalents, end of year ...... 1,418 555 884

Supplemental disclosure of cash ﬂow activity: Cash payments for interest ...... 57 148 236 Cash payments for income taxes ...... 301 114 182

Acquisitions: Tangible assets acquired ...... 42 543 865 Intangible assets acquired ...... 991 4,364 6,948 Liabilities assumed ...... (65) (796) (1,267) Total cash paid for acquisitions ...... 968 4,111 6,546 See notes to consolidated ﬁnancial statements.

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Marconi plc and subsidiaries CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)

Fiscal year ended March 31, 1999 £ 2000 £ 2000 U.S.$ (In millions) Net income ...... 1,129 285 454 Other comprehensive income Accumulated translation adjustments ...... 24 44 70 Unrealized holding gains arising during the year, net of income tax of £7 in 1999 and £27 in 2000, respectively...... 32 101 161 Comprehensive income ...... 1,185 430 685

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Accumulated Additional other Ordinary shares paid-in Retained comprehensive Shares Amount capital earnings income/(loss) Total (In millions, except share data) As of March 31, 1998 ...... 2,721,204,288 136 251 4,927 (339) 4,975 Net income ...... 1,129 1,129 Dividends paid (£0.12 per share) ...... (330) (330) Issuance of ordinary shares under share option plans ... 10,429,438 1 26 27 Ordinary shares repurchased and cancelled ...... (54,328,160) (3) 3 (310) (310) Unrealized holding gains on investments ...... 32 32 Translation adjustments ...... 24 24 As of March 31, 1999 ...... 2,677,305,566 134 280 5,416 (283) 5,547 Net income ...... 285 285 Dividends paid (£0.11 per share) ...... (285) (285) Distribution of net assets of discontinued operations .... (1,839) (1,839) Issuance of ordinary shares under share option plans ... 46,690,884 2 159 161 Deferred compensation ...... 47 47 Unrealized holding gains on investments ...... 101 101 Translation adjustments ...... 44 44 As of March 31, 2000 ...... 2,723,996,450 136 486 3,577 (138) 4,061

See notes to consolidated ﬁnancial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Background and basis of presentation Nature of operations Marconi plc was incorporated on September 17, 1999 as the new holding company for certain businesses of The General Electric Company, p.l.c. (‘‘GEC’’) group that remained after the separation of GEC’s international aerospace, naval shipbuilding, defense electronics and defense systems business from GEC and the merger of that business with British Aerospace. This transaction, and the accounting treatment, is set out in greater detail in footnote 18. We have not presented separate ﬁnancial statements or other ﬁnancial disclosures regarding Marconi Corporation plc. Marconi Corporation plc is a wholly-owned subsidiary of Marconi plc. There is no difference between the consolidated assets, liabilities and results of operations of Marconi plc and the consolidated assets, liabilities and results of operations of Marconi Corporation plc, except for non-interest bearing intercompany loans totalling £304 million payable by Marconi Corporation plc group companies to other companies in the Marconi plc group which are not subsidiaries of Marconi Corporation plc. These differences are not material. During the year ending March 31, 2001, Marconi Corporation plc plans to offer debt in the U.S. public debt market. Marconi will fully and unconditionally guarantee this issuance.

2. Summary of signiﬁcant accounting policies Basis of consolidation The consolidated ﬁnancial statements include the accounts of Marconi plc and its subsidiaries. All intercompany balances and transactions have been eliminated.

Use of estimates The preparation of the consolidated ﬁnancial statements and related disclosures in conformity with generally accepted accounting principles in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the ﬁnancial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are used for, but not limited to, the accounting for doubtful accounts, depreciation and amortization, sales returns, warranty costs, taxes and contingencies. Actual results could differ from these estimates.

Cash and cash equivalents All highly liquid investments with original maturities of three months or less are considered to be cash equivalents.

Marketable securities Marketable securities intended to be held to maturity are carried at amortized cost. All other marketable securities are classified as available for sale and recorded at current market value. Net unrealized holding gains and losses are reported as a separate component of shareholders’ equity. Realized gains and losses on the sale of securities available for sale are determined using the specific-identification method.

Inventories Inventories are stated at the lower of cost, determined on a weighted-average basis, or market value.

Property, plant and equipment Property, plant and equipment is stated at cost. Depreciation expense is computed using the straight-line method over the estimated useful lives of the depreciable assets. The estimated

F-7 3.8.7 29025 FIN 8 Project Marlin Prospectus p15 AOGps 24 JUL 00 17:41 R. R. DONNELLEY LON(•• ) LON00000/20000 011 44 20 7330 1600 CB 01 SEP 00 22:30 useful lives for buildings and improvements are between 25 and 50 years and the estimated useful lives for machinery and equipment are between 3 and 10 years. Signiﬁcant improvements which substantially extend the useful lives of assets are capitalized. Maintenance and repairs are charged to expense as incurred. Upon disposal of an asset, its accumulated depreciation is deducted from the original cost and any gain or loss is reﬂected in current earnings.

Long-lived assets Marconi evaluates the carrying value of long-lived assets, whenever events or changes in circumstances indicate that the carrying value of the asset may be impaired. An impairment loss is recognized when estimated future cash ﬂows, on an undiscounted basis, expected to result from the use of the asset including disposition, is less than the carrying value of the asset. Based on these evaluations, there were no adjustments to the carrying value of goodwill or other long- lived assets in 1999 or 2000.

Investments in affiliates Investments in affiliates and joint ventures over which Marconi has the ability to exercise significant influence, but not a controlling interest (generally a 20%-50% ownership interest), are accounted for using the equity method. Under this method, the investment is carried at cost of acquisition plus Marconi’s equity in undistributed earnings or losses since the date of acquisition.

Subsidiary stock issuances Marconi recognizes in income, gains and losses on the issuance of stock by its subsidiaries and afﬁliates.

Income taxes Marconi recognizes deferred tax assets and liabilities using enacted tax rates to calculate temporary differences between the tax basis of assets and liabilities and the ﬁnancial statement carrying amounts.

Goodwill and other intangible assets Goodwill, which represents the excess of cost over the fair value of net assets acquired, is amortized using the straight-line method over periods ranging from 10 to 20 years. Other intangible assets are carried at cost and are amortized using the straight-line method over the estimated periods to be beneﬁted, ranging from 5 to 15 years. Amortization expense for the ﬁscal years ended March 31, 1999 and 2000, was £92 million and £495 million, respectively.

Marconi periodically evaluates the recoverability of goodwill and other intangible assets by comparing the net book value of such assets to expected future cash flows, on an undiscounted basis, over the remaining amortization period of the asset. Marconi measures impairment for enterprise level goodwill and identifiable intangible assets and goodwill associated with long- lived assets based on a discounted cashflow analysis. Based on these evaluations, there were no adjustments to the carrying value of goodwill and other intangible assets in 1999 or 2000.

Foreign currency translation For operations outside the United Kingdom that prepare ﬁnancial statements in currencies other than pounds sterling, results of operations and cash ﬂows are translated at the weighted average exchange rates during the period and assets and liabilities are translated at the end-of-

F-8 3.8.7 29025 FIN 9 Project Marlin Prospectus p15 AOGps 16 AUG 00 20:02 R. R. DONNELLEY LON(•• ) LON00000/20000 011 44 20 7330 1600 CB 01 SEP 00 22:30 period exchange rates. Translation adjustments are included as a separate component of shareholder’s equity. Key exchange rates used are as follows:

Average rates Year-end rates Fiscal Year Ended March 31, March 31, 1999 2000 1999 2000 U.S. Dollar...... 1.66 1.62 1.61 1.60 French Franc ...... 9.71 10.21 9.81 10.94 Italian Lira...... 2,861 3,015 2,895 3,228 Euro ...... 1.47 1.56 1.50 1.67

Convenience translation The consolidated financial statements are presented in millions of U.K. pounds sterling. In addition, the consolidated financial statements as of and for the fiscal year ended March 31, 2000 are also presented in U.S. dollars. These U.S. dollar amounts are unaudited and are presented solely for the convenience of the reader at the rate of £1.00 = $1.5922, the noon buying rate of the U.S. Federal Reserve Bank as of March 31, 2000. No representation is made that the amounts shown could have been or could be converted into U.S. dollars at that or any other rate.

Concentrations of credit risk Financial instruments that potentially subject Marconi to concentrations of credit risk consist principally of trade accounts receivable. Concentration of credit risk with respect to trade receivables is limited due to the large number of customers and their geographic dispersion.

Derivative instruments Marconi uses foreign currency exchange contracts and interest rate swaps agreements to manage and reduce risk to Marconi by generating cash flows, which offset the foreign currency or interest rate cash flows of certain transactions of underlying financial instruments in relation to their amount and timing. Marconi’s derivative financial instruments are for purposes other than trading and are not entered into for speculative purposes. Marconi’s non-derivative financial instruments include letters of credit, commitments to extend credit and guarantees of debt. Marconi generally does not require collateral to support its financial instruments.

Derivative ﬁnancial instruments are used by the Company to manage its interest rate and foreign currency exposures. The Company does not enter into ﬁnancial instruments for trading or speculative purposes. Instruments used for hedging purposes include interest rate swaps, tax equalization swaps and forward foreign exchange contracts. In the event that it is determined that a hedge is ineffective, including when the hedged transaction on longer exists, the Company recognizes in income the change in market value of the instrument from when it was no longer an effective hedge. Gains and losses on hedges realized before the settlement date of the related hedged transaction are deferred and recognized in income in the same period as the hedged transaction.

Payments and receipts under interest rate swap agreements speciﬁcally designated for hedging purposes are recorded under interest income and interest expense on an accrual basis. Tax equalization swaps, which qualify as hedges of foreign currency exposures, are recognized through accumulated other comprehensive income (in accordance with the underlying transaction and the tax thereon) with any forward premium or discount recognized over the life

F-9 3.8.7 29025 FIN 10 Project Marlin Prospectus p15 AOGps 16 AUG 00 20:03 R. R. DONNELLEY LON(•• ) LON00000/20000 011 44 20 7330 1600 CB 01 SEP 00 22:30 of the contract in net interest income. Gains and losses on foreign currency denominated debt, which is designated and effective as an economic hedge of net investments in foreign subsidiaries, are recognized through other comprehensive income.

Forward foreign exchange contracts generally exhibit a high correlation to the hedged items and are designated and considered effective as hedges of the underlying assets, liabilities and ﬁrm commitments. Gains and losses on forward foreign exchange contracts which are designated as hedges of assets, liabilities and ﬁrm commitments of the group, and which are denominated in foreign currencies relative to the functional currency of the transacting Marconi subsidiary, are recognized in income or as adjustments to carrying amounts when the hedged transactions occur.

Fair values of exchange contracts are determined using published rates. Hedges which cease to be effective or are terminated prior to maturity are measured at fair value and any proﬁt or loss is recognized through interest income or expense.

Revenue recognition Revenue from product sales of hardware and software is recognized at time of delivery and acceptance. Terms of acceptance are dependent upon the speciﬁc contractual arrangement agreed with the customer. These terms vary by contract and include delivery and acceptance as of: • shipment date; • delivery to a customer site of operations: or • shipment to a customer site of operations and installation/testing.

In addition, revenue is recognized only when collectability is probable.

Revenue from multiple element contracts is allocated based on prices charged for each individual element when sold separately.

Revenue from services are recognized at time of performance.

Revenues and estimated proﬁts on long-term contracts are recognized under the percentage- of-completion method of accounting using a cost-to-cost methodology. Proﬁt estimates are revised periodically based on changes in facts. When estimates of total contract revenues and costs indicate a loss, a provision for the entire amount of the contract loss is recognized in the period in which the loss becomes evident.

Research and development costs Research and development costs are expensed as incurred unless speciﬁcally billable to and recoverable from customers under agreed contract terms of underlying agreements.

Earnings per share Basic earnings per share is computed by dividing net income by the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share further reflects all potential dilution of ordinary shares, including the assumed exercise of dilutive share options.

Comprehensive income Marconi has adopted the provisions of Statement of Financial Accounting Standards No. 130, ‘‘Reporting Comprehensive Income’’. SFAS 130 establishes standards for reporting comprehensive income and its components in the general-purpose ﬁnancial statements. The

F-10 3.8.7 29025 FIN 11 Project Marlin Prospectus p15 AOGps 07 AUG 00 21:59 R. R. DONNELLEY LON(•• ) LON00000/20000 011 44 20 7330 1600 CB 01 SEP 00 22:30 primary difference between Marconi’s net income and its total comprehensive income for ﬁscal years 1999 and 2000 include unrealized gains and losses on available-for-sale marketable securities and the accumulated translation adjustment.

Recently issued accounting pronouncements During the fiscal year ended March 31, 2000, Marconi adopted Statement of Position (‘‘SOP’’) No. 98-1: ‘‘Accounting for the Costs of Computer Software Developed or Obtained for Internal Use’’. SOP No. 98-1 provides guidance on accounting for computer software costs that are developed or obtained for internal use and requires that only certain costs of acquiring or developing internal-use software be capitalized and amortized to expense over the expected useful life of the software. The adoption of SOP No. 98-1 did not have a material impact on the Marconi’s results of operations, financial position or cash flows. During the fiscal year ended March 31, 2000, Marconi adopted SOP No. 98-5: ‘‘Reporting on the Costs of Start-up Activities’’. SOP No. 98-5 provides guidance on the financial reporting of start-up costs and organization costs and requires such costs to be expensed as incurred. The adoption of SOP No. 98-5 did not have a material impact on Marconi’s results of operations, financial position or cash flows. In June 1999, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 137: ‘‘Accounting for Derivative Instruments and Hedging Activities— Deferral of the Effective Date of FASB No. 133 an amendment of FASB Statement No. 133’’, which defers the effective date of SFAS No. 133: ‘‘Accounting for Derivative Instruments and Hedging Activities’’ for fiscal years commencing after June 15, 2000. Marconi will adopt SFAS No. 133 for the fiscal year ending March 31, 2002. SFAS 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as a certain type of hedging instrument. Marconi is currently evaluating the impact of adopting SFAS 133, but does not expect such adoption to have a material impact on its results of operations, financial position or cash flows. In December 1999, the SEC issued Staff Accounting Bulletin (‘‘SAB’’) No. 101: ‘‘Revenue Recognition’’ which provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosure impact with respect to revenue recognition policies. The adoption of SAB 101 did not have a material impact on Marconi’s results of operations, financial position or cash flows.

3. Business combinations During the two years ended March 31, 2000, Marconi completed a number of acquisitions for an aggregate consideration of £5.1 billion. The acquisitions consisted of Reltec Corporation for approximately £1.0 billion, Fore Systems for £2.9 billion, GPT for approximately £700 million and others totalling approximately £500 million. The excess of consideration given over the fair value of net assets acquired with these acquisitions has been recorded as goodwill of £2.6 billion and intangible assets of £1.4 billion. The total purchased in-process research and development was associated with two of these acquisitions and amounted to £277 million (see below). Marconi’s acquisitions have all been accounted for under the purchase method of accounting. Accordingly, for ﬁnancial reporting purposes, an allocation of the purchase price has been made using estimated fair values of the assets acquired and liabilities assumed as of the acquisition dates in accordance with Accounting Principles Board Opinion No. 16, ‘‘Business Combinations’’. The results of operations from these acquisitions have been included in the accompanying consolidated ﬁnancial statements since their respective dates of acquisition.

F-11 3.8.7 29025 FIN 12 Project Marlin Prospectus p15 AOGps 07 AUG 00 22:01 R. R. DONNELLEY LON(•• ) LON00000/20000 011 44 20 7330 1600 CB 01 SEP 00 22:30

In connection with the acquisitions of Fore Systems and Reltec (as discussed below) during the ﬁscal year ended March 31, 2000 £174 million of the purchase price for Fore Systems and £103 million for Reltec have been identiﬁed as purchased in-process research and development costs. Subsequent to the acquisition dates, these amounts were expensed immediately. Marconi used fair market appraisals to determine the amount of purchased in-process research and development and believes that the write-off of these amounts is appropriate, as these research and development projects had not yet achieved technological feasibility and did not have any alternative use as of the acquisition dates.

Fore Systems In June 1999, Marconi acquired substantially all of the outstanding shares of Fore Systems for approximately £2.9 billion. Fore Systems is a global supplier of upgradeable, resilient and high- capacity switching products and services for businesses in both the enterprise and carrier markets.

The fair market appraisal of acquired assets and liabilities resulted in £2,927 million being assigned to goodwill and intangible assets, as set forth below (in millions):

Estimated useful life Valuation (Years) £ Core developed technology...... 6 602 In-process research and development ...... — 174 Customer base ...... 6 121 Assembled work force ...... 528 Internal use software ...... 8.5 23 Total ...... 948 Goodwill ...... 10 1,979

Reltec In April 1999, Marconi acquired Reltec for a total purchase price of approximately £1.0 billion, excluding assumed debt of approximately £0.2 billion. Reltec is a supplier of a broad range of telecommunications systems, based on local loop access products.

The fair market appraisal of acquired assets and liabilities resulted in £1,344 million being assigned to goodwill and other identiﬁed intangible assets, as set forth below (in millions);

Estimated useful life Valuation (Years) £ Core developed technology...... 10 312 In-process research and development ...... — 103 Customer base ...... 15 275 Trademarks and trade names ...... 15 35 Patents ...... 93 Assembled work force ...... 541 Total ...... 769 Goodwill ...... 15 575

Other Acquisitions In August 1998 the 40% minority stake in GPT held by Siemens was acquired for a cost of £700 million.

F-12 3.8.7 29025 FIN 13 Project Marlin Prospectus p15 AOGps 07 AUG 00 22:01 R. R. DONNELLEY LON(•• ) LON00000/20000 011 44 20 7330 1600 CB 01 SEP 00 22:30

The GPT business produces Synchronious Digital Hierarchy technology and is based in Coventry, England.

The fair market appraisal of acquired assets and liabilities resulted in £594 million being assigned to goodwill, and other identiﬁed intangible assets, as set forth below:

Estimated useful life Valuation (Years) £ Customer base ...... 55 Core developed technology ...... 7 288 Total ...... 293 Goodwill...... 15 301

Purchased in-process research and development Included in the purchase price allocation for the above acquisitions was purchased in-process research and development. For each acquisition, a fair market appraisal was performed to assess and allocate a value to purchased in-process research and development. The value allocated to purchased in-process research and development represents the estimated fair value based on risk-adjusted future cash flows generated from the products that would result from each of the in-process projects. Estimated future after-tax cash flows of each project, on a product by product basis, were based on management’s estimates of revenue less operating expenses, cash flow adjustments, income taxes and charges for the use of contributory assets. Future cash flows were also adjusted for the value contributed by any core technology and development efforts that were completed post acquisition.

