##### Table of Contents



As filed with the Securities and Exchange
Commission on June 27, 2003








SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




---

Form 20-F

|           |  |                                                                                                                                                                                                 
|---------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                                                                                                                                 
|o          |  | REGISTRATION STATEMENT PURSUANT TO SECTION
    12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
    OR                                                                                       
|x          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934
    For the fiscal year ended March 31, 2003
    OR                                                    
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the transition period
    from           to           
    Commission File Number 333-12430



---

Marconi Corporation PLC

(Exact name of Registrant as specified in its
charter)




---

ENGLAND AND WALES

(Jurisdiction of incorporation or
organization)


New Century Park

P.O. Box 53


Coventry


Warwickshire CV3 1HJ


United Kingdom


(Address of principal executive
office)




---

Securities registered or to be registered
pursuant to Section 12(b) of the Act:

None



---

Securities registered or to be registered
pursuant to Section 12(g) of the Act:

None



---

Securities for which there is a reporting
obligation pursuant to Section 15(d) of the Act:

$900,000,000 7 3/4% Bonds due 2010 of
Marconi Corporation plc


$900,000,000 8 3/8% Bonds due 2030 of
Marconi Corporation plc




---

Indicate the number of outstanding shares of each
of the issuers classes of capital or common stock as of
March 31, 2003:

2,866,250,735 Ordinary Shares of 5p each


Indicate
by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding
12 months (or such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.

YES x                  NO o

Indicate
by check mark which financial statement item the registrant has
elected to follow.