Revenues were estimated based on relevant market size and growth factors, expected industry trends, individual product sale cycles, the estimated life of each product’s underlying technology and historical pricing. Estimated operating expenses include cost of goods sold, selling, general and administrative expenses and research and development expenses. The estimated research and development expenses include costs to maintain the products once they have been introduced into the market and are generating revenues and costs to complete the purchased in-process research and development. Operating expense estimates were consistent with historical margins and expense levels for similar products.

The discount rates used to discount the projected net returns were based on a weighted- average cost of capital relative to Fore Systems and Reltec and the telecommunications industry, as well as the product-speciﬁc risk associated with the purchased in-process research and development products. Product-speciﬁc risk includes the stage of completion of each project, the complexity of the development work completed to date, the likelihood of achieving technological feasibility and market acceptance.

Fore Systems During the 12 months ended March 31, 2000, Fore Systems recorded a charge of £174 million for purchased in-process research and development acquired in connection with the Fore Systems transaction.

A brief description of purchased in-process research and development projects is set forth below including an estimated percentage of completion of products within each project at the acquisition dates.

F-13 3.8.7 29025 FIN 14 Project Marlin Prospectus p15 AOGps 24 AUG 00 00:02 R. R. DONNELLEY LON(•• ) LON00050/20000 011 44 20 7330 1600 CB 01 SEP 00 22:30

As of the acquisition date, management’s estimations of the overall progress towards completion of projects is based on completion in terms of time, expenditure and work complexity. No acquirer speciﬁc synergies were explicitly employed in the analysis of the purchased in-process research and development. The discount factors used in management’s estimation of the overall fair value for the projects ranged from 20% to 25%.

ASX 1000 and ASX 4000 (£77 million of purchased in-process research and development is attached to these closely related projects) The ASX 1000 is a ten Gbps ATM switch providing access at the small enterprise core or larger enterprise and service provider edge markets. Interfaces included a large number of ATM ports as well as inter-working interfaces, as set forth below, • Circuit emulation • Frame relay • Inverse multiplexing ATM. The ASX 1000 has been used as a platform for the development of the ASX 4000; a 40 Gbps Simplex or 20 Gbps fully redundant ATM switch targeted at the service provider market and enterprise core market. The ASX 4000 allows the incremental expansion of available bandwidth. As of acquisition the original ASX 4000 unit was being shipped to customers and available for purchase; the management estimations below represent the likely expenditure on upgrading and enhancing functionality of inserts to match technological progress and market demands. Interfaces included OC-3, OC-12, OC-48, and OC-48*4 conﬁgured to drive OC-192 WDM interfaces. As of the acquisition date, management’s estimation of the overall progress is 40% related to the development percentage completion of this project. The discount factor used in management’s estimation of the overall fair value for this project was 20%. As of March 31, 2000 management expect the OC-3, OC-12 and OC-48 interfaces to be generating revenues by August 2000. revenues from the OC48*4 should commence by April 2001.

BFS (£85 million of purchased in-process research and development is allocated to this project) BFS is the next generation ATM/packet switch aimed at the service provider core and edge market. It is intended that the BFS will switch at 240 Gbps scalable to 480 Gbps in simplex or redundant modes. It is intended that the BFS will operate at almost zero data loss on any component failure. As at the acquisition date BFS was in the early design phase. Remaining development efforts include the development of hardware and software components together with successful completion of ﬁeld trials. As of March 31, 2000 management believe technical feasibility will be completed by the middle of 2001 and the project as a whole is expected to be complete in late 2001. As of the acquisition date, management’s estimation of the overall progress is 25% related to the development percentage completion of this project. The discount factor used in management’s estimation of the overall fair value for this project was 20%. An aggregate total of £12 million of purchased in-process research and development is attributed to the following small projects.

Multi-protocol label switching. Multi-protocol label switching (‘‘MPLS’’) is a hardware—software technology which brings the advantages of connection-based networks to legacy frame based networks. It allows for greater utilization of network resources while reducing the dependency on large frame based routers.

F-14 3.8.7 29025 FIN 15 Project Marlin Prospectus p15 AOGps 07 AUG 00 22:04 R. R. DONNELLEY LON(•• ) LON00000/20000 011 44 20 7330 1600 CB 01 SEP 00 22:30

The MPLS hardware and software represent augmentations to the ASX 4000 which provides increased productivity of existing networks when these are interfaced with the ASX 4000. The MPLS software is due for deployment in December 2000. As of the acquisition date, management’s estimation of the overall progress is 40% related to the development percentage completion of this project. The discount factor used in management’s estimation of the overall fair value for this project was 20%.

ESX 2400 and ESX 4800 (Berkeley Networks) The ESX 2400 and ESX 4800 are frame switches designed for medium to large enterprise network market. They represent the most signiﬁcant of a portfolio of small projects in progress within Berkeley Networks. Development of the base units were complete as of the acquisition of Fore Systems by Marconi and the management estimations below represent the likely effort and expenditure on upgrading and enhancing functionality of inserts to match technological progress and market demands. The Berkeley Networks business was acquired by Fore Systems in Fall 1998. We do not have access to project data prior to this date; the information below therefore only relates to the period after this point. As of the acquisition date, management’s estimation of the overall progress is 85% related to the development percentage completion of this project. The discount factor used in management estimation of the overall fair value for this project was 25%. The development of these products is now complete.

IAD The K1.5 is an integrated access device that will be sold as either customer located equipment or customer premises equipment that will provide connections between enterprises’ internal network and the new public data network. At the point of acquisition the K1.5 design phase was well advanced. The development of this product is now complete and ready for deployment. As of the acquisition date, management’s estimation of the overall progress is 50% related to the development percentage completion of this project. The discount factor used in management estimation of the overall fair value for this project was 25%. As of March 31, 2000 the remaining costs to develop the in-process research and develop projects into commercially viable products were £33 million in total. Although Fore Systems currently expects that the in-process research and development projects will be successfully developed into commercially viable products, there can be no assurance that this will be achieved. Failure to complete the development of these projects in their entirety, or in a timely manner, could have a material adverse impact on Fore Systems’ ﬁnancial condition, results of operations and cash ﬂows.

Reltec During the 12 months ended 31 March, 2000, Reltec recorded a charge of £103 million for purchased in-process research and development acquired in connection with the Reltec transaction. A brief description of purchased in-process research and development projects is set forth below including an estimated percentage of completion of products within each project at their respective acquisition dates. As of the acquisition date, management’s estimations of the overall progress towards completion of projects are based on completion in terms of time, expenditure and work complexity. No acquirer-speciﬁc synergies were explicitly employed in the analysis of the

F-15 3.8.7 29025 FIN 16 Project Marlin Prospectus p15 AOGps 07 AUG 00 22:04 R. R. DONNELLEY LON(•• ) LON00000/20000 011 44 20 7330 1600 CB 01 SEP 00 22:30 purchased in-process research and development. The discount factor used in management’s estimation of the overall fair value for the projects ranged from 20% to 35%.

MX platform (£63 million of purchased in-process research and development is attributed to this project) The MX platform is a second-generation deep fiber broadband platform enabling services providers to maximize the use of fiber optics in their network, and market integrated voice, video and data services to subscribers. At the time of the acquisition, this project was in the design, prototyping and testing stage. Marconi estimated that the project was 65% complete and required approximately £5.2 million to successfully complete the project. This estimate is based on completion in terms of time, expenditure and work complexity. This project is a staged platform development with enhancements occurring over a multi-year timeframe. As of March 31, 2000 management believe that the project will be complete and benefits in the form of product revenues will commence by September 2000.

Deep fiber HFC product (£14 million of purchased in-process research and development is attributed to this project) The deep fiber hybrid fiber/coax (HFC)—fiber in the loop (FITL) capability enhances the DISC*S FITL platform to support advanced cable television services including cable modems. At the time of the acquisition, this project was in the design stage. Remaining development efforts included design, prototyping and testing activities. Marconi estimated that the project was 72% complete and required approximately £0.8 million to successfully complete the project. This estimate is based on completion in terms of time, expenditure and work complexity. As of March 31, 2000 the project was complete. An aggregate total of £26 million of purchased in-process research and development is attributed to the following small projects.

Next generation SONET interface on DISC*S NGDLC platform This project adds a sophisticated Marconi multiplexor to the existing DISC*S system providing a SONET interface into the telecommunications network. As of the acquisition date, project planning and speciﬁcation activities were complete and the project was in the design and implementation stage. Remaining development efforts included design, prototyping and testing activities. Marconi estimated that the project was 25% complete and required approximately £1.3 million to successfully complete the project. As of March 31, 2000 the project was complete and ready for deployment by September 2000.

DISC*S high density channel shelf This project provides a high-density conﬁguration for the DISC*S next generation NGDLC able to provide 2016 line interfaces per bay. As of the acquisition date, project planning and speciﬁcation activities were complete and the project was in the design and implementation stage. Remaining development efforts included design, prototyping and testing activities. Marconi estimated that the project was 38% complete and required approximately £1 million to successfully complete the project. As of March 31, 2000 the project was complete and ready for deployment.

ADSL port card for DISC*S NGDLC This program is designed to provide asymmetric digital subscriber line (ADSL) data service as an enhancement to the DISC*S NGDLC product.

F-16 3.8.7 29025 FIN 17 Project Marlin Prospectus p15 AOGps 07 AUG 00 22:04 R. R. DONNELLEY LON(•• ) LON00000/20000 011 44 20 7330 1600 CB 01 SEP 00 22:30

At the time of the acquisition, this project was in the planning and speciﬁcation stage. Remaining development efforts included design, prototyping and testing activities. Marconi estimated that the project was 28% complete and required approximately £1.4 million to successfully complete the project. This estimate is based on completion in terms of time, expenditure and work complexity. As of March 31, 2000 management anticipate that the project will be complete by September 2000 and that beneﬁts in the form of product revenues will begin by the end of calendar year 2000.

Electrical network unit—ENU The DISC*S MX ENU provides a curbside neighborhood distribution point for pair-gain relief in saturated copper networks.

At the time of the acquisition, this project was in the design stage. Remaining development efforts included design, prototyping and testing activities. Marconi estimated that the project was 53% complete and required approximately £0.8 million to successfully complete the project. This estimate is based on completion in terms of time, expenditure and work complexity. As of March 31, 2000 the project was complete and ready for deployment.

Enhanced OSIRIS multiplexors The enhanced OSIRIS multiplexors project includes a number of elements that enable OSIRIS access multiplexor technology to enter larger service provider accounts. This is done by offering a feature set that allows OSIRIS multiplexors to inter-operate with larger network backbones, enables new data services and thus improves competitiveness.

The research and development effort is aimed toward achieving the following features: multi-vendor management level interoperability, cost effective IP and ATM data transport over SONET and SDH, and STM4 SDH capability for selected access network applications outside North America.

As of the acquisition date, management’s estimation of the overall progress is 74% related to the development percentage completion of this project and required approximately £1.2 million to successfully complete the project. As of March 31, 2000 management believe that the project is complete and ready for deployment in June 2000.

OC48/packet path OSIRIS The OC48/packet path OSIRIS project is intended to support higher 2.4Gbps speeds in the optical access ring and to improve bandwidth utilization in the ring by using service concentration, statistical multiplexing and over-subscription techniques for IP/ATM and data services.

As of the acquisition date, management’s estimation of the overall progress is 30% related to the development percentage completion of this project and required approximately £1.9 million to successfully complete the project. As of March 31, 2000 management believe that the project will be complete and beneﬁts in the form of product revenues will commence November 2000.

OC48 ONX COT OC48 ONX COT is a new product platform designed to attain higher speed applications that are required for metropolitan area networks and high capacity access ring termination at the central office. This new multiplexor configuration will serve as the central office high density OC48 ring gateway, and will possess the ability to terminate multiple rings of various speeds.

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As of the acquisition date, management’s estimation of the overall progress is 18% related to the development percentage completion of this project and required approximately £5.6 million to successfully complete the project. As of March 31, 2000 management believe that the project will be complete and beneﬁts in the form of product revenues will commence from June 2000 (ﬁrst release) with further upgraded releases from October 2000 to March 2001.

The following unaudited pro forma summary presents information as if Reltec, Fore Systems and the GPT minority had been acquired as of the beginning of Marconi’s fiscal year 1999. As the purchase of Reltec and Fore Systems were near the beginning of fiscal year 2000 and the GPT minority was acquired in August 1998, no pro forma information will be provided for fiscal year 2000. The fiscal year 1999 pro forma amounts include certain adjustments, primarily to recognize depreciation, in process technology written off and amortization based on the allocated purchase price of Reltec, Fore Systems and GPT assets, and interest expense (net of tax), and do not reflect any benefits from economics which might be achieved from combining operations. The pro forma information does not necessarily reflect the actual results that would have occurred nor is it necessarily indicative of future results of operations of the combined companies:

1999 (In millions, except share data) £ Revenues ...... 4,812 Operating loss ...... (498) Net income ...... 300 Basic earnings per share ...... £0.11 Diluted earnings per share...... £0.11

4. Marketable securities A summary of marketable securities classiﬁed as available for sale and held to maturity securities as of March 31, 2000 and 1999 is set forth below:

March 31, 2000:

Gross Gross Estimated Amortized unrealized unrealized fair cost gains losses value (In millions) ££££ Available for sale: Lagadere ...... 16 99 — 115 Other ...... 9— — 9 Total available for sale ...... 25 99 — 124 Held to maturity: Eurobonds ...... 40 1 (1) 40 Semiannual ﬂoating rate note ...... 25 1 — 26 Annual tax bonds ...... 3— — 3 Total held to maturity ...... 68 2 (1) 69 Total ...... 93 101 (1) 193

F-18 3.8.7 29025 FIN 19 Project Marlin Prospectus p15 AOGps 04 JUL 00 22:55 R. R. DONNELLEY LON(•• ) LONLAN /20000 011 44 20 7330 1600 CB 01 SEP 00 22:30

March 31, 1999:

Gross Gross Estimated Amortized unrealized unrealized fair cost gains losses value (In millions) ££££ Available for sale: Lagadere ...... 17 32 — 49 Other ...... 3— — 3 Total available for sale ...... 20 32 — 52 Held to maturity: Eurobonds ...... 72 14 (11) 75 Semiannual ﬂoating rate note ...... 33 2 (1) 34 Annual tax bonds ...... 1— — 1 Total held to maturity ...... 106 16 (12) 110 Total ...... 126 48 (12) 162

All available-for-sale marketable securities are classiﬁed as current assets. Scheduled maturities of securities held to maturity at March 31, 2000 were as follows (in millions):

Amortized Fair cost value ££ Less than 1 year ...... 54 54 Due in 1-2 years ...... 10 10 Due in 2-5 years ...... 11 Due after 5 years ...... 34 68 69

Differences between cost and market of £99 million (less deferred taxes of £27 million) and £32 million (less deferred taxes of £7 million) for available-for-sale securities have been recorded to a separate component of shareholders’ equity (net unrealized holding gains on investments) as of March 31, 2000 and 1999, respectively. There were no sales transactions of available-for-sale securities in ﬁscal years 2000 and 1999.

5. Investments in affiliates At March 31, 2000, Marconi has five investments, which it accounts for using the equity method: Alstom, Atlantic Telecom, GDA, Xcert, and Comstar. Marconi has a 24%, 27%, 50%, 25% and 50% interest in the outstanding common stock of Alstom, Atlantic Telecom, GDA, Xcert and Comstar, respectively. At March 31, 2000, there were no differences between the carrying amount and the underlying equity in net assets of Alstom, Atlantic Telecom, GDA, Xcert and Comstar. The aggregate market value of the Alstom investment as of March 31, 2000 is £892 million. The aggregate market value of the Atlantic Telecom investment as of March 31, 2000 is £405 million. As GDA, Xcert and Comstar do not have quoted market price, no aggregate value can be provided. Dividends received from equity investments for fiscal year 1999 and 2000 were £426 million and £68 million, respectively. Marconi owns approximately 24% of Alstom, a company which specializes in the contracting of infrastructure construction projects for power generation, power transmission and distribution and railway transportation. In June 1998, Alstom became the holding company following a legal reorganization resulting in the transfer of subsidiaries and investments

F-19 3.8.7 29025 FIN 20 Project Marlin Prospectus p15 AOGps 24 JUL 00 17:44 R. R. DONNELLEY LON(•• ) LON00000/20000 011 44 20 7330 1600 CB 01 SEP 00 22:30 previously held by GEC Alsthom, a joint venture between GEC and Alcatel. In June 1998 GEC and Alcatel sold a proportion of their shares to reduce their shareholding, following an additional issue of new shares by Alstom, from 50% to 24% each. As a result of this share disposal cash consideration of £952 million was received by Marconi. Taking into account the investment in Alstom represented by the 26% disposition, a gain of £841 million resulted. Of this gain £44 million was a gain arising from the additional issue of new shares by Alstom. Summarized ﬁnancial information for Alstom for March 31, 1999 and 2000 is as follows: March 31, 1999 £ 2000 £ (In millions) Balance sheet data Short-term investments and cash equivalents ...... 704 1,450 Receivables, net ...... 4,477 4,627 Inventories and contracts in progress, net ...... 2,216 1,953 Goodwill and ﬁxed assets ...... 3,717 5,314 Total assets ...... 11,114 13,344

Provisions for risks and charges ...... 1,893 2,327 Accrued pension and retirement beneﬁts ...... 355 417 Financial debt ...... 1,871 3,995 Other liabilities ...... 5,988 5,476 Total liabilities ...... 10,107 12,215 Minority interest...... 53 25 Shareholders’ equity ...... 954 1,104 Total liabilities and shareholders’ equity...... 11,114 13,344

Income statement data Revenues ...... 9,571 10,403 Operating income ...... 281 422 Net income ...... 135 273 Alstom’s major infrastructure contracting activities are generally performed under fixed-price contracts. The length of such contracts varies, but is typically between 1 and 5 years. Under U.S. GAAP, a non-classified balance sheet would be shown because the contract-related items in the balance sheet have realization and liquidation periods extending beyond 1 year. Summarized financial information for our other investments in affiliates (in aggregate) for March 31, 1999 and 2000 is as follows: March 31, 1999 £ 2000 £ (In millions) Balance sheet data Current assets ...... 484 772 Non-current assets ...... 281 504 Total assets ...... 765 1,276 Current liabilities ...... 332 603 Non-current assets ...... 43 38 Total liabilities...... 375 641 Income statement data Revenues ...... 1,139 1,031 Operating income ...... 96 53 Net income ...... 98 15

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6. Inventories Inventories consist of the following: March 31, 1999 £ 2000 £ (In millions) Finished goods ...... 314 454 Work-in-process ...... 122 200 Raw materials ...... 180 292 Total ...... 616 946

7. Property, plant and equipment Property, plant and equipment consists of the following:

March 31, 1999 £ 2000 £ (In millions) Land ...... 173 203 Building and improvements...... 34 56 Machinery and equipment ...... 910 1,127 Construction in progress ...... 46 91 Total...... 1,163 1,477 Less: accumulated depreciation 693 719 Property, plant and equipment, net ...... 470 758

Depreciation expense for the years ended March 31, 1999 and 2000 was £108 million and £155 million, respectively.