ITEM
17 o                  ITEM
18 x









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TABLE OF CONTENTS



|                                                     |                                                                                       |  |  |  |  |  |  | 
|---------------------------------------------------- | ------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PRESENTATION OF FINANCIAL AND OTHER INFORMATION     
|CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
|PART I                                              
|                                                     | Item 1: Identity of Directors, Senior Management and Advisers                        
|                                                     | Item 2: Offer Statistics and Expected Timetable                                      
|                                                     | Item 3: Key Information                                                              
|RISK FACTORS                                        
|EXCHANGE RATE INFORMATION                           
|                                                     | Item 4: Information on the Company                                                   
|HISTORY AND DEVELOPMENT OF THE COMPANY              
|BUSINESS OVERVIEW                                   
|PROPERTY, PLANT AND EQUIPMENT                       
|ORGANIZATION STRUCTURE                              
|Pre-Financial Restructuring Business Groups         
|Post-Financial Restructuring Business Groups        
|                                                     | Item 5: Operating and Financial Review and Prospects                                 
|                                                     | Item 6: Directors, Senior Management and Employees                                   
|SHARE OWNERSHIP                                     
|                                                     | Item 7: Major Shareholders and Related Party Transactions                            
|MAJOR SHAREHOLDERS                                  
|RELATED PARTY TRANSACTIONS                          
|                                                     | Item 8: Financial Information                                                        
|LEGAL PROCEEDINGS                                   
|                                                     | Item 9: The Offer and Listing                                                        
|                                                     | Item 10: Additional Information                                                      
|MATERIAL CONTRACTS                                  
|EXCHANGE CONTROLS                                   
|TAXATION                                            
|DOCUMENTS ON DISPLAY                                
|SUBSIDIARY INFORMATION                              
|                                                     | Item 11: Quantitative and Qualitative Disclosures about Market Risk                  
|                                                     | Item 12: Description of Securities other than Equity Securities                      
|PART II                                             
|                                                     | Item 13: Defaults, Dividend Arrearages and Delinquencies                             
|                                                     | Item 14: Material Modifications to the Rights of Security Holders and Use of Proceeds
|                                                     | Item 15: Disclosure Controls and Procedures                                          
|                                                     | Item 16A: Reserved                                                                   
|                                                     | Item 16B: Reserved                                                                   
|                                                     | Item 16C: Principal Accountant Fees and Services                                     
|PART III                                            
|                                                     | Item 17: Financial Statements                                                        
|                                                     | Item 18: Financial Statements                                                        
|SIGNATURES                                          
|CERTIFICATION                                       
|CERTIFICATION                                       
|Exhibit 2.1                                         
|Exhibit 2.3                                         
|Exhibit 2.4                                         
|Exhibit 2.5                                         
|Exhibit 2.6                                         
|Exhibit 2.7                                         
|Exhibit 4.1                                         
|Exhibit 4.2                                         
|Exhibit 4.3                                         
|Exhibit 4.4                                         
|Exhibit 4.5                                         
|Exhibit 4.6                                         
|Exhibit 4.16                                        
|Exhibit 4.22                                        
|Exhibit 4.23                                        
|Exhibit 4.24                                        
|Exhibit 4.25                                        
|Exhibit 4.26                                        
|Exhibit 4.28                                        
|Exhibit 4.29                                        
|Exhibit 4.30                                        
|Exhibit 4.31                                        
|Exhibit 4.32                                        
|Exhibit 4.33                                        
|Exhibit 4.34                                        
|Exhibit 4.35                                        
|Exhibit 4.36                                        
|Exhibit 4.37                                        
|Exhibit 4.38                                        
|Exhibit 4.39                                        
|Exhibit 4.40                                        
|Exhibit 4.41                                        
|Exhibit 4.42                                        
|Exhibit 4.43                                        
|Exhibit 4.44                                        
|Exhibit 4.45                                        
|Exhibit 4.46                                        
|Exhibit 4.47                                        
|Exhibit 4.48                                        
|Exhibit 4.49                                        
|Exhibit 4.50                                        
|Exhibit 4.51                                        
|Exhibit 4.52                                        
|Exhibit 4.53                                        
|Exhibit 4.54                                        
|Exhibit 4.55                                        
|Exhibit 4.56                                        
|Exhibit 4.57                                        
|Exhibit 4.58                                        
|Exhibit 4.59                                        
|Exhibit 4.60                                        
|Exhibit 4.61                                        
|Exhibit 4.62                                        
|Exhibit 4.63                                        
|Exhibit 4.64                                        
|Exhibit 4.65                                        
|Exhibit 4.66                                        
|Exhibit 4.67                                        
|Exhibit 4.68                                        
|Exhibit 4.69                                        
|Exhibit 4.70                                        
|Exhibit 4.71                                        
|Exhibit 4.72                                        
|Exhibit 4.73                                        
|Exhibit 4.74                                        
|Exhibit 4.75                                        
|Exhibit 4.76                                        
|Exhibit 4.77                                        
|Exhibit 4.78                                        
|Exhibit 4.79                                        
|Exhibit 4.80                                        
|Exhibit 4.81                                        
|Exhibit 4.82                                        
|Exhibit 4.83                                        
|Exhibit 4.84                                        
|Exhibit 4.85                                        
|Exhibit 4.86                                        
|Exhibit 4.87                                        
|Exhibit 4.88                                        
|Exhibit 4.89                                        
|Exhibit 4.90                                        
|Exhibit 4.91                                        
|Exhibit 4.92                                        
|Exhibit 4.93                                        
|Exhibit 4.94                                        
|Exhibit 4.95                                        
|Exhibit 4.96                                        
|Exhibit 4.97                                        
|Exhibit 4.98                                        
|Exhibit 4.99                                        
|Exhibit 4.100                                       
|Exhibit 4.101                                       
|Exhibit 4.102                                       
|Exhibit 4.103                                       
|Exhibit 4.104                                       
|Exhibit 4.105                                       
|Exhibit 4.106                                       
|Exhibit 4.107                                       
|Exhibit 4.108                                       
|Exhibit 4.109                                       
|Exhibit 4.110                                       
|Exhibit 4.111                                       
|Exhibit 4.112                                       
|Exhibit 4.113                                       
|Exhibit 4.114                                       
|Exhibit 4.115                                       
|Exhibit 4.116                                       
|Exhibit 4.117                                       
|Exhibit 4.118                                       
|Exhibit 4.119                                       
|Exhibit 4.120                                       
|Exhibit 4.121                                       
|Exhibit 4.122                                       
|Exhibit 4.123                                       
|Exhibit 4.124                                       
|Exhibit 4.125                                       
|Exhibit 8.1                                         
|Exhibit 99.1                                        
|Exhibit 99.2                                        