8. Goodwill and other intangible assets Goodwill and other intangible assets consist of the following: March 31, 1999 £ 2000 £ (In millions) Goodwill ...... 1,383 4,107 Less: accumulated amortization 474 767 Goodwill, net ...... 909 3,340

Other intangible assets ...... 364 1,804 Less: accumulated amortization ...... 99 301 Other intangible assets, net ...... 265 1,503

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Intangible assets at March 31, 2000 include core developed technology of £1,273 million (1999 £359 million) with accumulated amortization of £248 million (1999 £98 million). Customer base acquired in the acquisitions of Reltec and Fore Systems amounted to £396 million with accumulated amortization of £35 million at March 31, 2000. The workforce acquired through these acquistions was valued at £69 million with accumulated amortization of £13 million at March 31, 2000. Trademarks and patents of £38 million were acquired in these transactions with £2 million of accumulated amortization at March 31, 2000. Other identiﬁed intangibles amount to £28 million (1999 £5 million) at March 31, 2000 with accumulated amortization of £3 million (1999 £1 million).

9. Accrued expenses and other current liabilities Accrued expenses and other current liabilities consist of the following: March 31, 1999 £ 2000 £ (In millions) Accrued taxes ...... 167 256 Accrued expense and deferred income ...... 444 663 Dividend payable ...... 112 — Other ...... 363 733 Total...... 1,086 1,652

10. Short-term borrowings and credit facilities Under Marconi’s 1998 syndicated credit agreement: (a) as of March 31, 1999, a group of banks committed a maximum of €1.5 billion (approximately £900 million) on an unsecured, revolving basis until March 23, 2000; as of March 31, 2000, this facility had been extended until March 22, 2001, in a reduced amount of €1.3 billion (approximately £800 million).

(b) as of March 31, 1999 and 2000, a group of banks committed a maximum of €4.5 billion (approximately £2.7 million) on an unsecured, revolving basis until March 25, 2003.

Under the terms of this agreement, borrowings bear interest of 0.175% per annum over the London inter-bank offered rate. As of March 31, 1999 and 2000, the average interest rate on borrowings under the facility was 5.11% and 6.16% respectively. Additionally, Marconi pays commitment fees at a rate of 0.035% per annum with respect to the €1.3 billion (approximately £800 million) facility and 0.075% with respect to the €4.5 billion (approximately £2.7 billion) facility. The unused portion of this agreement at March 31, 1999 and 2000 was £3,049 million and £1,995 million, respectively.

Under Marconi’s 1999 syndicated credit agreement, as of March 31, 2000, a group of banks committed a maximum of €2.5 billion (approximately £1.5 billion) on an unsecured, revolving basis until June 3, 2000; this facility has been extended until June 2, 2001, in a reduced amount of €2.4 billion (approximately £1.4 billion). Under the terms of this agreement, borrowings bear interest of 0.25% over the London inter-bank offered rate. Marconi pays commitment fees at a rate of 0.10% per annum on the undrawn amount of this facility. As of March 31, 2000, there were no borrowings outstanding under this facility.

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11. Long-term debt Year ended March 31, 1999 £ 2000 £ (In millions) Term loans ...... 65 939 Finance leases ...... 39 Total obligations ...... 68 948 Current maturities of long-term obligations ...... (15) (9) Total long-term debt ...... 53 939

On March 30, 2000, Marconi issued two unsecured eurobonds having an aggregate principal amount of €1.5 billion (approximately £900 million). One eurobond is for €500 million (approximately £300 million) with a coupon rate of 5.625%, per annum, maturing on March 30, 2005. The other eurobond is for €1 billion (approximately £600 million) with a coupon rate of 6.375%, per annum, maturing on March 30, 2010. The eurobonds are not redeemable prior to maturity (except, at Marconi’s option, in the event of certain tax changes) and are not subject to any sinking fund requirements.

As of March 31, 2000, Marconi had other obligations of £48 million related to ﬁnance leases and secured debenture loans.

The following table sets forth the mandatory reductions in principal under the terms of all debt agreements for each of the next ﬁve years based upon the amounts outstanding at March 31, 2000:

(In millions) £ 2001 ...... 9 2002 ...... 6 2003 ...... 5 2004 ...... 5 2005 ...... 305 Thereafter ...... 618 Total ...... 948

12. Valuation and qualifying accounts

March 31, 1998 March 31, 1999 Description balance Additions Deductions balance ££ £ £ Allowance for doubtful accounts ...... 24 14 (8) 30 Inventory reserve ...... 116 78 (61) 133 Warranty reserve ...... 46 63 (44) 65 Restructuring reserve ...... 60 37 (56) 41 Total ...... 246 192 (169) 269

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March 31, 1999 March 31, 2000 Description balance Additions Deductions balance ££ £ £ Allowance for doubtful accounts ...... 30 32 (28) 34 Inventory reserve ...... 133 139 (77) 195 Warranty reserve ...... 65 58 (61) 62 Restructuring reserve ...... 41 69 (48) 62 Total ...... 269 298 (214) 353

The restructuring reserve represents amounts charged with respect to businesses where exit announcements have been made and exit plans have been established and approved. Such charges comprise involuntary redundancies and severance of £24 million (1999 £9 million), asset write-downs and other withdrawal costs of £37 million (1999 £32 million).

13. Pension plans and other postretirement plans

Pension plans Marconi operates a number of defined benefit and defined contribution pension plans on behalf of its employees. The most significant pension plan is the GEC 1972 Plan, a defined benefit plan for employees in the United Kingdom, the assets of which are held separately from the assets of Marconi plc, are administered by trustees and are managed professionally.

The benefit offered to a specific employee varies based upon the location of and past business decisions made by a specific business unit, as well as local statutory requirements. The majority of employees are eligible for defined benefit pension benefits, after minimum service requirements are met. Such benefits to an individual employee are calculated using a formula which is specific to the applicable pension plan, based upon years of credited service and average earnings of the employee.

Marconi funds its deﬁned beneﬁt pension obligations at a level which meets or exceeds local legal requirements. Funded pension plan assets are primarily invested in equity and debt securities.

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Data with respect to beneﬁt obligations are as follows:

Pension benefits Pension benefits U.K. plans overseas plans 1999 £ 2000 £ 1999 £ 2000 £ (In millions) Change in benefit obligation: Benefit obligation at beginning of year ...... 2,123 2,255 307 328 Service cost ...... 30 27 10 10 Interest cost ...... 123 134 20 23 Plan participants’ contributions ...... 89—— Plan amendments...... ——— 3 Actuarial loss/(gain) ...... 96 — (10) (11) Foreign currency exchange rate changes ...... — — 12 2 Benefits paid ...... (125) (129) (11) (13) Business acquired ...... ——— 52 Benefit obligation at end of year ...... 2,255 2,296 328 394 Change in plan assets: Fair value of plan assets at beginning of year ...... 2,249 2,361 365 397 Actual return on plan assets ...... 210 176 25 35 Employer contributions ...... 19 18 4 1 Plan participants’ contributions ...... 89—— Benefits paid ...... (125) (129) (11) (13) Foreign currency exchange rate changes ...... — — 14 3 Fair value of plan assets at end of year ...... 2,361 2,435 397 423 Funded status ...... 106 139 69 29 Unrecognized net actuarial gain ...... (96) (98) (43) (52) Unrecognized prior service cost ...... — — 12 13 Unrecognized transition asset ...... 15 12 (3) (2) Net asset/(liability) recognized ...... 25 53 35 (12) Amounts recognized in the balance sheet consist of: Prepaid benefit cost ...... 43 53 Accrued benefit liability ...... (12) (68) Intangible asset ...... 32 Accumulated other comprehensive income ...... 11 Net asset/(liability) recognized ...... 35 (12)

The actuarial assumptions used to develop the periodic beneﬁt cost and funded status were as follows:

Pension Pension beneﬁts beneﬁts U.K. plans overseas plans 1999 2000 1999 2000 % % % % Weighted average assumptions: Discount rate ...... 6.0 6.0 7.25 7.0 Expected return on plan assets ...... 7.5 7.5 9.5 9.5 Rate of compensation increases ...... 5.0 5.0 5.1 5.4 Rate of pension increases ...... 3.0 3.0 — —

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Data with respect to net periodic beneﬁt cost are as follows:

Pension Pension benefits benefits U.K. plans overseas plans 1999 £ 2000 £ 1999 £ 2000 £ (In millions) Components of net periodic benefit cost: Service cost ...... 30 27 10 10 Interest cost ...... 123 134 20 23 Expected return on plan assets ...... (165) (173) (33) (36) Amortization of unrecognized transition (asset)/liability ...... 3 3 (1) (1) Amortization of prior service cost ...... —— 1 1 Amortization of actuarial (gains)/losses ...... — — (1) (1) Net periodic cost of deferred benefit plans ...... (9) (9) (4) (4)

The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the overseas pension plans which have an accumulated benefit obligation in excess of plan assets were £4 million, £4 million, and £4 million respectively at March 31, 2000, and £4 million, £4 million, and £3 million at March 31, 1999.

Other postretirement beneﬁts At March 31, 2000, 9,352 employees and 2,361 retired employees (in 1999 4,860 employees and 1,787 retired employees) of companies in the United States and Canada were entitled to health care beneﬁts after retirement.

All but one of the plans are unfunded. The beneﬁt cost charges and provisions for the liability are as follows:

Postretirement benefits 1999 £ 2000 £ (In millions) Change in benefit obligations: Benefit obligations at beginning of year ...... 42 45 Service cost ...... 11 Interest cost ...... 33 Foreign currency exchange rate changes ...... 2— Benefits paid ...... (3) (3) Business acquired ...... —9 Benefit obligations at end of year ...... 45 55

Postretirement benefits 1999 £ 2000 £ (In millions) Change in plan assets: Fair value of assets at beginning of year ...... 11 Group funding of benefits ...... 33 Benefits paid ...... (3) (3) Fair value of plan assets at end of year ...... 11

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Postretirement beneﬁts 1999 £ 2000 £ (In millions) Funded status ...... (44) (54) Unrecognized net actuarial gain ...... (14) (13) Net prepaid (accrued) beneﬁt cost ...... (58) (67)

Data with respect to net periodic beneﬁt cost are as follows:

Postretirement benefits 1999 £ 2000 £ (In millions) Components of net periodic benefit cost: Service cost ...... 11 Interest cost ...... 33 Amortization of net gain ...... (1) (1) Net periodic benefit cost ...... 33

In the year ended March 31, 2000, an annual rate of increase per capita in the cost of retiree health care beneﬁts of 7% for 2000 (decreasing to 6% for the year 2001 and 5% for the year 2002) was assumed. In the year ended March 31, 1999, such rate was assumed to be 7% for 1999 (decreasing to 6% for the year 2000 and 5% for the year 2001).

An increase of one percentage point in such assumed rates would have increased the benefit obligation at March 31, 2000 by approximately £5 million and the service and interest cost components of the net periodic benefit cost for the year then ended by approximately £0.5 million. A decrease of one percentage point in such assumed rates would have decreased the benefit obligation at March 31, 2000 by approximately £4 million and the service and interest cost components of the net periodic benefit cost for the year then ended by approximately £0.5 million.

Deﬁned contribution plans The U.S. subsidiaries of Marconi operate 401(k) plans for eligible employees who contribute a percentage of their pre-tax compensation with the company matching these contributions up to prescribed limits. Marconi’s matching contributions were £5 million and £1 million for the years ended March 31, 2000 and 1999, respectively.

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14. Fair values of ﬁnancial instruments The carrying amounts and fair values of material ﬁnancial instruments at March 31, 1999 and 2000 are as follows:

1999 2000 Carrying Fair Carrying Fair amounts values amounts values (In millions) ££ ££ Marketable securities...... 158 162 192 193 Term loans ...... 65 62 939 920 Obligations under ﬁnance leases ...... 33 99 Forward currency agreements ...... —1—6 Interest rate swap agreements ...... — (10) — 124 Tax swap agreements ...... — — (41) (27) Equity ...... — — — (33)

The following methods and assumptions were used in estimating the fair values of ﬁnancial instruments:

Cash and cash equivalents The carrying values of cash and cash equivalents, receivables, lines of credit and payables approximate their fair values.

Marketable securities and long-term debt Marketable securities are valued at quoted market price market prices.

Foreign exchange contracts and market derivatives The fair values of the interest rate swaps and tax swaps have been determined by references available from the markets on which the instruments are traded. Forward foreign currency contracts and other fair values have been calculated by discounting cash ﬂows at prevailing interest rates.

Interest rate swaps Marconi has entered into pay-ﬁxed agreements to effectively convert a portion of its variable- rate debt to ﬁxed-rate debt to reduce the risk of incurring higher interest costs due to rising interest rates. The following table summarizes the notional amounts outstanding and weighted average interest data, based on variable rates in effect at March 31, 1999 and 2000, for these swaps that expire between 2008 and 2009:

Year ended March 31, 1999 £ 2000 £ (In millions) Pay ﬁxed swaps: Notional amount ...... 620 2,417 Average receive rate ...... 5.03% 5.49% Average pay rate...... 5.85% 5.58%

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15. Shareholders’ equity Holders of ordinary shares in Marconi are entitled to one vote per share on matters to be voted on by the shareholders, and to receive dividends when and as declared by the board. Shareholders are not entitled to preemptive rights and have no subscription, redemption or conversion privileges. The ordinary shares do not have cumulative voting rights. The rights, preferences and privileges of holders of ordinary shares are subject to the rights of the holders of shares of any series of preferred shares issued or that may be issued in the future.

Under the terms of Marconi’s share option plans, ofﬁcers and certain other employees have been granted options to purchase Marconi’s ordinary shares, phantom options or nil cost options. The terms of the grant vary and each of the main plans are described below.

As of March 31, 2000, Marconi has granted options under four share option plans: the Marconi 1999 share option plan, the Marconi U.K. sharesave plan, the Marconi launch share plan and the Marconi phantom option plan.

Each plan has been approved by the board and the shareholders of Marconi. The employee share plans are designed to create incentives for employees and encourage them to become long- term shareholders.

The Marconi 1999 share option plan All full-time employees and executive directors have been eligible to be granted options under the option plan at the discretion of the remuneration committee. Options granted to participants will not normally be exercisable unless our earnings per share over a period of at least three ﬁnancial years has exceeded the growth in the U.K. Retail Price Index by at least an average of 3% per year. Options will entitle the option holder to acquire Marconi ordinary shares at a price per share determined by the remuneration committee, which shall not be less than the market value of a Marconi share shortly before the date of grant.

Marconi applies variable plan accounting for grants under this scheme and will recognize compensation cost when achievement of the performance conditions becomes probable.

The Marconi U.K. sharesave plan All U.K. resident employees and executive directors are eligible to participate in the U.K. sharesave plan. Under the U.K. sharesave plan, participants can purchase options with an exercise price not less than 80% of the market value of a Marconi ordinary share on the trading day immediately before the invitation day (as defined in the rules of the plan). In order to participate, each employee must enter into a savings contract with a specified financial institution under which they agree to make monthly contributions, which must not exceed £250 per month in aggregate. This plan is non-compensatory in nature.

The Marconi launch share plan Under this plan, employees at November 30, 1999 were, at the discretion of the board, granted the right to receive up to 1,000 Marconi ordinary shares, which would be exercisable provided that two conditions are met. The first condition is that the market price of a Marconi ordinary share must have doubled from 801.5p to £16.03 during the period between November 30, 1999 and November 30, 2004. The second condition is that a participant must normally remain in employment until November 30, 2002 or, if later, at the time that the first condition is met. Marconi applies variable plan accounting for grants under this plan and will account for the compensation expense if the first condition is met.

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The Marconi phantom option plan In June 1999, the GEC remuneration committee adopted the phantom option plan for the purpose of granting incentives relating to any increase in our value primarily to executives and employees of Reltec and Fore Systems following our acquisition of those businesses. From November, 1999, Marconi operated the phantom option plan and awards were made by reference to Marconi shares and previous awards (grants made between June 1999 and November 1999 in relation to GEC Shares) were adjusted so that they related to Marconi shares on a value-for-value basis. Following the adjustment the holder of a phantom unit was kept in the same economic position as before through an adjustment to the exercise price and an increase in the number of units. A phantom option is similar to a share option except that it is a cash-based award granted in relation to a stated number of phantom units, each of which has the same economic value as a Marconi ordinary share. Upon exercise of a phantom option, the holder is entitled to receive a cash payment equal to the difference between the base price of the phantom option (normally corresponding to the market value of a Marconi ordinary share at the time the phantom option is granted) and market value of a Marconi ordinary share on the date of exercise. Marconi may give notice to participants that it elects to substitute options to acquire real Marconi ordinary shares for phantom options. If such an election is made, a participant will be required on exercise to pay an amount equal to the base price of the phantom options to Marconi and will receive Marconi ordinary shares. Options are normally exercisable between the third and tenth anniversaries of grant. Marconi recognizes compensation expense measured at the end of each period as the amount by which the quoted market value of a Marconi share exceeds the unit price payable by the unit holder. The expense is recognized over the service period. Changes, either increases or decreases, in the quoted market value of the shares between the date of grant and the date the phantom options are exercised result in a change in the compensation expense to be recognized.

Where the phantom options were granted in exchange for Reltec and Fore Systems options as part of those business combinations, the fair value of those options was treated as part of the respective purchase prices.

Existing GEC share option plans Options plans similar to the Marconi 1999 share option plan and the Marconi U.K. sharesave plan had been in place over GEC shares. There was a non-compensatory plan known as the 1992 Savings-Related Scheme. There was a ﬁxed plan known as the Managers’ 1984 Scheme. There was a variable plan known as the 1997 Executive Scheme. During ﬁscal 2000, optionholders who would remain Marconi employees, were able to exchange options over GEC shares for options over Marconi shares. Following the exchange the optionholder was kept in the same economic position after the exchange as before the exchange through an adjustment to the exercise price and an increase in the number of shares under option. The exchange resulted in no change in measurement date for either the 1992 Savings-Related Scheme or the Managers’ 1984 Scheme. As performance conditions in respect of the 1997 Executive Scheme ceased to apply, the measurement date for this option plan occurred. These performance conditions were the achievement of earnings per share targets and a vesting period.

Optionholders in the three plans who would not remain Marconi employees were able to exercise their options.

As of March 31, 2000 Marconi had not granted any options under either of the Marconi associated companies share option plan or the Marconi long term incentive plan.