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##### Table of Contents



TABLE OF CONTENTS

|              |  |                                                                                  |     |      |     | 
|------------- |  | -------------------------------------------------------------------------------- | --- | ---- | --- | 
|              |  |                                                                                  |     | Page
|              |  |                                                                                  |     |     
|Part I        |  |                                                                                  |     |     
|Item 1:       |  | Identity of Directors, Senior Management and
    Advisers                        |     |      | 3   | 
|Item 2:       |  | Offer Statistics and Expected Timetable                                          |     |      | 3   | 
|Item 3:       |  | Key Information                                                                  |     |      | 4   | 
|Item 4:       |  | Information on the Company                                                       |     |      | 14  | 
|Item 5:       |  | Operating and Financial Review and Prospects                                     |     |      | 38  | 
|Item 6:       |  | Directors, Senior Management and Employees                                       |     |      | 70  | 
|Item 7:       |  | Major Shareholders and Related Party Transactions                                |     |      | 104 | 
|Item 8:       |  | Financial Information                                                            |     |      | 113 | 
|Item 9:       |  | The Offer and Listing                                                            |     |      | 121 | 
|Item 10:      |  | Additional Information                                                           |     |      | 123 | 
|Item 11:      |  | Quantitative and Qualitative Disclosures about
    Market Risk                   |     |      | 163 | 
|Item 12:      |  | Description of Securities other than Equity
    Securities                       |     |      | 163 | 
|Part II       |  |                                                                                  |     |     
|Item 13:      |  | Defaults, Dividend Arrearages and Delinquencies                                  |     |      | 164 | 
|Item 14:      |  | Material Modifications to the Rights of Security
    Holders and Use of Proceeds |     |      | 164 | 
|Item 15:      |  | Disclosure Controls and Procedures                                               |     |      | 164 | 
|Item 16A:     |  | Reserved                                                                         |     |      | 164 | 
|Item 16B:     |  | Reserved                                                                         |     |      | 164 | 
|Item 16C:     |  | Principal Accountant Fees and Services                                           |     |      | 164 | 
|Part III      |  |                                                                                  |     |     
|Item 17:      |  | Financial Statements*                                                            |     |      | 166 | 
|Item 18:      |  | Financial Statements                                                             |     |      | 166 | 
|Item 19:      |  | Exhibits                                                                         |     |      | 166 | 
|Signatures    |  |                                                                                  | 174 |     
|Certification |  |                                                                                  | 175 |     

* We have responded to Item 18 in lieu
of responding to this Item.

i



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PRESENTATION OF FINANCIAL AND OTHER
INFORMATION

In this annual report, the terms we,
us, our, the group,
Marconi Corporation and the Company
refer to Marconi Corporation plc and its subsidiaries and joint
ventures, as the context requires. Marconi Corporation plc is
incorporated as a public limited company under the laws of
England and Wales.

We state our financial statements in United
Kingdom (U.K.) pounds sterling. In this annual report,
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 United States (U.S.) dollars, U.S.$ or
$ are to the currency of the United States of America.

Some of the market share information and other
statements in this annual report 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 2003
sales.

Our fiscal year ends on March 31. Unless
otherwise specified, all references in this annual report to our
fiscal year refer to a twelve-month financial period ending
March 31. For example, fiscal 2003 represents the fiscal
year beginning on April 1, 2002 and ending on
March 31, 2003.

The consolidated financial statements contained
in this annual report have been prepared in accordance with
accounting principles generally accepted in the United States,
known as U.S. GAAP. Other than in Item 5: Operating
and Financial Review and Prospects and our consolidated
financial statements beginning on page F-1, all segment
information is presented solely on a U.S. GAAP basis.