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Option activity under the plans is as follows: Number of Weighted average shares exercise price Outstanding, March 31, 1998 ...... 34,676,217 £3.70 Granted (weighted average fair value of £1.42) ...... 12,228,081 4.85 Canceled ...... (1,163,908) 3.83 Exercised ...... (4,828,898) 3.10 Outstanding, March 31, 1999 ...... 40,911,492 4.11 Granted (weighted average fair value of £4.19) ...... 150,237,840 3.33 Canceled ...... (17,817,336) 4.20 Exercised ...... (23,375,946) 4.13 Outstanding, March 31, 2000 ...... 149,956,050 4.40

All options were granted at fair market value as of date of grant. At March 31, 2000, options to purchase 14,843,191 shares were exercisable. Additional information regarding options outstanding as of March 31, 2000 is as follows: Options outstanding Options exercisable Weighted average Weighted Weighted Range of remaining average average exercise Number contractual exercise Number exercise prices outstanding life (years) price exercisable price £ nil-2.66 46,225,951 9.05 £0.27 4,826,024 £1.49 3.01-4.72 19,801,655 7.58 3.50 10,017,167 3.29 4.76-6.76 33,298,828 9.23 5.06 — — 7.12-10.09 50,629,616 9.67 8.10 — — £0.17-10.09 149,956,050 9.11 4.40 14,843,191 £2.70

Additional employee share plan information Marconi accounts for the employee share plans under Accounting Principles Board Opinion No. 25: ‘‘Accounting for Stock Issued to Employees,’’ under which no compensation cost has been recognized for all ordinary shares and share options issued with a price equal to fair market value. Marconi has recognized compensation cost for all ordinary shares and share options issued with a price below fair market value. For ordinary options, such expense is recognized over the vesting period of the options. Marconi recognized compensation expense of approximately £118 million and £nil for the years ended March 31, 2000 and 1999, respectively, related to share options issued below fair market value. Unrecognized deferred compensation was approximately £52 million and £nil at March 31, 2000 and 1999, respectively. Had compensation cost for the employee share plan been determined consistent with the fair value methodology of SFAS No. 123: ‘‘Accounting for Stock-Based Compensation’’, Marconi’s net income would have been as follows: 1999 £ 2000 £ (In millions, except per share data) Net income: As reported ...... 1,129 285 Pro forma income ...... 1,117 332 Pro forma income per share: Basic ...... £0.41 £0.12 Diluted ...... £0.41 £0.12

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Under SFAS 123, the fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions: 1999 2000 Risk-free interest rate ...... 5.80% 6.10% Expected life (years) ...... 3.5 3.5 Assumed volatility ...... 34.15% 44.46% Expected dividends...... £0.13 £0.13 16. Earnings per share The following table reconciles net income available for ordinary shareholders and the weighted average ordinary shares outstanding for basic and diluted earnings per ordinary share for the periods presented: Year ended March 31, 1999 £ 2000 £ (In millions, except for per share data) Net income ...... 1,129 285 Basic earnings per ordinary share: Weighted average ordinary shares outstanding ...... 2,711.6 2,696.9 Basic earnings per ordinary share ...... £0.41 £0.11 Diluted earnings per ordinary share: Weighted average ordinary shares outstanding ...... 2,711.6 2,696.9 Effect of dilutive options ...... 27.1 40.5 Adjusted ordinary shares outstanding...... 2,738.7 2,737.4 Diluted earnings per ordinary share ...... £0.41 £0.10 17. Income taxes The components of income before income taxes and minority interests are as follows: Year ended March 31, Income/(Loss) 1999 £ 2000 £ (In millions) United Kingdom ...... 1,093 (194) Non-United Kingdom ...... 258 (109) Income/(loss) from ordinary activities before income taxes and minority interest ...... 1,351 (303)

Income tax provision/(beneﬁt) includes: Year ended March 31, 1999 £ 2000 £ (In millions) Current income taxes United Kingdom ...... 244 54 Non-United Kingdom ...... 91 30 Total current taxes ...... 335 84 Deferred income taxes United Kingdom ...... (3) 149 Non-United Kingdom ...... 126 (149) Total deferred taxes ...... 123 0 Total income taxes...... 458 84

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The differences between the group’s tax on proﬁt on ordinary activities, and the statutory income tax rate in the United Kingdom are as follows: Year ended March 31, 1999 £ 2000 £ (In millions) Taxes computed at the statutory rate: (30%-2000 and 31%-1999) ..... 419 (91) Non-deductible goodwill amortization ...... 26 148 Non-UK tax rate differences ...... 20 (6) Adjustment in respect of afﬁliates’ tax ...... (34) (14) Tax charge on reorganizations ...... —47 Non-deductible items ...... 17 18 Changes in reinvestment position ...... — (16) Other, net ...... 10 (2) Income tax expense ...... 458 84 Effective tax rate ...... 33.9% (27.7%)

Deferred income tax assets/(liabilities) in the balance sheet are as follows: Year ended March 31, 1999 £ 2000 £ (In millions) Net current deferred tax assets: Net operating losses ...... —38 Reversal of reinvestment position ...... —16 Provisions and other expenses not currently deductible ...... 97 58 Sub total ...... 97 112 Net non-current deferred tax assets/(liabilities) Property and equipment ...... 7 (2) Intangible assets (other than goodwill) ...... (85) (572) Pension and post-employment liabilities not currently deductible .. (37) (44) Sub total ...... (115) (618) Total ...... (18) (506)

As of March 31, 2000 £128 million of operating losses, net of a valuation allowance of £45 million, were available to be carried forward. As of March 31, 1999 there was £9 million of operating losses available to be carried forward, however a full valuation allowance was recorded against these operating losses because they are not expected to be realized.

The group does not provide deferred tax for potential taxes which could become payable on the distribution of retained earnings from its non-UK subsidiaries or joint ventures or on the disposition of such interests where there is no intention to dispose of such interests. A net deferred tax asset in the amount of £16 million has been recognized as of March 31, 2000 to account for the net tax beneﬁt relating to investments which are not considered permanently reinvested.

18. Discontinued operations In January 1999, GEC reached a preliminary agreement with British Aerospace under which GEC’s international aerospace, naval shipbuilding, defense electronics and defense systems business would be separated and subsequently merged with British Aerospace.

F-33 3.8.7 29025 FIN 34 Project Marlin Prospectus p15 AOGps 24 AUG 00 00:06 R. R. DONNELLEY LON(•• ) LON00050/20000 011 44 20 7330 1600 CB 01 SEP 00 22:30

The results of operations of this business have been restated as discontinued operations for all years presented. A summary of operating results of discontinued operations is presented below:

Summary of operating results of discontinued operations:

Year ended March 31, 1999 £ 2000 £ (In millions) Revenues...... 2,801 1,817 Operating income ...... 267 27 Income before income taxes and minority interest ...... 334 44 Income taxes ...... (81) (42) Income applicable to minority interest ...... (5) (2) Net income from discontinued operations ...... 248 —

In November 1999, following sanction by the High Court of a Scheme of Arrangement pursuant to Section 425 of the Companies Act 1985, GEC undertook an internal reorganization and reconstruction under Section 110 of the Insolvency Act 1986 (the transaction). As a result of those steps, the former businesses of GEC became owned directly or indirectly by two new companies—MES Holdco (which held GEC’s defense business—MES) and Marconi plc (which held GEC’s remaining businesses). British Aerospace Plc (now named BAE Systems Plc) (BAe) acquired MES Holdco in consideration for the issue to former GEC shareholders of approximately 0.428 new BAe ordinary shares plus 13.54 pence of BAe Capital Amortizing Loan Stock for each GEC share held. GEC shareholders also received one share in Marconi plc for each GEC share held prior to the reorganization and reconstruction.

The transaction was completed on November 29, 1999; shares in the Company were admitted to the Ofﬁcial List of the London Stock Exchange on November 30, 1999 and dealings in the Company’s shares commenced on that day.

The value of BAe ordinary shares and Capital Amortizing Loan Stock issued to GEC shareholders on November 29, 1999 amounted to £4,932 million.

At the date of separation MES owed an amount of approximately £1.2 billion to GEC. These liabilities were repaid immediately after separation with funds made available by BAe.

The separation has been treated as a partial disposition of the MES business and a partial distribution to shareholders. The net assets at separation (£2,278 million) have been apportioned on a pro-rata basis between the disposition to the extent of the cash received by Marconi (£439 million) and the distribution to the extent of the value of BAE shares and loan stock received directly by GEC shareholders (£1,839 million). The resulting gain on disposition, net of transaction costs of £65 million, is £675 million.

F-34 3.8.7 29025 FIN 35 Project Marlin Prospectus p15 AOGps 03 JUL 00 23:37 R. R. DONNELLEY LON(•• ) LON00000/20000 011 44 20 7330 1600 CB 01 SEP 00 22:30

Net assets of discontinued operations: March 31, 1999 (In millions) Assets £ Cash and cash equivalents ...... (268) Marketable securities ...... — Accounts receivable ...... 451 Inventories ...... 436 Prepaid expense and other current assets ...... 16 Total current assets ...... 635 Property, plant and equipment, net ...... 512 Marketable securities ...... 99 Investment in afﬁliates ...... 248 Deferred income taxes ...... 64 Goodwill and intangibles, net ...... 1,988 Other non-current assets ...... 40 Total assets ...... 3,586 Liabilities Accounts payable ...... 167 Accrued expenses and other current liabilities ...... 696 Total current liabilities ...... 863 Long-term debt ...... 6 Other long term liabilities ...... 128 Minority interests ...... 81 Total liabilities ...... 1,078 Net assets of discontinued operations ...... 2,508

19. Segment and related information disclosures Marconi has adopted SFAS No. 131: ‘‘Disclosures about Segments of an Enterprise and Related Information,’’ in this report. This standard requires disclosure of segment information on the same basis used internally for evaluating segment performance and for deciding how to allocate resources to segments. Description of the types of products and services from which each reportable segment derives its revenues Under SFAS No. 131 Marconi has six reportable segments: communications networks, communications services, mobile communications, medical systems, commerce systems and data systems. Each segment operates in, and derives its revenues from, distinct business lines. Communications networks develops, manufactures, sells and supports optical networks, transmission systems and network management software for customers in the carrier network market. It also provides to customers in the carrier network market a broad range of access products. In addition, we supply to customers in both the carrier and the enterprise network markets, a broad range of high-performance, high-capacity broadband switches which select paths for sending large amounts of voice of data trafﬁc through a network. Communications services provides a broad range of support services to the communications industry worldwide to enable operators to optimize business returns from their network investment including planning, building and operating communications networks tailored to suit customer’s needs, as well as supporting our own communications and information technology products. Mobile communications designs, develops and integrates communications and information technologies into wireless communications systems for professional and military uses. Medical systems manufactures and distributes medical imaging equipment for both diagnostic and therapeutic uses. Commerce systems provides point of sale and back ofﬁce accounting systems for attended

F-35 3.8.7 29025 FIN 36 Project Marlin Prospectus p15 AOGps 07 AUG 00 08:32 R. R. DONNELLEY LON(•• ) LON00000/20000 011 44 20 7330 1600 CB 01 SEP 00 22:30 and unattended retail markets, fuel pumps and dispensers, and services for the retail petroleum industry. Data systems provides a broad range of marking and imaging equipment used in the identiﬁcation, distribution and tracking of food products, goods and printed matter. Marconi has other investments and businesses shown in the segmental information under ‘‘other.’’

Measurement of segment operating profit or loss, segment assets, and segment capital employed Marconi evaluates performance and allocates resources based on strategic long-term growth plans for each reportable segment. We measure performance on revenues and operating profits on a segment basis using U.K. GAAP. The principal measurement differences between U.K. GAAP and U.S. GAAP as related to the information reported on a segmental basis are the result of differences in the accounting for pensions and postretirement benefits, reorganization costs, employee share options and dividends. We also report capital employed on a U.K. GAAP basis to monitor trends in capital employed as it is an indicator of how effectively the fixed assets and working capital are being used by the segments.

Factors management used to identify Marconi’s reportable segments Operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The six reportable segments are strategic market units that offer distinct products and services. These segments were determined based upon the customers and markets that Marconi serves. Each segment is managed separately as each segment requires different technologies and marketing strategies. The following tables present certain financial data from Marconi’s reportable segments presented in accordance with U.K. GAAP and then reconciled to U.S. GAAP financial information consolidated totals:

Analysis of reportable segments (management information—U.K. GAAP reconciled to U.S. GAAP) Net Operating Capital (In millions) revenues Depreciation proﬁt employed(*) As of and for the year ended March 31, 1999 ££££ Communications networks ...... 1,343 41 247 340 Communications services ...... 244 5 32 37 Mobile communications ...... 271 6 16 126 Medical systems...... 898 10 49 303 Commerce systems ...... 385 9 45 103 Data systems ...... 218 5 57 43 Other ...... 731 32 62 301 Segment total ...... 4,090 108 508 1,253

Net Operating Capital (In millions) revenues Depreciation proﬁt employed(*) As of and for the year ended March 31, 2000 ££££ Communications networks ...... 2,535 80 416 807 Communications services ...... 543 9 73 33 Mobile communications ...... 295 8 26 123 Medical systems...... 1,010 12 76 289 Commerce systems ...... 388 9 49 107 Data systems ...... 235 5 59 46 Other ...... 718 32 51 300 Segment total ...... 5,724 155 750 1,705

F-36 3.8.7 29025 FIN 37 Project Marlin Prospectus p15 AOGps 24 AUG 00 00:13 R. R. DONNELLEY LON(•• ) LON00050/20000 011 44 20 7330 1600 CB 01 SEP 00 22:30

(*) Included in the capital employed category are the following: property, plant and equipment, inventory, accounts receivable, prepaid expense and other current assets, other non- current assets, accounts payable, accrued liabilities, non-current liabilities, and other liabilities.

Operating profit under U.K. GAAP is defined as profit from operations before goodwill and intangible amortization, in-process research and development, U.K. GAAP operating exceptional items, gains and losses on business disposals and the impact of less than 50% owned affiliates.

The following is a reconciliation from net revenue per segments to revenues per the consolidated statement of income for the two ﬁscal years ended March 31, 2000: 1999 £ 2000 £ (In millions) Net revenues per segments ...... 4,090 5,724 Less: joint ventures ...... (301) (287) Revenues (U.S. GAAP) ...... 3,789 5,437

The segment information reviewed by the Chief Operating Decision Maker is prepared under U.K. GAAP. As required under U.K. GAAP the segment revenue total includes Marconi’s share of revenues earned by joint ventures. These revenues include revenues earned by joint ventures from sales to Marconi.

Accordingly Marconi’s share of joint ventures revenue is a deductive item in reconciling from U.K. GAAP revenue to the revenue recorded in the U.S. GAAP consolidated ﬁnancial statements.

The following is a reconciliation from operating profit per segments to income from continuing operations before income taxes and minority interests for the two fiscal years ended March 31, 2000: 1999 £ 2000 £ (In millions) Operating profit per segments ...... 508 750 U.S. GAAP adjustments ...... 36 (129) Adjusted operating profit ...... 544 621 Operating exceptional items* ...... (51) (106) Joint ventures ...... (25) (25) Goodwill and other intangibles amortization and purchased in-process research and development ...... (92) (772) Other income / (expense), net ...... 975 (21) Income from continued operations before income taxes and minority interest ..... 1,351 (303)

U.S. GAAP adjustments include the following:

1999 £ 2000 £ (In millions) Reorganization costs ...... 7 (48) Option schemes ...... — (108) 36 (129)

U.K.—U.S GAAP adjustments are discussed on pages F-38 and F-39.

* These U.K. GAAP exceptional items relate to reorganization costs £63 million (1999 £29 million) and year 2000 costs £43 million (1999 £22 million) which are disclosed on a separate

F-37 3.8.7 29025 FIN 38 Project Marlin Prospectus p15 AOGps 24 JUL 00 17:50 R. R. DONNELLEY LON(•• ) LON00000/20000 011 44 20 7330 1600 CB 01 SEP 00 22:30 line under U.K. GAAP. For U.S. GAAP reporting these items have been reclassiﬁed to the appropriate expense line in the income statement. In all cases this was selling, general and administrative expenses.

The following is a reconciliation from capital employed to total assets per the consolidated balance sheet at March 31, 1999 and 2000:

1999 £ 1999 £ 2000 £ 2000 £ (In millions) Segments capital employed ...... 1,253 1,705 Corporate capital employed ...... (863) (1,016) Joint venture capital employed ...... (73) (71) 317 618 U.S. GAAP Adjustments Pension and postretirement beneﬁts ...... 119 146 Proposed dividends...... 236 93 Option schemes ...... — (325) Reorganization costs ...... 80 6 435 570 Add items excluded from capital employed: Cash and cash equivalents ...... 1,418 555 Marketable securities, current ...... 80 178 Net assets of discontinued operations ...... 2,508 — Marketable securities, long-term ...... 78 14 Investments in afﬁliates ...... 470 574 Deferred income taxes ...... 86 31 Goodwill and other intangibles, net ...... 1,174 4,843 5,814 6,195 Add back credit balances included in capital employed: Accounts payable ...... 561 825 Accrued liabilities ...... 1,086 1,652 Other liabilities ...... 79 139 1,726 2,616 Total assets ...... 8,292 9,999

The following describes the signiﬁcant U.K. GAAP to U.S. GAAP adjustments as they relate to segment information.

Pension and postretirement beneﬁts Under both U.K. GAAP and U.S. GAAP pension costs are provided so as to provide for future pension liabilities. However, there are differences in the prescribed methods of valuation, which give rise to GAAP adjustments to the pension cost and prepayment.

Proposed dividends Under U.K. GAAP dividends are provided for in the year in respect of which they are recommended by the board of directors. Under U.S. GAAP, dividends are not provided for until declared by the board of directors.

F-38 3.8.7 29025 FIN 39 Project Marlin Prospectus p15 AOGps 24 JUL 00 17:50 R. R. DONNELLEY LON(•• ) LON00000/20000 011 44 20 7330 1600 CB 01 SEP 00 22:30

Option Schemes

Under both U.K. GAAP and U.S. GAAP option schemes give rise to compensation expense when speciﬁed criteria are met. The measurement date and calculation of expense can be different, giving rise to GAAP adjustments to compensation expense, accrued liabilities and additional paid-in capital.

Reorganization costs

Under U.S. GAAP the criteria for recording reorganization provisions are different to those under U.K. GAAP.

Major customer information

Marconi had one customer which accounted for 13% and 11% of revenue for the year ended March 31, 1999 and March 31, 2000, respectively.

Geographic information

Revenue data is collected on a territory basis and thus the following disclosures are provided.

Revenue to unafﬁliated customers by geographic region are as follows:

For the year ended Revenues by territory of destination: March 31, 1999 £ 2000 £ (In millions) United Kingdom ...... 1,034 1,265 The Americas ...... 1,278 2,357 Rest of Europe ...... 918 1,192 Africa, Asia, and Australasia ...... 559 623 Total external revenues ...... 3,789 5,437

For the year ended Revenues by territory of origin: March 31, 1999 £ 2000 £ (In millions) United Kingdom ...... 1,454 1,726 The Americas ...... 1,266 2,499 Rest of Europe ...... 747 850 Africa, Asia, and Australasia ...... 322 362 Total external revenues ...... 3,789 5,437

Revenue by origin with the USA (included within The Americas above) totalled £2,448 million (1999: £1,232 million) and with Italy (included in the Rest of Europe) £598 million (1999: £535 million). No other country contributed more than 10% of revenue by origin in 2000 or 1999.