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

The information concerning equity affiliates
contained in this annual report, including financial
information, has been taken from or based upon publicly
available documents and, where applicable, records on file with
the U.S. Securities and Exchange Commission (SEC), supplemented
by additional information obtained in our capacity as
shareholders.

Solely for convenience, this annual report
contains translations of certain U.K. pounds sterling
amounts into U.S. dollars at specified rates. These are simply
translations and you should not expect that a U.K. pounds
sterling amount actually represents a stated U.S. dollar amount
or that it could be converted into U.S. dollars at the rate
suggested, or any other rate. In this annual report, the
translations of U.K. pounds sterling amounts into U.S.
dollars, where indicated, have been made at the rate of
U.S.$1.5790 per £1.00, the noon buying rate for cable
transfers of U.K. pounds sterling, as reported by the
Federal Reserve Bank of New York (the Noon Buying
Rate) on March 31, 2003. The Noon Buying Rate on
June 25, 2003 was U.S.$1.6787 per £1.00.

1



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##### Table of Contents






CAUTIONARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS

This annual report contains forward-looking
statements within the meaning of the U.S. Private Securities
Litigation Reform Act of 1995 concerning our business,
operations and financial performance and condition as well as
for our plans and objectives for our business operations and
financial performance and conditions. You can identify these
statements by words such as aim,
anticipate, assume, believe,
could, due, estimate,
expect, goal, intend,
may, objective, plan,
positioned, should, target,
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 and condition 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 risks set forth
below:



| |   |                                                                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | failure of our business plan to be implemented
    successfully and, if implemented successfully, failure of our
    business plan to be effective.                                                                                                                                                                            
|
| |  | material inaccuracies, errors or misjudgments
    concerning the assumptions underlying our business plan.                                                                                                                                                                                                                     
|
| |  | adverse changes or uncertainties in general
    economic conditions and business conditions in the markets we
    serve.                                                                                                                                                                                                       
|
| |  | failure to successfully dispose of non-Core
    assets at satisfactory terms and time scales.                                                                                                                                                                                                                                  
|
| |  | continued overcapacity in the market for
    telecommunications and continued depression in the market demand
    for telecommunications products.                                                                                                                                                                             
|
| |  | loss of customers, in particular loss of key
    customers, or failure to attract new customers.                                                                                                                                                                                                                               
|
| |  | failure of our Core business to maintain
    competitiveness.                                                                                                                                                                                                                                                                  
|
| |  | adverse changes in the markets for our products,
    including as a result of increased competition and consolidation
    in the highly competitive international markets for
    telecommunications products, or a change in the technology used
    as the industry standard or as the technology of choice of
    customers.
|
| |  | major disruption of production at our facilities
    or the facilities from which we source components or products.                                                                                                                                                                                                            
|
| |  | any large-scale employee or management turnover.                                                                                                                                                                                                                                                                               
|
| |  | changes in environmental, tax and other laws and
    regulations which, among other things, could cause us to incur
    substantial additional capital expenditures and operational and
    maintenance costs.                                                                                                                 
|
| |  | adverse changes in foreign exchange rates.                                                                                                                                                                                                                                                                                     
|
| |  | adverse results in litigation.                                                                                                                                                                                                                                                                                                 
|
| |  | terrorism and acts of war.                                                                                                                                                                                                                                                                                                     
|
| |  | occurrence of any other developments adversely
    affecting our liquidity, results of operations of our ability to
    continue as a going concern.                                                                                                                                                                           

2



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##### Table of Contents






PART I




Item 1: Identity of Directors,
Senior Management and Advisers

This item is not applicable.




Item 2: Offer Statistics and
Expected Timetable

This item is not applicable.

3



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##### Table of Contents






Item 3: Key
Information

SELECTED CONSOLIDATED FINANCIAL
INFORMATION

The selected historical consolidated financial
information presented below as at and for each of the five years
ended March 31, 1999 through 2003, has been derived from
our audited consolidated financial statements prepared in
accordance with U.S. GAAP.

On May 19, 2003, we concluded our financial
restructuring through two separate schemes of
arrangement under the U.K. Companies Act 1985. As a result
of the restructuring, we became the new parent holding company
of the company, replacing Marconi plc, and Marconi plc ceased to
be a member of our group. Additional details on the
restructuring are included elsewhere in this document.

The information below has been restated for the
following business disposals that have been treated as
discontinued operations under U.S. GAAP:



| |   |                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Mobile (disposed in fiscal 2003);                                                                                                                                                                                       
|
| |  | Medical Systems and Data Systems businesses
    (disposed in fiscal 2002); and                                                                                                                                          
|
| |  | Marconi Electronic Systems (MES), the
    international aerospace, naval shipbuilding, defense electronics
    and defense systems business (separated and subsequently merged
    with BAE Systems plc in fiscal 2000).

The information set forth below is not
necessarily indicative of future results and should be read in
conjunction with the audited consolidated financial statements
and accompanying notes included elsewhere in this annual report
and with the information set forth in Item  5:
Operating and Financial Review and Prospects.

4



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##### Table of Contents



SELECTED CONSOLIDATED FINANCIAL INFORMATION
 (continued)


|                                                                                                                                                                                                                                   |                   |                                            |        |                                  |       |      |        |       |       |      |        |       |       |  |        |       |       |  |       |       |       |  |       |       |       | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------- | ------------------------------------------ | ------ | -------------------------------- | ----- | ---- | ------ | ----- | ----- | ---- | ------ | ----- | ----- |  | ------ | ----- | ----- |  | ----- | ----- | ----- |  | ----- | ----- | ----- | 
|                                                                                                                                                                                                                                   |                   |                                           
|                                                                                                                                                                                                                                   |                   | At and for the fiscal year ended March 31,
|                                                                                                                                                                                                                                   |                   |                                           
|                                                                                                                                                                                                                                   |                   | 2003                                       |        |                                 
|                                                                                                                                                                                                                                   |                   | $(2)                                       |        | 2003                             |       | 2002 |        | 2001  |       | 2000 |        | 1999 
|                                                                                                                                                                                                                                   |                   |                                            |        | £                                |       | £    |        | £     |       | £    |        | £    
|                                                                                                                                                                                                                                   |                   |                                           
|                                                                                                                                                                                                                                   |                   |                                           
|                                                                                                                                                                                                                                   |                   |                                            |        |                                  |       |     
|                                                                                                                                                                                                                                   |                   |                                            |        | (in millions, except share data) |       |     
|STATEMENT OF OPERATIONS DATA:                                                                                                                                                                                                      |                   |                                            |        |                                  |       |      |        |       |       |      |        |       |       |  |        |       |       |  |       |       |       |  |       |      
|Revenues(1)                                                                                                                                                                                                                        |                   |                                            |        |                                  |       |      |        |       |       |      |        |       |       |  |        |       |       |  |       |       |       |  |       |      
|                                                                                                                                                                                                                                   | Network Equipment |                                            |        | 1,786                            |       |      |        | 1,131 |       |      |        | 1,812 |       |  |        | 3,268 |       |  |       | 2,535 |       |  |       | 1,343 |      
|                                                                                                                                                                                                                                   | Network Services  |                                            |        | 1,173                            |       |      |        | 743   |       |      |        | 969   |       |  |        | 1,016 |       |  |       | 543   |       |  |       | 244   |      
|                                                                                                                                                                                                                                   | Other             |                                            |        | 35                               |       |      |        | 22    |       |      |        | 465   |       |  |        | 637   |       |  |       | 824   |       |  |       | 815   |      