F-39 3.8.7 29025 FIN 40 Project Marlin Prospectus p15 AOGps 30 AUG 00 19:41 R. R. DONNELLEY LON(•• ) LON00000/20000 011 44 20 7330 1600 CB 01 SEP 00 22:30

Long-lived assets

Within capital employed, the balance sheet measure reviewed by the Chief Operating Decision Maker, the only long-lived assets are property, plant and equipment and other non current assets.

Expenditure by sector on property, plant and equipment is as follows:

For the year ended March 31, 1999 £ 2000 £ (In millions) Communications networks ...... 55 174 Communications services...... 611 Mobile communications ...... 816 Medical systems ...... 30 14 Commerce systems ...... 917 Data systems ...... 55 Other ...... 58 62 Total ...... 171 299

Other sector non-current assets included within capital employed are as follows:

For the year ended March 31, 1999 £ 2000 £ (In millions) Communications networks ...... 32 Communications services...... —— Mobile communications ...... —— Medical systems ...... 18 49 Commerce systems ...... 33 Data systems ...... —— Other ...... —49 Total ...... 24 103

The geographical split of long-lived assets included within capital employed is as follows:

For the year ended March 31, 1999 £ 2000 £ (In millions) United Kingdom ...... 239 267 United States ...... 134 386 Italy ...... 59 71 Other ...... 62 137 Total ...... 494 861

Long-lived assets within other countries are not individually material for either ﬁscal year presented.

F-40 3.8.7 29025 FIN 41 Project Marlin Prospectus p15 AOGps 24 JUL 00 17:46 R. R. DONNELLEY LON(•• ) LON00000/20000 011 44 20 7330 1600 CB 01 SEP 00 22:30

20. Related party transactions Marconi and its consolidated subsidiaries have sales and purchases during the year with equity investments, joint ventures and associates, which are not consolidated, during the ﬁscal years ended March 31, 1999 and 2000. All transactions are in the ordinary course of business. The primary transactions between Marconi and related parties are summarized as follows:

Year ended March 31, 1999 Alstom Picker Other (In millions) £££ Income statement: Net sales ...... 17 48 51 Purchases ...... 3— 2

Balance sheet: Trade receivables ...... 51316 Trade payable ...... 11—

Year ended March 31, 2000 Alstom Picker Other (In millions) £££ Income statement: Net sales ...... 30 54 12 Purchases ...... 5— —

Balance sheet: Trade receivables ...... 5143 Trade payable ...... 1— —

No signiﬁcant transactions with directors or other executive ofﬁcers of Marconi have occurred during the period.

21. Commitments and contingencies Marconi is subject to legal proceedings and other claims arising in the ordinary course of business. Various lawsuits, claims and proceedings have been or may be instituted or asserted against Marconi relating to the conduct of its business, including those pertaining to environmental, safety and health, employment and contract matters. Although the outcome of litigation cannot be predicted with certainty and some lawsuits, claims or proceedings may be disposed of unfavorably to Marconi, management believes that the ultimate outcome of these matters will not have a material adverse effect on the results of operations or ﬁnancial position or cash-ﬂows of Marconi.

Contingent liabilities 1999 £ 2000 £ (In millions) At March 31, ...... 25 25

Contingent liabilities relate mainly to the cost of legal proceedings which, in the opinion of the Directors, are not expected to have a materially adverse effect on the group.

F-41 3.8.7 29025 FIN 42 Project Marlin Prospectus p15 AOGps 05 JUL 00 02:03 R. R. DONNELLEY LON(•• ) LON00000/20000 011 44 20 7330 1600 CB 01 SEP 00 22:30

Under the terms of the Marconi launch share plan, subject to the performance conditions being met (see footnote 15) Marconi may issue up to 37,189,925 Marconi ordinary shares to employees. The compensation expense, which would be recorded if the ﬁrst performance condition is met, is estimated to be approximately £596 million.

In the ordinary course of business Marconi enters into contracts for capital expenditures as set out below:

Capital expenditure commitments 1999 £ 2000 £ (In millions) At March 31, ...... 40 59

Marconi leases certain facilities and equipment under operating leases, many of which contain renewal options and escalation clauses. Total rental expense was £45 million and £23 million for the years ended March 31, 2000 and 1999, respectively.

At March 31, 2000, minimum future rental commitments under operating leases having non- cancelable lease terms in excess of one year are as follows:

Land and Other buildings items Total (In millions) £££ 2001 ...... 31 26 57 2002 ...... 22 8 30 2003 ...... 17 3 20 2004 ...... 15 2 17 2005 ...... 13 1 14 Thereafter ...... 123 1 124 Total ...... 221 41 262

22. Subsequent event On April 20, 2000, Marconi announced an agreement to acquire MSI, a global provider of consulting and planning services and operational support software used by the wireless telecommunications industry for an initial consideration of £391 million in cash and stock (rising to a maximum of £570 million in the future if certain performance criteria, including synergy targets, are met).

Sir Alan Rudge, a non-executive director of Marconi and non-executive Chairman of MSI, holds a substantial number of options from MSI. At the date of completion, he will receive approximately $5.3 million from MSI in respect of the cancellation of his options, which represents the difference between the offer price in the MSI transaction ($17.50) and the exercise price of such options. Sir Alan Rudge did not participate in that part of any board meeting which considered the proposed acquisition of MSI, nor did he receive any board papers related thereto.

F-42 3.8.7 29025 FIN 43 Project Marlin Prospectus p15 AOGps 14 SEP 00 20:50 R. R. DONNELLEY LON(•• ) LONHTS /20000 011 44 20 7330 1600 CB 01 SEP 00 22:30

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of Fore Systems, Inc.

In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, of cash flows, of comprehensive income (loss) and of changes in common stock and stockholders’ equity present fairly, in all material respects, the financial position of Fore Systems, Inc., and its subsidiaries at March 31, 1999, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.

As described in Note 17 to the consolidated ﬁnancial statements, the Company was acquired by ▲The General Electric Company, p.l.c. (‘‘GEC’’) on June 17, 1999.

PricewaterhouseCoopers LLP Pittsburgh, Pennsylvania April 23, 1999 except Note 17, which is as of May 18, 2000.

F-43 3.8.7 29025 FIN 44 Project Marlin Prospectus p15 AOGps 05 JUL 00 02:03 R. R. DONNELLEY LON(•• ) LON00000/20000 011 44 20 7330 1600 CB 01 SEP 00 22:30

Fore Systems, Inc. CONSOLIDATED STATEMENT OF OPERATIONS

Year Ended March 31, 1999 (In thousands, except per- share data) Revenue ...... $ 632,353 Cost of sales...... 315,971 Gross proﬁt ...... 316,382 Operating expenses: Research and development ...... 94,293 Sales and marketing ...... 182,430 General and administrative ...... 57,668 Purchased research and development ...... 115,355 Merger related ...... 4,159 Total operating expenses ...... 453,905 Income (loss) from operations ...... (137,523) Interest income ...... 14,899 Other income (expense) ...... (121) Litigation settlement charges ...... — Income (loss) before provision for income taxes ...... (122,745) Provision for income taxes ...... 9,827 Net income (loss) ...... $(132,572) Net income per common share—basic ...... $ (1.20) Net income per common share—diluted ...... $ (1.20)

The accompanying notes are an integral part of these ﬁnancial statements.

F-44 3.8.7 29025 FIN 45 Project Marlin Prospectus p15 AOGps 05 JUL 00 02:04 R. R. DONNELLEY LON(•• ) LON00000/20000 011 44 20 7330 1600 CB 01 SEP 00 22:30

Fore Systems, Inc. CONSOLIDATED BALANCE SHEET

March 31, 1999 (In thousands, except share data) ASSETS: Current assets: Cash and cash equivalents ...... $187,277 Short-term investments ...... 173,885 Accounts receivable, net of allowance for doubtful accounts of $5,784 ...... 144,962 Inventories ...... 84,640 Deferred income taxes ...... 49,722 Prepaid expenses and other current assets ...... 23,751 Total current assets ...... 664,237 Fixed assets ...... 67,494 Intangibles...... 84,077 Other non-current assets ...... 6,806 TOTAL ASSETS ...... $822,614 LIABILITIES AND STOCKHOLDERS’ EQUITY: Current liabilities: Accounts payable ...... $ 61,248 Accrued payroll and related costs ...... 20,927 Income taxes payable ...... 21,570 Other current liabilities ...... 31,113 Deferred revenue ...... 55,115 Total current liabilities ...... $189,973 Commitments and contingencies ...... — Stockholders’ Equity: Common stock, par value $.01 per share; 300,000,000 shares authorized; 116,355,894 shares issued ...... $680,069 Retained earnings ...... (41,917) Treasury stock, at cost: 165,734 shares ...... (3,253) Accumulated other comprehensive income ...... (2,258) Total stockholders’ equity...... 632,641 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY ...... $822,614

The accompanying notes are an integral part of these ﬁnancial statements.

F-45 3.8.7 29025 FIN 46 Project Marlin Prospectus p15 AOGps 05 JUL 00 02:04 R. R. DONNELLEY LON(•• ) LON00000/20000 011 44 20 7330 1600 CB 01 SEP 00 22:30

Fore Systems, Inc CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCK AND STOCKHOLDERS’ EQUITY

Unrealized Holding Common Stock Gains Retained Cumulative (In thousands, (Losses) on Earnings Translation Treasury except Shares Amount Investments Deﬁcit Adjustment Stock Total share data) Balance, March 31, 1998 ... 104,989,838 $424,186 $(1,696) $ 90,842 $(471) $(3,252) $ 509,609 Issuance of common stock under stock option and employee purchase plans...... 2,717,792 30,531 — — — — 30,531 Issuance of common stock for purchase of business . 8,648,264 186,198 186,198 Income tax beneﬁt from stock option plan activity ...... — 6,297 — — — — 6,297 Unrealized holding gains on available-for-sale investments ...... — — 349 — — — 349 Purchase of treasury stock . — — — — — (1) (1) Issuance of common stock under employee incentive plan ...... 32,857 (187) 32,670 Cumulative translation adjustment ...... — — — — (440) — (440) Net loss ...... — — — (132,572) — — (132,572) Balance, March 31, 1999 ... 116,355,894 $680,069 $(1,347) $ (41,917) $(911) $(3,253) $ 632,641

The accompanying notes are an integral part of these ﬁnancial statements.

F-46 3.8.7 29025 FIN 47 Project Marlin Prospectus p15 AOGps 05 JUL 00 02:04 R. R. DONNELLEY LON(•• ) LON00000/20000 011 44 20 7330 1600 CB 01 SEP 00 22:30

Fore Systems, Inc. CONSOLIDATED STATEMENT OF CASH FLOWS

Year Ended March 31, 1999 (In thousands) Cash flows from operating activities: Net income ...... $(132,572) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation ...... 36,299 Amortization ...... 11,991 Deferred income tax benefit ...... (7,747) Income tax benefit related to stock options ...... 6,297 Purchased research and development ...... 115,355 Change in operating assets and liabilities: Accounts receivable ...... (31,257) Inventories ...... (13,873) Prepaid expenses and other current assets ...... (11,133) Accounts payable ...... 28,905 Accrued liabilities ...... 14,141 Prepaid income taxes and income taxes payable ...... 13,948 Deferred revenue ...... 25,818 Net cash provided by operating activities ...... 56,172 Cash flows from investing activities: Purchases of short-term investments ...... (158,343) Redemption and sale of short-term investments ...... 171,806 Investment in other non-current assets ...... (402) Capitalization of software development costs ...... (2,557) Payment of contingent consideration from Acquisition (Berkeley) ...... (8,959) Cash from acquisitions ...... 844 Purchases of fixed assets ...... (29,344) Net cash used in investing activities ...... (26,955) Cash flows from financing activities: Principal payments on notes payable and capital lease obligations ...... (64) Purchase of treasury stock ...... (1) Proceeds from issuance of Common stock ...... 30,531 Net cash provided by financing activities ...... 30,466 Increase (decrease) in cash and cash equivalents ...... 59,683 Cash and cash equivalents at beginning of year ...... 127,594 Cash and cash equivalents at end of year ...... $ 187,277

Cash paid (refunded) during the year for: Interest ...... $73 Income taxes ...... $ 3,614

The accompanying notes are an integral part of these ﬁnancial statements.

F-47 3.8.7 29025 FIN 48 Project Marlin Prospectus p15 AOGps 05 JUL 00 02:04 R. R. DONNELLEY LON(•• ) LON00000/20000 011 44 20 7330 1600 CB 01 SEP 00 22:30

Fore Systems, Inc. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

Year Ended March 31, 1999 (In thousands) Net income (loss) ...... $(132,572) Change in cumulative translation adjustment ...... (440) Change in unrealized gain (loss) on investments ...... 349 Comprehensive income (loss) ...... $(132,663)

The accompanying notes are an integral part of these ﬁnancial statements.

F-48 3.8.7 29025 FIN 49 Project Marlin Prospectus p15 AOGps 05 JUL 00 02:04 R. R. DONNELLEY LON(•• ) LON00000/20000 011 44 20 7330 1600 CB 01 SEP 00 22:30

Fore Systems, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS All data in thousands except for share and per-share data 1. Summary of Signiﬁcant Accounting Policies Nature of Business Fore Systems, Inc. (‘‘Fore Systems’’ or the ‘‘Company’’) is a leading global supplier of networking solutions based on an Intelligent Infrastructure designed to handle the networked applications of today and tomorrow. The Company’s Networks of Steel deliver the increased capacity, reduced complexity and unparalleled ﬂexibility and scalability required to build networks that last.

Principles of Consolidation and Basis of Presentation The financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions have been eliminated. The Company’s fiscal year ends March 31. Any reference to years stated hereafter represents the fiscal year unless otherwise indicated.

Revenue Recognition Revenue is recognized when the product is shipped provided that all signiﬁcant obligations are fulﬁlled. Revenue from support contracts is recognized ratably over the term of the related agreements. Revenue from initial license fees, including limited warranty services, is recognized upon the delivery of the software and the costs associated with providing such services, which are immaterial, are accrued.

Use of Estimates The preparation of ﬁnancial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the ﬁnancial statements and the reported amounts of revenue and expenses during the reported period. Actual results could differ from those estimates.

Cash and Cash Equivalents and Short-term Investments The Company’s policy is to invest its excess cash in U.S. government securities, interest- bearing deposits with major banks, municipal notes and bonds and commercial paper of companies with strong credit ratings that are subject to minimal credit and market risk. Cash equivalents consist of money market funds, commercial paper, U.S. government securities and municipal notes and bonds that have original maturities of 90 days or less. Short-term investments include securities purchased with an original maturity of greater than 90 days.

Inventories Inventories are stated at the lower of cost or market, cost being determined using the ﬁrst-in, ﬁrst-out method.

Capitalized Software Development Costs Software development costs for new software and enhancements to existing software are expensed as incurred until the establishment of technological feasibility. Subsequent to establishment of technological feasibility, the Company capitalizes software development costs incurred until the

F-49 3.8.7 29025 FIN 50 Project Marlin Prospectus p15 AOGps 24 JUL 00 17:47 R. R. DONNELLEY LON(•• ) LON00000/20000 011 44 20 7330 1600 CB 01 SEP 00 22:30 product is available for general release to customers. Amortization of capitalized software development costs is computed on a product-by-product basis using the greater of (a) the ratio that current gross revenues for a product bear to the total of current and anticipated future gross revenues for that product, or (b) the straight-line method over the remaining estimated economic life of the product. Unamortized capitalized software development costs amounted to $813 at March 31, 1999.

Fixed Assets Equipment and furniture are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets which range up to 10 years. Leasehold improvements are recorded at cost and amortized over the shorter of the estimated lives of the related assets or the term of the lease.

Warranty Reserve The Company generally provides a warranty for up to ﬁfteen months on its products. Estimated warranty costs are accrued at the time revenue is recognized and are charged to cost of sales.

Foreign Currency The functional currency for the Company’s foreign manufacturing operations is the U.S. dollar. The functional currency for the other foreign operations is the local currency in the respective geographic territory. The assets and liabilities of the other foreign operations are translated into U.S. dollars at exchange rates in effect as of the balance sheet date. Results of operations are translated at the average exchange transaction rates for the period. Differences arising on the translation of non-U.S. dollar functional currency entities are charged or credited to the cumulative translation account as a component of other comprehensive income. Foreign exchange gains and losses, which are immaterial, are included in the results of operations.

Financial Instruments The Company uses forward currency exchange contracts to manage foreign currency exchange rate risk and does not use them for trading purposes. The exposure to credit risk for these contracts is minimal since they are with major financial institutions. These contracts’ terms range from one week to one year and are entered to hedge certain firm commitments denominated in currencies other than the functional currency of the entity holding the foreign currency commitment. All foreign exchange forward contracts are designated as, and are effective as hedges of the underlying firm commitments. Gains and losses on the contracts are deferred and included in the measurement of the related foreign currency transaction and accordingly classified in the statement of operations with the related transaction. At March 31, 1999, the Company had 390 outstanding forward currency contracts to buy $46,950 worth of various foreign currencies as outlined below. Contracts to buy foreign currencies:

Contract Unrealized Market Value Gain/(Loss) Value Euro ...... $23,195 $(1,692) $21,503 British pounds ...... 15,630 (289) 15,341 Japanese yen ...... 2,865 (82) 2,783 Other currencies ...... 5,260 (142) 5,118 Total ...... $46,950 $ (2,205) $ 44,745

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At March 31, 1999, the Company had two outstanding interest rate swap contracts. The Company entered into these contracts—effective October 31, 1997 and December 15, 1999, respectively—to reduce the impact of changes in interest rates on future lease expense for the Company’s headquarters, manufacturing and operating facilities (see Note 14). Under the terms of the contracts, the Company will receive a ﬂoating interest rate based upon 6-month LIBOR in exchange for payment of a ﬁxed interest rate.

Over the life of the first contract, the notational amount upon which the interest payments will be calculated will range between approximately $21.8 million and $18.0 million. The interest rate fluctuations will result in a receipt or disbursement of funds by the Company on each April 30th and October 30th until the termination of the agreement on October 30, 2007. Over the life of the second contract, the notational amount upon which the interest payments will be calculated will range between approximately $20.5 million and $18.7 million. The interest rate fluctuations will result in a receipt or disbursement of funds by the Company on each April 30th and October 30th until the termination of the agreement on October 31, 2007. Rental expense is recognized on a straight-line basis. Differences between the floating rate rental payments and the amounts received or paid under the swap are matched and recognized as rental expense.

Gains and losses on these interest rate swaps will generally be offset by corresponding losses and gains on the related lease agreements, resulting in negligible net exposure to the Company.

Net Income Per Share Basic earnings per share is calculated based upon the weighted average number of common shares actually outstanding. Diluted earnings per share is calculated based upon the weighted average number of common shares and shares of other potential common stock outstanding if they are dilutive. Since the Company had a net loss for the year ended March 31, 1999, the dilutive effect of other potential common stock has been excluded from the diluted calculation. Shares of potential common stock arising from the exercise of outstanding options are computed using the treasury stock method.

Year Ended March 31, 1999 Net income available to common stockholders ...... $(132,572) Shares used for basic per share computation weighted average shares outstanding...... 110,788 Effect of Dilutive Securities: Stock options ...... 0 Shares used for diluted per share computation (1) ...... 110,788 Net Income Per Share: Basic ...... $ (1.20) Diluted ...... $ (1.20)

(1) 4,098,074 shares of potential common stock relating to outstanding employee stock options have been excluded from the diluted computation in 1999 since their effect was antidilutive.

Accounting for Stock Options As permitted under Statement of Financial Accounting Standards No. 123 (‘‘SFAS 123’’), ‘‘Accounting for Stock-Based Compensation,’’ the Company has elected to follow Accounting Principles Board Opinion No. 25, ‘‘Accounting for Stock Issued to Employees’’ (‘‘APB 25’’), and

F-51 3.8.7 29025 FIN 52 Project Marlin Prospectus p15 AOGps 05 JUL 00 02:04 R. R. DONNELLEY LON(•• ) LON00000/20000 011 44 20 7330 1600 CB 01 SEP 00 22:30 related interpretations, in accounting for stock based awards to employees. Under APB 25, because the exercise price of the Company’s employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized in the Company’s ﬁnancial statements for all periods presented.

Advertising Advertising costs are charged to operations when incurred. The Company did not incur any costs associated with direct response advertising in 1999 and there were no capitalized advertising costs at March 31, 1999. Advertising expense for 1999 was $19,147.

New Accounting Pronouncements In June 1998, the FASB issued Statement of Financial Accounting Standard No. 133 ‘‘Accounting For Derivative Instruments and Hedging Activities’’ (‘‘SFAS 133’’). SFAS No. 133 requires the Company to carry derivatives and hedging instruments on the balance sheet at fair market value. In June of 1999, the FASB issued SFAS No. 137, ‘‘Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133.’’ As a result, the provisions of SFAS No.133 are not required to be adopted until the Company’s ﬁscal year ending March 31, 2001. The Company has not completed its evaluation of the impact of this standard on ﬁnancial position or results of operations.

2. Business Combinations In February 1999, the Company acquired Euristix Limited, based in Dublin, Ireland, (‘‘Euristix’’) an industry-leading developer of advanced telecommunications software technology and solutions. The Company issued 4.7 million shares of its Common Stock, par value $.01 per share (‘‘Common Stock’’) in exchange for all of the outstanding ordinary shares of Euristix. The transaction was accounted for as a pooling of interests. In addition, the Company reserved 177,000 shares of Common Stock for issuance upon the exercise of options granted in substitution of options to purchase ordinary shares of Euristix. As a result of the transaction, Euristix was required to record a nonrecurring compensation charge of $32 million related to certain Euristix variable compensation plans. The charge is reflected in the Company’s consolidated statement of operations for the period ended March 31, 1999 in the respective expense categories. The consolidated financial statements reflect the combination of the Company and Euristix from April 1, 1998.

On September 11, 1998, the Company acquired Berkeley Networks, Inc., a California corporation (‘‘Berkeley’’), by means of a merger (the ‘‘Merger’’) of a wholly-owned subsidiary of the Company, Fastwire Acquisition Corporation, a Delaware corporation (‘‘Fastwire’’), with and into Berkeley. Berkeley, which designs and develops multi-gigabit routing switch platforms based on Windows NT and advanced stateful inspection switching ASICs, was a development stage enterprise that had generated no signiﬁcant revenues and had not shipped a completed product at the time the acquisition was completed.

The Company issued a total of approximately 8.6 million shares of Common stock to the former shareholders of Berkeley and granted to former holders of options to purchase Berkeley Common stock a total of approximately 0.6 million substitute stock options to purchase the Company’s Common stock. Pursuant to the terms of the Merger, additional consideration of up to a total of $30 million in cash (the ‘‘Earn-Out Payments’’) was to be paid by the Company based on Berkeley achieving certain technological advances and/or attaining certain revenue goals in the period commencing on September 11, 1998 and ending on the second anniversary thereof. As of March 31, 1999, the Company accrued the ﬁrst and second Earn-Out Payments totaling

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$20 million of which approximately $9.0 million was paid based on the payment schedule established by the terms of the Merger, to the former equity holders of Berkeley.

The transaction was accounted for under the purchase method of accounting and, accordingly, the acquired assets and liabilities were recorded based upon their fair values at the date of the acquisition. The results of operations of Berkeley are included in the ﬁnancial statements of the Company from the date of the acquisition.

The purchase price paid in Company stock and options and including the ﬁrst cash Earn-Out payments made through March 31, 1999 of $9.0 million totaled $196.7 million. Additional costs incurred in connection with the closing of the transaction ($6.5 million) and restructuring charges of the acquired Company for certain assets, closing of facilities and employee termination costs ($1.4 million) along with the accrual of the second $10 million Earn-Out payment which was based on the achievement of certain technological advances, resulted in a total purchase price recorded as of March 31, 1999 of $214.6 million. The ﬁnal Earn-Out payment of $10 million is dependent upon the attainment of certain revenue goals prior to September 11, 2000. Depending on the amount and nature of any additional contingent consideration paid, the amount of intangible assets and corresponding periodic amortization may be increased.

The table below summarizes the purchase price allocation as of March 31, 1999, excluding the ﬁnal $10 million that may be recorded based on certain revenue goals being achieved over the next 2 years:

Value Current assets ...... $ 1,311 Property, plant and equipment ...... 2,168 Assembled work force ...... 1,700 Purchased research and development ...... 115,355 Other intangible assets ...... 93,359 Liabilities ...... (4,690) Deferred tax asset...... 5,355 Total purchase price...... $214,558

The recorded other intangible assets of $93.4 million are being amortized over 60 months.

Using the stage-of-completion methodology the Company estimated the value of the purchased in-process research and development and recorded a $115.4 million charge.

The Company incurred restructuring charges of $2.5 million related primarily to the closing of the Company’s facilities and certain employee termination costs. The decision to close such facilities and to terminate such employees was made in connection with the acquisition of Berkeley in order to rationalize and better align the Company’s resources following the acquisition. Cost savings are expected to result from the changes related to the restructuring activities.

The value assigned to purchased research and development was determined by identifying three research projects in areas for which technological feasibility had not been established as of the date of the acquisition. These projects were the E4, the E8 and the EZ Switch (collectively the ‘‘projects’’). The E4 is a stackable Ethernet/Fast Ethernet/Gigabit Ethernet switch offering ‘‘pay-as-you-go’’ bandwidth scalability and designed for medium size LAN backbones. The E8 is

F-53 3.8.7 29025 FIN 54 Project Marlin Prospectus p15 AOGps 05 JUL 00 02:04 R. R. DONNELLEY LON(•• ) LON00000/20000 011 44 20 7330 1600 CB 01 SEP 00 22:30 a modular platform expected to deliver high network performance to enterprise LAN backbones, and designed to meet the demands of the corporate data center and to operate at a processing rate of more than 38 million packets per second. The EZ Switch is a workgroup edge switch which will be targeted toward the low-cost stackable market and will allow for low-cost forwarding devices to employ higher-end processing and memory architectures toward the route calculation and distribution functions. The value assigned to purchased research and development was determined by estimating the costs to develop the purchased research and development into commercially viable products; estimating the resulting net cash flows from such projects; discounting the net cash flows back to their present value and multiplying the discounted net cash flows by the stage-of-completion percentage of each research project. The blended discount rate includes a factor that takes into account the uncertainty surrounding the successful development of the purchased research and development. At the acquisition date, the efforts remaining to develop the purchased research and development to reach technical feasibility related to the completion of all planning, designing, prototyping, high-volume manufacturing, verification and testing activities that are necessary to establish that the products can be produced to meet their design specifications including functions, features and technical performance requirements. The projects identified made up 100% of the total charge for purchased research and development. Commercial versions of the E4 and the E8 were first shipped to customers in late November and mid-December 1998, respectively. Development of the EZ Switch was not complete as of March 31, 1999. Management expects that development of the EZ Switch will be completed prior to March 31, 2000. Management expects that sales of the EZ Switch will commence immediately following completion of development. Research and development costs related to the E4, the E8 and the EZ Switch projects incurred through the acquisition date were $6.0 million, $6.5 million and $.1 million, respectively. Total estimated costs at completion for the E4, the E8 and EZ Switch projects, as of the acquisition date, are $7.9 million, $8.8 million and $1.0 million, respectively. Revenue assumptions for the purchased in-process products commence in fiscal year 1999 and increase through fiscal year 2002, at which time they are assumed to decrease through fiscal year 2004, as newer products are released. These assumptions are based on management’s estimates of market size and growth (which are supported by independent market data), expected trends in technology and the nature and expected timing of new product introductions by the Company and its competitors. The estimated gross margins as a percentage of revenues are expected to be higher on a stand alone basis as compared to historical gross margin percentages due to the product features and selling into a less price sensitive market. The estimated selling, general and administration costs were assumed to be lower as a percentage of revenue on a stand alone basis as compared to historical percentages due to the type of markets and purchasing patterns of the customers. Research and development costs were based on costs estimated to complete the projects and maintenance costs after the products are completed. The assumed income tax rate was 28%. The blended discount rate used in discounting the net cash flows from purchased research and development averaged 30%. The stage-of-completion percentages for each project were determined by dividing the costs incurred to date by the total cost to complete. Significant assumptions used to determine the value of the purchased research and development included financial projections for revenues, gross margin, selling and administrative costs and research and development costs and an applicable income tax rate. The Company believes that the assumptions used in the forecasts were reasonable at the time of the business combination. No assurance can be given, however, that the underlying assumptions used to estimate expected project revenues, development costs or profitability, or the events associated with such projects, will transpire as estimated. For these reasons, actual results may vary materially from the projected results.

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The following unaudited pro forma information has been prepared assuming that the acquisition of Berkeley had taken place at the beginning of the respective periods presented. The amount of the aggregate purchase price allocated to purchased research and development and the restructuring charges has been excluded from the pro forma information as they are non- recurring items. Adjustments to arrive at the pro forma amounts include, among others, those related to amortization of intangible assets and related tax effects and the write-off of purchased in-process research and development. The pro forma ﬁnancial information is not necessarily indicative of the combined results that would have occurred had the acquisition taken place at the beginning of the period, nor is it necessarily indicative of the results that may occur in the future.

Pro Forma for the Twelve Months Ended March 31, 1999 Revenue ...... $632,458 Income from operations ...... (18,428) Net income ...... (13,420) Earnings per share—basic ...... (.12) Earnings per share—diluted ...... (.12)

3. Cash Equivalents and Short-term Investments Cash equivalents and short-term investments, classiﬁed as available for sale, consist of the following:

Amortized Unrealized Market Cost Gain/(Loss) Value March 31, 1999 Municipal notes and bonds ...... $122,088 $(1,402) $120,686 Commercial paper and other ...... 81,704 145 81,849 U.S. Government securities ...... 52,918 (90) 52,828 $256,710 $(1,347) $255,363

The market value of available-for-sale securities maturing within one year at March 31, 1999 was $235,170. The market value of available-for-sale securities with contractual maturities over one year and less than three years at March 31, 1999 was $20,193. Gross realized gains and losses on sales of securities in 1999 were immaterial.

4. Inventories Inventories are summarized as follows:

March 31, 1999 Raw materials ...... $ 9,778 Work in process ...... 12,439 Finished goods ...... 62,423 Total inventories ...... $84,640

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During the quarter ended March 31, 1999, the Company announced the phase-out of the PowerHub product line which resulted in an aggregate charge of $31.5 million, which is included in cost of sales. This charge included $17.2 million related to ﬁrm commitments which will result in losses under a contract with a customer on PowerHub products, $11.7 million for inventory write-downs and $2.6 million for ﬁxed asset write-downs and other charges.

5. Fixed Assets Fixed assets are summarized as follows:

March 31, 1999 Leasehold improvements ...... $ 13,444 Land...... 2,260 Equipment and furniture ...... 141,831 Total ﬁxed assets ...... 157,535 Less: accumulated depreciation and amortization ...... 90,041 Fixed assets, net ...... $ 67,494

6. Line of Credit The Company has a line of credit available from a bank under which it can borrow up to $20 million. Borrowings under the agreement bear interest at either the prime rate or the LIBOR rate plus 1%, at the option of the Company. Borrowings under this arrangement are secured by the Company’s ﬁxed assets, inventories and accounts receivable. There were no borrowings under this line at March 31, 1999. The bank agreement contains certain covenants, the most restrictive of which require the maintenance of a certain level of net worth, and expires on September 30, 1999.

7. Notes Payable and Capital Lease Obligations At March 31, 1999, the Company had notes payable and capital lease obligations aggregating $565 which are included in other current liabilities. Interest expense for the year ended March 31, 1999 was not material.

8. Income Taxes The provision for income taxes consists of the following:

Year Ended March 31, 1999 Current income tax expense: Federal ...... 11,826 State ...... 423 Foreign ...... 5,313 Total current income tax expense ...... 17,562 Deferred income tax beneﬁt: Federal ...... (6,753) State ...... (982) Total deferred income tax beneﬁt ...... (7,735) Total income tax expense ...... 9,827

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Deferred income taxes result from differences in the timing of recognition of income and expense items for tax and ﬁnancial reporting purposes. The principle sources of such differences and the tax effect of each are as follows at March 31, 1999:

March 31, 1999 Deferred tax assets (liabilities) Reserves not currently deductible ...... $21,747 Net operating loss carryforwards ...... 10,978 Research and development credits ...... 5,772 Deferred revenue ...... 1,266 Depreciation and amoritization ...... 934 Capitalized software development costs ...... (302) Merger-related expenses ...... 1,552 Acquired assets basis differences ...... 4,964 Other ...... 2,811 Net deferred tax assets ...... $49,722

The Company has $31.4 million in net operating loss carryforwards expiring in 2005 through 2019. The Company’s research and development tax credit carryforwards of 5.7 million expire between 2008 and 2014. In connection with the acquisition of Berkeley Networks (see Note 2), the Company acquired net deferred tax assets relating to temporary differences existing at the acquisition date of $5.5 million. This amount is included in net deferred tax assets disclosed above but is not included in current period results of operations.

The effective tax rate differs from the applicable U.S. statutory federal income tax rate as a result of the following differences:

Year Ended March 31, 1999 Statutory federal income tax rate ...... 35.00% State income taxes, net of federal beneﬁt ...... 0.09% Foreign Sales Corporation ...... 0.49% Research and development credits ...... 1.84% Foreign income taxed at different rates ...... 4.48% Merger and acquisitions costs ...... (0.49%) Purchased research and development ...... (32.89%) Non-deductible stock based compensation ...... (9.31%) Amortization of intangibles ...... (2.65%) Other, net ...... (4.57%) Effective tax rate ...... (8.01%)

9. Stockholders’ Equity

Authorized Capital On May 6, 1996, the Company’s stockholders approved an increase in the authorized shares of the Company’s Common stock, par value $.01 per share, to 300,000,000 shares. The Company has 5,000,000 authorized shares of preferred stock. Preferred stock may be issued at the discretion of the Board of Directors of the Company (without stockholder approval), with such designations, rights and preferences as the Board of Directors may determine from time to time.

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Stock Option Repricing On October 13, 1998, the Compensation Committee of the Board of Directors determined that, as a result of a decline in the market price of the Common Stock since August 1998, the purpose of the Existing Plans were not being adequately achieved with respect to those employees holding options that had exercise prices significantly above the then current market value. In light of these events, including the fact that two of the Company’s competitors had recently repriced their options, the Compensation Committee was concerned that it would not be possible to retain key employees unless options were repriced. As a result, the Company modified options to purchase 7,447,038 shares of Common Stock held by employees not participating in the Company’s Change in Control Severance Plan (‘‘Management Employees’’). The average exercise price of such options was changed from $15.38 to $10.00. In addition, with regard to the Management Employees, the Compensation Committee modified the exercise price of options to purchase 3,650,520 shares of Common Stock. The average exercise price of such options was changed from $16.77 to $12.50.

10. Stock Option Plans The Company’s stock option plans provide for the issuance of an aggregate of 39,923,200 shares of Common stock, of which 3,251,689 shares are available for future grants at March 31, 1999.

The Compensation Committee of the Board of Directors determines the term of each option, option exercise price within limits set forth in the plans, number of shares for which each option is granted and the rate at which each option is exercisable. However, under certain plans, the exercise price of any stock option may not be less than the fair market value of the shares on the date granted (or, with respect to incentive stock options, less than 110% of the fair market value in the case of an optionee holding more than 10% of the voting stock of the Company), and the term cannot exceed ten years (ﬁve years for incentive stock options granted to holders of more than 10% of the Company’s voting stock); under certain other plans, the exercise price for stock options, which do not qualify as incentive stock options under the Internal Revenue Code, are determined by the Compensation Committee of the Board of Directors in its discretion and the term of such options cannot exceed ten years. Transactions under the stock option plans are summarized as follows: Weighted Average Shares Exercise Price Outstanding at March 31, 1998 ...... 16,446,829 $16.17 Granted ...... 20,696,323 12.66 Exercised ...... (2,131,764) 10.69 Cancelled ...... (13,217,657) 15.40 Outstanding at March 31, 1999 ...... 21,793,731 $13.31 Exercisable at March 31, 1999 ...... 7,795,349 15.09

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Options outstanding as of March 31, 1999:

Weighted Average Weighted Remaining Average Number Contractual Exercise Range of Exercise Prices Outstanding Life (in years) Prices $ 0.02—$10.00 8,875,953 8.11 $ 7.99 $10.44—$12.50 3,638,985 8.53 12.47 $12.63—$14.31 2,154,763 9.21 13.83 $14.38—$15.19 2,308,858 7.38 15.14 $15.19—$18.88 2,456,428 9.30 16.84 $18.91—$33.63 2,358,744 7.58 30.01 $ 0.02—$33.63 21,793,731 8.29 $13.31

Options exercisable as of March 31, 1999:

Weighted Number Average Range of Exercise Prices Exercisable Exercise Price $ 0.02—$10.00 2,431,320 $ 5.39 $10.44—$12.50 713,479 12.39 $12.63—$14.31 649,737 13.61 $14.38—$15.19 2,011,469 15.15 $15.19—$18.88 433,888 16.15 $18.91—$33.63 1,555,456 31.73 $ 0.02—$33.63 7,795,349 $15.09

The employee stock purchase plans (the ‘‘Stock Purchase Plans’’) allow eligible employees the opportunity to purchase up to an aggregate of 2,109,530 shares of Common stock through payroll deductions at a purchase price per share not less than 85% of the fair market value on the ﬁrst or last day of the quarterly offering periods (as deﬁned in the Stock Purchase Plans), whichever is lower. The shares issued under the Stock Purchase Plans as of March 31, 1999 were 586,028.

As permitted under Statement of Financial Accounting Standards No. 123 (‘‘SFAS 123’’), ‘‘Accounting for Stock-Based Compensation,’’ the Company has elected to follow Accounting Principles Board Opinion No. 25, ‘‘Accounting for Stock Issued to Employees’’ (‘‘APB 25’’), and related interpretations, in accounting for stock-based awards to employees. Under APB 25, because the exercise price of the Company’s employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized in the Company’s ﬁnancial statements for all periods presented. Pro forma information regarding net income and earnings per share is required by SFAS 123. This information is required to be determined as if the Company had accounted for its employee stock options (including shares issued under the Stock Purchase Plan, collectively called ‘‘options’’) granted subsequent to March 31, 1995 under the fair value method of that statement. The fair value of options granted in ﬁscal 1999 reported below has been estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions:

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Stock Stock Option Purchase Plan Plan 1999 1999 Risk-free rate (%) ...... 5.86 5.33 Volatility (%) ...... 44.00 40.00 Expected Life (in years) ...... 2.59 0.25 Dividend Yield (%) ...... 0.00 0.00

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because the Company’s options have characteristics signiﬁcantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in the opinion of management, the existing models do not necessarily provide a reliable single measure of the fair value of its options. The weighted average estimated fair value of employee stock options granted during ﬁscal 1999 was $4.69 per share. The weighted average estimated fair value of shares granted under the Stock Purchase Plans during the year ended March 31, 1999 was $4.08.

For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’ vesting period. The Company’s pro forma information follows:

1999 Pro forma net income ...... $(158,317) Pro forma net income per common share Basic ...... (1.43) Diluted ...... (1.43)

Because the Company anticipates making additional grants and options vest over several years, the effects on pro forma disclosures of applying SFAS 123 are not likely to be representative of the effects on pro forma disclosures of future years. SFAS 123 is applicable only to options granted subsequent to March 31, 1995.

11. Deﬁned Contribution Plan In November 1993, the Company adopted a 401(k) plan (the ‘‘Plan’’) that covers substantially all employees who meet minimum age and service requirements. Company contributions are determined at the discretion of the Board of Directors. The Plan also permits tax-deferred salary deductions for eligible employees in accordance with the Internal Revenue Code.

The expenses of this plan for the year ended March 31, 1999 were $4,398.

12. Major Customers and Concentration of Credit Risk Information Revenue from government agencies, as a percentage of total revenue, for the year ended March 31, 1999 was 14%.

There were no customers with revenue in excess of 10% of the Company’s total revenue for the year ended March 31, 1999.

Financial instruments which potentially expose the Company to concentrations of credit risk include accounts receivable. The Company performs an initial credit review and ongoing

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Accounts receivable were concentrated as follows:

March 31, 1999 Domestic ...... 49% Foreign ...... 36 U.S. Government ...... 15 100%

13. Segment Information The Company adopted SFAS No. 131, ‘‘Disclosures about Segments of an Enterprise and Related Information’’, The Company operates in one segment-networking equipment.

Revenues from sales to customers for the year ended March 31, 1999 were distributed as follows:

Year Ended March 31, 1999 United States ...... $453,672 Europe (includes Middle East and Africa) ...... 121,109 Paciﬁc Rim ...... 33,399 Other International ...... 24,173 Total ...... $632,353

Summarized ﬁnancial information by geographic area is as follows:

Year Ended March 31, 1999 Long Revenue Lived Assets United States ...... $445,786 $645,933 International ...... 186,567 176,681 Consolidated ...... 632,353 822,614

14. Lease Commitments In December 1998, the Company entered into agreements to construct and lease manufacturing and operating facilities on land adjacent to the Company’s headquarters that was purchased by the Company. The lessor has committed to fund a maximum of $20.5 million for the construction of the building. Upon completion of construction, the Company will lease the facilities under an eight-year operating lease and has options to renew the lease for two additional five-year terms (subject to certain conditions). Future annual minimum rental payments under the lease are approximately $1.5 million and are expected to commence in fiscal year 2000. During the construction period, the Company guaranties the repayment of 90% of certain project costs expended or financed by the lessor, which amount is estimated not to exceed $18 million, and under certain circumstances guaranties the repayment of 100% of all project costs expended or financed by the lessor. During the lease period, the Company guaranties all of its obligations under the lease.

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The Company may, at its option, purchase the facilities during or at the expiration of the term of the lease at an amount equal to the remaining balance of any debt of the lessor related to the construction of the facilities plus any applicable prepayment penalties. The Company has the right to obtain a purchaser for the facility upon the termination of the lease. If the Company exercises this remarketing option and obtains a buyer for the facility, the Company guaranties to the lessor a residual value for the facility of approximately $14 million, an amount that was determined at the lease inception date. Should the Company not exercise the remarketing option, the Company will be required to purchase the facility at the termination of the lease for approximately $19 million.

As part of the above lease transaction, the Company will pledge approximately $19.5 million of marketable securities as collateral for speciﬁed obligations of the lessor (approximately $1.2 million pledged as of March 31, 1999). The Company will manage these securities under its investment policy. In addition, under the terms of the lease, the Company is required to comply with certain ﬁnancial covenants including the maintenance of a minimum tangible net worth. Other restrictive covenants limit indebtedness and the payment of dividends.

The lease transaction entered into in December 1998 is tied to the lease for the Company’s existing headquarters facilities. As such, the lease contains cross default provisions with the previous lease, and if the Company elects to exercise the purchase, renewal or remarketing options with respect to any of the buildings under these leases, it must do so for all of them. Should the Company elect to purchase, or be required to purchase, all of these buildings, the total purchase price would approximate $43 million. In addition, under the terms of these leases, the Company is required to comply with certain ﬁnancial covenants including the maintenance of a minimum tangible net worth. Other restrictive covenants limit indebtedness and the payment of dividends.

The Company also has operating lease agreements relating to certain other facilities and equipment which expire at various dates. Rent expense on operating leases for the year ended March 31, 1999 was $15,300.

Future minimum payments under all non-cancelable operating leases as of March 31, 1999 are summarized as follows:

2000 ...... $13,507 2001 ...... 9,220 2002 ...... 7,074 2003 ...... 5,618 2004 ...... 3,675 Thereafter ...... 13,484 Total ...... $52,578

15. Litigation (a) In July and August 1997, Fore Systems, together with six of its current or former directors and officers, were named as defendants in seven nearly identical class action lawsuits, filed in the United States District Court for the Western District of Pennsylvania. Each of these lawsuits was filed on behalf of a putative class of persons (other than defendants and their respective affiliates) who purchased Fore Systems securities during the period from October 17, 1996 through April 1, 1997, inclusive (the ‘‘Class Period’’). Each complaint asserted claims against all defendants under Section 10(b) of the Securities Exchange Act of 1934 (the 1934 Act) and, as to the individual defendants, under Section 20 of the 1934 Act. The complaints alleged

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Pursuant to a court order, these lawsuits were consolidated, and the lead plaintiffs filed a Consolidated Amended Complaint on December 31, 1997. The Consolidated Amended Complaint contained generalized allegations that paralleled those of the original complaints and added allegations that Fore Systems’ financial statements for its fiscal quarters ended September 30 and December 31, 1996 had improperly recognized revenues on sales to certain customers. Fore Systems and the other defendants moved to dismiss the Consolidated Amended Complaint, on the basis that the plaintiffs had failed to state a claim upon which relief might be granted. The Court denied the motion to dismiss in June 1998, and all defendants thereafter answered the Consolidated Amended Complaint denying all allegations of wrongdoing. The Court then entered a case management order providing for Phase 1 discovery and contemplating that defendants would file an early motion for summary judgment. In addition, the Court granted plaintiffs’ motion to certify the class of purchasers alleged in the Consolidated Amended Complaint.

Shortly before defendants’ motion for summary judgment was to be ﬁled, plaintiffs ﬁled a Second Amended Consolidated Complaint (Second Amended Complaint). The Second Amended Complaint repeated the generalized allegations of misrepresentations and omissions contained in plaintiffs’ original complaints, substantially changed the alleged factual basis for the allegations of improper revenue recognition that were contained in plaintiffs’ Consolidated Amended Complaint and alleged that Fore Systems’ purported deterioration and declining prospects and growth had begun in the quarter ended June 30, 1996. Accordingly, the Second Amended Complaint sought to expand the alleged class to include all persons who purchased Fore Systems’ securities during the period July 19, 1996 through April 1, 1997, inclusive.

Defendants ﬁled a motion to dismiss the Second Amended Complaint and, in the alternative, for summary judgment. On July 14, 1999, the Court denied defendants’ motion to dismiss and for summary judgment and all defendants thereafter answered the Second Amended Complaint denying all allegations of wrongdoing. By Order dated June 30, 1999, the Court had provided that discovery would conclude nine months after the Court’s disposition of defendants’ dispositive motion (i.e. on April 14, 2000). The parties have pursued discovery since July 1999. On February 23, 2000 plaintiffs requested an extension of the discovery period. That request was denied by the Magistrate Judge. Upon appeal of the Magistrate Judge’s order by plaintiffs, the District Court, by order dated March 27, 2000, extended the discovery period through August 14, 2000.

Fore Systems believes the allegations in the Second Amended Complaint are completely without merit and intends to defend this action vigorously. As such, the Company believes that a material loss contingency is neither probable nor reasonably estimable. (b) On October 14, 1998, Fore Systems was sued by Bell Communications Research Inc. (now named Telcordia Technologies, Inc. (Telcordia) in the United States District Court for the District of Delaware. Telcordia’s complaint against Fore Systems alleges that Fore Systems has infringed and continues to infringe four patents owned by Telcordia. The complaint identiﬁes Fore Systems’ ‘‘Core Products, Edge Products and Multimedia Application Products’’ as allegedly infringing products and seeks unspeciﬁed damages for past infringement and an injunction against future infringement.

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Fore Systems has answered Telcordia’s complaint by denying infringement and asserting the affirmative defenses of invalidity, unenforceability, laches, equitable estoppel, implied license, misuse and unclean hands. In addition, Fore Systems has counterclaimed for a declaratory judgment on the same issues (non-infringement, invalidity, unenforceability, laches, equitable estoppel, implied license, misuse and unclean hands) and asserted affirmative claims (seeking damages) for reformation of contract based on fraud, breach of the covenant of good faith and fair dealing, fraud, negligent misrepresentation and common law unfair business practices and competition. Discovery in this case has closed and both parties have filed summary judgment motions which are pending before the court. The case has been scheduled for trial in early May, 2000.

Fore Systems believes the allegations in the complaint are completely without merit and intends to defend this action vigorously. As such, the Company believes that a material loss contingency is neither probable nor reasonably estimable.

From time to time, Fore Systems receives notiﬁcations alleging that it is or may be infringing the intellectual property rights of third parties. At the present time, Fore Systems is in separate discussions with several such third parties regarding the alleged infringement by the Company of certain patents owned by such third parties. Management believes that the ultimate outcome of these matters is not likely to have a material adverse effect on the results of operations or ﬁnancial position of Fore Systems.

Although management believes that the ultimate outcome of pending legal proceedings will not have a material adverse effect on the Company’s ﬁnancial position or results of operations, litigation is subject to inherent uncertainties, and an unfavorable outcome may have a material adverse effect on the results of operations in a particular future period or periods.

16. Litigation—Subsequent event (unaudited) (a) Telcordia commenced a second suit against Fore Systems on June 8, 1999 in the United States District Court for the District of Delaware. This suit is related to the currently pending suit, identiﬁed in (b) above, and alleges infringement by Fore Systems of two additional patents.

Fore Systems has answered Telcordia’s complaint by denying infringement and asserting the afﬁrmative defenses of invalidity, unenforceability, laches, equitable estoppel, implied license, misuse and unclean hands. In addition, Fore Systems has counterclaimed: (i) for a declaratory judgment on the issues of non-infringement, invalidity and unenforceability; and (ii) alleging infringement by Telcordia of one of Fore Systems’ patents. Discovery in this case has closed. The deadlines for ﬁling summary judgment motions are in early April, 2000. The case has been scheduled for trial in early July, 2000.

(b) In the week commencing May 17, 1999, three actions were filed in the Court of Chancery of the State of Delaware against Fore Systems. The complaints also name as defendants five persons who were then directors of Fore Systems and one former director, who is erroneously designated in such complaint as having been a member of the board of directors of Fore Systems at that time. The complaints purport to assert claims on behalf of various stockholders of Fore Systems, other than the defendants and their respective affiliates. The complaints allege that the individual defendants breached their fiduciary duties to Fore Systems’ public stockholders and violated Delaware law as a result of the board of directors’ grant of certain options to senior

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(c) On May 19, 1999, a complaint was ﬁled in the United States District Court for the Western District of Pennsylvania against GEC p.l.c., Fore Systems and seven persons who were then directors and/or senior executives of Fore Systems (the Management Defendants). Three further, substantially identical complaints were ﬁled in the same court on May 25, 1999, June 4, 1999 and July 19, 1999.

After an order providing for consolidation of the three first filed complaints was entered and the fourth complaint was also consolidated, plaintiffs filed their Consolidated Amended Class Action Complaint on 20th September 1999 (‘‘Amended Complaint’’). The Amended Complaint adds as named plaintiffs those persons and entities previously designated by the court as lead plaintiffs, and it names six additional directors and/or officers of Fore Systems as additional individual defendants.

The Amended Complaint purports to assert claims on behalf of the public stockholders of Fore Systems (other than the defendants and their respective affiliates) for alleged violations of sections 14 (d) and 10(b) of the 1934 Act and Rules 14d-10 and 10b-13 promulgated and thereunder relating to the GEC tender offer and the treatment afforded the individual defendants’ options in that tender offer and the related merger transaction. In addition, the Amended Complaint asserts claims against Fore Systems and the individual defendants alleged to arise under section 14(e) of the 1934 Act (for allegedly inadequate disclosures of the options in Fore Systems’ Schedule 14D-9 and the fairness of the merger consideration); under section 10(b) of the 1934 Act (again, for allegedly inadequate disclosures concerning the options and terms of the merger in Fore Systems’ Schedule 14D-9); under section 20(a) of the 1934 Act against the individual defendants only (for their alleged role as control persons with respect to the alleged violations of sections 14(e) and 10(b), and for breach of fiduciary duty against the individual defendants for their alleged actions relating to the grant of the options and the negotiation and disclosure of the terms of the GEC/Fore Systems merger. The Amended Complaint seeks class certification, an award of damages resulting from the alleged violations of the 1934 Act and breaches of fiduciary duty, plaintiffs’ costs of suit, including attorney’s fees and experts’ fees and other disbursements and other unspecified relief.

On October 20, 1999, GEC and, separately, Fore Systems and the seven original individual defendants moved to dismiss the Amended Complaint. On November 15, 1999, the six additional defendants moved to dismiss the Amended Complaint. The motions were considered by the Magistrate Judge, who ﬁled a Report and Recommendation on, February 8, 2000, that all defendants’ motions be denied. All defendants have objected to the Report and Recommendations on February 28, 2000. The district court, by Order dated March 21, 2000, accepted the Magistrate’s Report and Recommendation, and denied all defendants’ motions to

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17. Subsequent Event

On April 26, 1999, ▲The General Electric Company, p.l.c. (‘‘GEC’’) and the Company entered into a deﬁnitive merger agreement under which a U.S. Subsidiary of GEC (GEC Acquisition Corp.) commenced a cash tender offer of $35 per share for all of the Company’s shares. The cash tender offer was completed in June 1999, which resulted in the merger between GEC Acquisition Corp. and the Company, following which the Company became a wholly owned subsidiary of GEC.

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PART II INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

The following table sets forth the costs and expenses, other than underwriting discounts and commissions, expected to be payable by the Registrants in connection with the sale of the securities being registered with this registration statement. All amounts are estimates except the SEC registration fee.

SEC registration fee...... $ 475,200 Luxembourg Stock Exchange listing fee ...... 1,000 Blue Sky fees and expenses ...... 15,000 Printing and engraving expenses ...... 400,000 Legal fees and expenses ...... 850,000 Accountants’ fees and expenses ...... 1,200,000 Trustee’s and Depositary’s fees and expenses ...... 10,000 Miscellaneous ...... 48,800 Total ...... $3,000,000

Item 14. Indemniﬁcation of Directors and Ofﬁcers.

As permitted by Section 310 of the U.K. Companies Act 1985, each of the Registrant’s Articles of Association provides that every director or other officer of a Registrant will be indemnified out of the assets of that Registrant against any liability incurred by him in defending any proceedings, whether civil or criminal, in which judgment is given in his favor (or the proceedings are otherwise disposed of without any finding or admission of any material breach of duty on his part) or in which he is acquitted or in connection with any application in which relief is granted to him by the court from liability for negligence, default, breach of duty or breach of trust in relation to the affairs of that Registrant.

As permitted by Section 310 of the U.K. Companies Act 1985, each Registrant maintains liability insurance for its directors and ofﬁcers, including insurance against liabilities under the Securities Act.

The underwriting agreement filed as Exhibit 1.1 to this registration statement provides for indemnification by the underwriters to the Registrants and their officers and directors for certain liabilities which arise under the Securities Act, or otherwise.

Item 15. Recent Sales of Unregistered Securities.

During the period from April 1, 1997 to March 31, 1998, Marconi Corporation plc (then called The General Electric Company p.l.c. or GEC) issued 2,789,751,357 ordinary shares of 5p each in respect of the exercise of options and 7,852,931 ordinary shares of 5p each as scrip dividends. The ordinary shares were issued outside the United States pursuant to Regulation S and did not require registration under the Securities Act.

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During the period from April 1, 1998 to March 31, 1999, Marconi Corporation plc issued 10,429,438 ordinary shares of 5p each in respect of the exercise of options. During the period April 1, 1999 to March 31, 2000, Marconi Corporation plc issued 148,189,402 ordinary shares of 5p each in respect of the exercise of options and in connection with the acquisition of Marconi Finanziaria. The ordinary shares were issued outside the United States pursuant to Regulation S and did not require registration under the Securities Act.

On March 30, 2000, Marconi Corporation plc issued €1,000,000,000 6.375% bonds due 2010 and €500,000,000 5.625% bonds due 2005. Marconi plc guarantees the bonds. The bonds and the guarantees were issued outside the United States pursuant to Regulation S, and did not require registration under the Securities Act.

During the period from April 1, 2000 to the date of this prospectus, Marconi Corporation plc issued 10,012,227 ordinary shares of 5p each in respect of the exercise of options. The ordinary shares were issued outside the United States pursuant to Regulation S and did not require registration under the Securities Act.

On September 17, 1999, the date of Marconi plc’s incorporation, Marconi plc issued two ordinary shares of 5p each for the purposes of incorporation. On November 26, 1999, Marconi plc issued 2,723,486,794 ordinary shares of 5p each to the former shareholders of GEC in connection with the reconstruction of GEC in November 1999 whereby such shareholders of GEC became shareholders of Marconi plc and GEC became an indirect wholly-owned subsidiary of Marconi plc and was subsequently renamed Marconi Corporation plc. The ordinary shares were issued in reliance on the exemption from registration in Section 3(a)(10) of the Securities Act.

During the period from November 26, 1999 to March 31, 2000, Marconi plc issued 509,654 ordinary shares of 5p each in respect of the exercise of options. The ordinary shares were issued outside the United States pursuant to Regulation S and did not require registration under the Securities Act.

During the period from April 1, 2000 to the date of the prospectus, Marconi plc issued the following securities: • 21,960,808 ordinary shares of 5p each on June 15, 2000 in connection with the acquisition of Metapath Software International (MSI) on June 15, 2000. The ordinary shares were issued to accredited investors pursuant to Section 4(2) of the Securities Act. • 6,975,136 ordinary shares of 5p each to Miguel Garcia Winder on June 30, 2000 in connection with the acquisition of Systems Management Specialists (SMS) on June 30, 2000. The ordinary shares were issued to Mr. Winder, an accredited investor, pursuant to Section 4(2) of the Securities Act. • 285,715 ordinary shares of 5p each on July 13, 2000 in connection with the acquisition of Davies Industrial Communications on July 4, 2000. The ordinary shares were issued outside the United States pursuant to Regulation S and did not require registration under the Securities Act. • 1,697,031 ordinary shares of 5p each on July 28, 2000 in connection with the acquisition of Albany Partnership on July 28, 2000. The ordinary shares were issued outside the United States pursuant to Regulation S and did not require registration under the Securities Act. • 6,607,639 ordinary shares of 5p each in respect of the exercise of options during this period. The ordinary shares were issued outside the United States pursuant to Regulation S and did not require registration under the Securities Act.

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Item 16. Exhibits and Financial Statement Schedules. (a) Exhibits

Exhibit No. Description of Document 1.1* Form of Underwriting Agreement 3.1* Memorandum and Articles of Association of Marconi Corporation plc 3.2* Memorandum and Articles of Association of Marconi plc 4.1* Form of Indenture 4.2* Form of Deposit Agreement 5.1* Opinion of Freshﬁelds, English counsel to Marconi Corporation plc and Marconi plc, as to certain matters under U.K. law 5.2* Cravath, Swaine & Moore, U.S. counsel to Marconi Corporation plc and Marconi plc as to the legality of the bonds and the guarantee 10.1* The Transactions Agreement dated April 27, 1999 between The General Electric Company, p.l.c. (now Marconi Corporation plc) and British Aerospace Public Limited Company (now BAE Systems plc), as amended by a letter agreement sent by The General Electric Company, p.l.c. to British Aerospace Public Limited Company on September 6, 1999 and by a supplemental agreement dated October 7, 1999. The agreements set forth below as exhibit numbers 10.2 to 10.8 were entered into pursuant to the Transactions Agreement 10.2* Tax Deed dated November 29, 1999 between British Aerospace Public Limited Company and Marconi plc 10.3* The EASAMS Agreement dated November 29, 1999 between British Aerospace Public Limited Company and Marconi plc 10.4* Machined Component Supply Agreement dated November 29, 1999 between EEV Limited (subsequently renamed Marconi Applied Technologies Limited) and British Aerospace Public Limited Company 10.5* General Deed of Covenant dated November 29, 1999 between Marconi plc and British Aerospace Public Limited Company 10.6* Services Agreement dated November 29, 1999 between Marconi plc and British Aerospace Public Limited Company 10.7* Technology Access Agreement dated November 29, 1999 between British Aerospace Public Limited Company and Marconi plc 10.8* Payment Deed dated April 27, 1999 between British Aerospace Public Limited Company and The General Electric Company, p.l.c. 10.9* 1999 Credit Facility Agreement dated June 4, 1999 between Marconi Corporation plc and certain ﬁnancial institutions as Banks which have participated in the credit facility, Barclays Capital and Warburg Dillon Read as the Joint Lead Arrangers and HSBC Investment Bank plc as the Agent, including a Guarantor Accession Agreement dated January 27, 2000 by Marconi plc, and as extended to June 2, 2001 by a letter dated May 26, 2000 by HSBC Investment Bank plc 10.10* An Agreement and Plan of Merger dated March 1, 1999 between GEC Incorporated, GEC Acquisition Corp. and Reltec Corporation 10.11* An Agreement and Plan of Merger dated April 26, 1999 between GEC Incorporated, GEC Acquisition Corp. and Fore Systems, Inc.

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Exhibit No. Description of Document 10.12* Asset Purchase Agreement dated November 13, 1998 between Elscint Limited and Picker International Inc. 10.13* Acquisition Agreement dated June 24, 1998 between The General Electric Company, p.l.c. and Siemens Aktiengesellschaft for the acquisition of shares in GPT Holdings Limited and the disposal of shares in Siemens GEC Communications Systems Limited 10.14* Shareholders Agreement dated May 29, 1998 between Alcatel Alsthom Compagnie Geńe´rale D’Electricite´ and The General Electric Company, p.l.c. relating to their relationship as shareholders in Alstom S.A. 10.15* 1998 Credit Facility Agreement dated March 25, 1998 between The General Electric Company, p.l.c., HSBC Investment Bank plc, as the Agent, Marine Midland Bank, as the U.S. Swingline Agent, and certain financial institutions which have participated in providing the credit facility and certain other financial institutions as the Joint Lead Arrangers, as amended by a Supplemental Agreement dated January 27, 2000 among The General Electric Company, p.l.c., Marconi plc and HSBC Investment Bank plc, as Agent, and as further amended by a Second Supplemental Agreement dated April 18, 2000 among Marconi Corporation plc, Marconi plc and HSBC Investment Bank plc, as Agent, and as extended to March 22, 2001 by a letter dated March 17, 2000 by HSBC Investment Bank plc 10.16* Investment Agreement dated August 30, 1999 between Xcert International, Inc. and GEC Incorporated 10.17* Trust Deed dated March 30, 2000 relating to €500,000,000 5.625 per cent. Bonds due 2005 between Marconi Corporation plc, Marconi plc and The Law Debenture Trust Corporation p.l.c. 10.18* Trust Deed dated March 30, 2000 relating to €1,000,000,000 6.375 per cent. Bonds due 2010 between Marconi Corporation plc, Marconi plc and The Law Debenture Trust Corporation p.l.c. 10.19* Exchange Agreement dated April 17, 2000 between Marconi plc and certain shareholders in Metapath Software International, Inc. 10.20* An Agreement and Plan of Merger dated April 17, 2000 between Marconi plc and Metapath Software International, Inc. 11.1 Computation of Earnings Per Share (incorporated by reference to Note 16 of Notes to the Consolidated Financial Statements included in the Prospectus) 12.1* Calculation of Ratio of Earnings to Fixed Charges 21.1+ List of principal subsidiaries and other associated companies of Marconi Corporation plc 23.1 Consent of Freshfields (included in Exhibit 5.1) 23.2 Consent of Cravath, Swaine & Moore (included in Exhibit 5.2) 23.3+ Consent of Deloitte & Touche 23.4+ Consent of PricewaterhouseCoopers LLP 24.1 Power of Attorney for Marconi Corporation plc (included on signature pages of Registration Statement) 24.2 Power of Attorney for Marconi plc (included on signature pages of Registration Statement) 25.1* Statement of Eligibility of the Trustee * Previously filed. + Filed with this registration statement. (b) Financial Statement Schedules Not required.

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Item 17. Undertakings. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrants pursuant to the foregoing provisions, or otherwise, each Registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of any Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

Each of the undersigned Registrants hereby undertakes: (a) To provide to the underwriter at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser. (b) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or Rule 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (c) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

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SIGNATURES

Pursuant to the requirements of the U.S. Securities Act of 1933, the Registrant certiﬁes that it has reasonable grounds to believe that it meets all of the requirements for ﬁling on Form F-1 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in London, England on September 15, 2000.

MARCONI CORPORATION PLC

by /S/NORMAN CHARLES PORTER Name: Norman Charles Porter Title: Secretary

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POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned directors and officers and the authorized representative in the United States of the Registrant hereby severally constitutes and appoints Jeffrey Isaac Gordon and Norman Charles Porter and each of them, as attorneys-in-fact for the undersigned, in any and all capacities, with full power of substitution and resubstitution, to sign any or all amendments to this registration statement (including post- effective amendments), and any subsequent registration statement filed by the Registrant pursuant to Rule 462(b) of the U.S. Securities Act of 1933, and to file the same with exhibits thereto and other documents in connection therewith, with the U.S. Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that each said attorney-in-fact, or any of them, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the U.S. Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated, either in person or by power of attorney, on the 15th▲ day of September, 2000. Signature Title Date

/S/LORD SIMPSON OF DUNKELD Director September 15, 2000 Lord Simpson of Dunkeld (principal executive ofﬁcer)

/S/JOHN CHARLES MAYO, CBE Director September 15, 2000 John Charles Mayo, CBE (principal ﬁnancial ofﬁcer)

/S/STEPHEN HARE September 15, 2000 Stephen Hare (principal accounting ofﬁcer)

/S/ROBERT IAN MEAKIN Director September 15, 2000 Robert Ian Meakin

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AUTHORIZED REPRESENTATIVE

Pursuant to the requirements of the U.S. Securities Act of 1933, this registration statement has been signed by the undersigned in the capacity indicated on the 1▲5th day of September, 2000.

Name Capacity

/S/PATRICIA A. HOFFMAN AUTHORIZED REPRESENTATIVE Patricia A. Hoffman Authorized Representative

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SIGNATURES

MARCONI PLC

by /S/NORMAN CHARLES PORTER Name: Norman Charles Porter Title: Secretary

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POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned directors and officers and the authorized representative in the United States of the Registrant hereby severally constitutes and appoints Jeffrey Isaac Gordon and Norman Charles Porter and each of them, as attorneys-in-fact for the undersigned, in any and all capacities, with full power of substitution and resubstitution, to sign any or all amendments to this registration statement (including post- effective amendments), and any subsequent registration statement filed by the Registrant pursuant to Rule 462(b) of the U.S. Securities Act of 1933, and to file the same with exhibits thereto and other documents in connection therewith, with the U.S. Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that each said attorney-in-fact, or any of them, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the U.S. Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated, either in person or by power of attorney, on the 15th▲ day of September▲, 2000. Signature Title Date

/S/SIR FRANCIS ROGER HURN Chairman September 15, 2000 Sir Francis Roger Hurn

/S/LORD SIMPSON OF DUNKELD Chief Executive September 15, 2000 Lord Simpson of Dunkeld (principal executive ofﬁcer)

/S/JOHN CHARLES MAYO, CBE Finance Director September 15, 2000 John Charles Mayo, CBE (principal ﬁnancial ofﬁcer)

/S/STEPHEN HARE Senior Vice President, Finance September 15, 2000 Stephen Hare (principal accounting ofﬁcer)

/S/MICHAEL JOHN DONOVAN Chief Executive Ofﬁcer, September 15, 2000 Michael John Donovan Marconi Systems

/S/ROBERT IAN MEAKIN Personnel Director September 15, 2000 Robert Ian Meakin

/S/MICHAEL WILLIAM JOHN PARTON Chief Executive Ofﬁcer, September 15, 2000 Michael William John Parton Marconi Communications Networks

/S/SIR WILLIAM MARTIN CASTELL Non-Executive Director September 15, 2000 Sir William Martin Castell

/S/THE RT.HON. THE BARONESS LYDIA SELINA DUNN, DBE Non-Executive Director September 15, 2000 The Rt. Hon. The Baroness Lydia Selina Dunn, DBE

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Signature Title Date

/S/SIR ALAN WALTER RUDGE, CBE Non-Executive Director September 15, 2000 Sir Alan Walter Rudge, CBE

/S/HON.RAYMOND GEORGE HARDENBERGH SEITZ Non-Executive Director September 15, 2000 Hon. Raymond George Hardenbergh Seitz

/S/NIGEL JOHN STAPLETON Non-Executive Director September 15, 2000 Nigel John Stapleton

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AUTHORIZED REPRESENTATIVE

Pursuant to the requirements of the U.S. Securities Act of 1933, this registration statement has been signed by the undersigned in the capacity indicated on the ▲15th day of September, 2000.

Name Capacity

/S/PATRICIA A. HOFFMAN AUTHORIZED REPRESENTATIVE Patricia A. Hoffman Authorized Representative

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MARCONI CORPORATION plc MARCONI plc Exhibits to Form F-1 for Bonds Sequential Exhibit No. Description of Document Page No. 1.1* Form of Underwriting Agreement ...... 3.1* Memorandum and Articles of Association of Marconi Corporation plc ...... 3.2* Memorandum and Articles of Association of Marconi plc ...... 4.1* Form of Indenture ...... 4.2* Form of Deposit Agreement ...... 5.1* Opinion of Freshfields, English counsel to Marconi Corporation plc and Marconi plc, as to certain matters under U.K. law ...... 5.2* Cravath, Swaine & Moore, U.S. counsel to Marconi Corporation plc and Marconi plc as to the legality of the bonds and the guarantee...... 10.1* The Transactions Agreement dated April 27, 1999 between The General Electric Company, p.l.c. (now Marconi Corporation plc) and British Aerospace Public Limited Company (now BAE Systems plc), as amended by a letter agreement sent by The General Electric Company, p.l.c. to British Aerospace Public Limited Company on September 6, 1999 and by a supplemental agreement dated October 7, 1999. The agreements set forth below as exhibit numbers 10.2 to 10.8 were entered into pursuant to the Transactions Agreement ...... 10.2* Tax Deed dated November 29, 1999 between British Aerospace Public Limited Company and Marconi plc ...... 10.3* The EASAMS Agreement dated November 29, 1999 between British Aerospace Public Limited Company and Marconi plc ...... 10.4* Machined Component Supply Agreement dated November 29, 1999 between EEV Limited (subsequently renamed Marconi Applied Technologies Limited) and British Aerospace Public Limited Company ..... 10.5* General Deed of Covenant dated November 29, 1999 between Marconi plc and British Aerospace Public Limited Company ...... 10.6* Services Agreement dated November 29, 1999 between Marconi plc and British Aerospace Public Limited Company ...... 10.7* Technology Access Agreement dated November 29, 1999 between British Aerospace Public Limited Company and Marconi plc ...... 10.8* Payment Deed dated April 27, 1999 between British Aerospace Public Limited Company and The General Electric Company, p.l.c...... 10.9* 1999 Credit Facility Agreement dated June 4, 1999 between Marconi Corporation plc and certain financial institutions as Banks which have participated in the credit facility, Barclays Capital and Warburg Dillon Read as the Joint Lead Arrangers and HSBC Investment Bank plc as the Agent, including a Guarantor Accession Agreement dated January 27, 2000 by Marconi plc, and as extended to June 2, 2001 by a letter dated May 26, 2000 by HSBC Investment Bank plc ...... 10.10* An Agreement and Plan of Merger dated March 1, 1999 between GEC Incorporated, GEC Acquisition Corp. and Reltec Corporation ...... 10.11* An Agreement and Plan of Merger dated April 26, 1999 between GEC Incorporated, GEC Acquisition Corp. and Fore Systems, Inc...... *Previously filed.

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Sequential Exhibit No. Description of Document Page No. 10.12* Asset Purchase Agreement dated November 13, 1998 between Elscint Limited and Picker International Inc...... 10.13* Acquisition Agreement dated June 24, 1998 between The General Electric Company, p.l.c. and Siemens Aktiengesellschaft for the acquisition of shares in GPT Holdings Limited and the disposal of shares in Siemens GEC Communications Systems Limited...... 10.14* Shareholders Agreement dated May 29, 1998 between Alcatel Alsthom Compagnie Geńe´rale D’Electricite´ and The General Electric Company, p.l.c. relating to their relationship as shareholders in Alstom S.A...... 10.15* 1998 Credit Facility Agreement dated March 25, 1998 between The General Electric Company, p.l.c., HSBC Investment Bank plc, as the Agent, Marine Midland Bank, as the U.S. Swingline Agent, and certain financial institutions which have participated in providing the credit facility and certain other financial institutions as the Joint Lead Arrangers, as amended by a Supplemental Agreement dated January 27, 2000 among The General Electric Company, p.l.c., Marconi plc and HSBC Investment Bank plc, as Agent, and as further amended by a Second Supplemental Agreement dated April 18, 2000 among Marconi Corporation plc, Marconi plc and HSBC Investment Bank plc, as Agent, and as extended to March 22, 2001 by a letter dated March 17, 2000 by HSBC Investment Bank plc ...... 10.16* Investment Agreement dated August 30, 1999 between Xcert International, Inc. and GEC Incorporated ...... 10.17* Trust Deed dated March 30, 2000 relating to €500,000,000 5.625 per cent. Bonds due 2005 between Marconi Corporation plc, Marconi plc and The Law Debenture Trust Corporation p.l.c...... 10.18* Trust Deed dated March 30, 2000 relating to €1,000,000,000 6.375 per cent. Bonds due 2010 between Marconi Corporation plc, Marconi plc and The Law Debenture Trust Corporation p.l.c...... 10.19* Exchange Agreement dated April 17, 2000 between Marconi plc and certain shareholders in Metapath Software International, Inc...... 10.20* An Agreement and Plan of Merger dated April 17, 2000 between Marconi plc and Metapath Software International, Inc...... 11.1 Computation of Earnings Per Share (incorporated by reference to Note 16 of Notes to the Consolidated Financial Statements included in the Prospectus) 12.1* Calculation of Ratio of Earnings to Fixed Charges ...... 21.1† List of principal subsidiaries and other associated companies of Marconi Corporation plc ...... 23.1 Consent of Freshfields (included in Exhibit 5.1)...... 23.2 Consent of Cravath, Swaine & Moore (included in Exhibit 5.2) ...... 23.3† Consent of Deloitte & Touche ...... 23.4† Consent of PricewaterhouseCoopers LLP...... 24.1 Power of Attorney for Marconi Corporation plc (included on signature pages of Registration Statement) ...... 24.2 Power of Attorney for Marconi plc (included on signature pages of Registration Statement) ...... 25.1* Statement of Eligibility of the Trustee ...... *Previously filed. †Filed herewith.