|                                                                                                                                                                                                                                   |                   |                                           
|                                                                                                                                                                                                                                   |                   | Total                                      |        |                                  | 2,994 |      |        |       | 1,896 |      |        |       | 3,246 |  |        |       | 4,921 |  |       |       | 3,902 |  |       |       | 2,402 | 
|                                                                                                                                                                                                                                   |                   |                                           
|Operating (loss)/income(1)                                                                                                                                                                                                         |                   |                                            | (946   | )                                |       |      | (599   | )     |       |      | (6,421 | )     |       |  | (52    | )     |       |  | (380  | )     |       |  | 271   |      
|Other (expense)/income, net                                                                                                                                                                                                        |                   |                                            | (1,048 | )                                |       |      | (664   | )     |       |      | (157   | )     |       |  | 324    |       |       |  | (106  | )     |       |  | 972   |      
|(Loss)/income from continuing operations before
    income taxes, minority interest and cumulative effect of changes
    in accounting principles minority interest and cumulative
    effects of changes in accounting principles |                   |                                            | (1,994 | )                                |       |      | (1,263 | )     |       |      | (6,578 | )     |       |  | 272    |       |       |  | (486  | )     |       |  | 1,243 |      
|(Loss)/income from continuing operations before
    cumulative effects of changes in accounting principles                                                                                                                         |                   |                                            | (1,762 | )                                |       |      | (1,116 | )     |       |      | (6,303 | )     |       |  | 115    |       |       |  | (451  | )     |       |  | 811   |      
|Cumulative effects of changes in accounting
    principles(3)                                                                                                                                                                      |                   |                                            |       |                                  |       |      |       |       |       |      | (240   | )     |       |  |       |       |       |  |      |       |       |  |      |      
|Net (loss)/income                                                                                                                                                                                                                  |                   |                                            | (1,843 | )                                |       |      | (1,167 | )     |       |      | (6,359 | )     |       |  | 194    |       |       |  | 285   |       |       |  | 1,129 |      
|(Loss)/earnings per share  basic and
    diluted:
    (Loss)/income from continuing operations                                                                                                                                    |                   |                                            | (0.62  | )                                |       |      | (0.39  | )     |       |      | (2.20  | )     |       |  | 0.04   |       |       |  | (0.16 | )     |       |  | 0.30  |      
|                                                                                                                                                                                                                                   | Net (loss)/income |                                            |        | (0.65                            | )     |      |        | (0.41 | )     |      |        | (2.22 | )     |  |        | 0.07  |       |  |       | 0.10  |       |  |       | 0.42  |      
|BALANCE SHEET DATA:                                                                                                                                                                                                                |                   |                                            |        |                                  |       |      |        |       |       |      |        |       |       |  |        |       |       |  |       |       |       |  |       |      
|Total assets                                                                                                                                                                                                                       |                   |                                            | 4,908  |                                  |       |      | 3,108  |       |       |      | 4,912  |       |       |  | 11,602 |       |       |  | 9,469 |       |       |  | 7,699 |      
|Total liabilities                                                                                                                                                                                                                  |                   |                                            | 10,167 |                                  |       |      | 6,439  |       |       |      | 6,857  |       |       |  | 6,948  |       |       |  | 5,705 |       |       |  | 1,825 |      
|Net assets/(liabilities)                                                                                                                                                                                                           |                   |                                            | (5,259 | )                                |       |      | (3,331 | )     |       |      | (1,945 | )     |       |  | 4,654  |       |       |  | 3,764 |       |       |  | 5,874 |      
|Capital stock                                                                                                                                                                                                                      |                   |                                            | 1,639  |                                  |       |      | 1,038  |       |       |      | 1,021  |       |       |  | 962    |       |       |  | 631   |       |       |  | 414   |      
|Shares issued and outstanding (millions)                                                                                                                                                                                           |                   |                                            | 2,866  |                                  |       |      | 2,866  |       |       |      | 2,866  |       |       |  | 2,866  |       |       |  | 2,825 |       |       |  | 2,677 |      

Notes:



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | For fiscal 2002, operating (loss)/income is
    reflected after business restructuring and asset impairment
    charges of £5,319 million. For further information
    about these charges, see consolidated financial statements
    contained elsewhere herein.                                                                                                                                                                                                                                                                                                                                                                             
|
| | (2) | The consolidated financial statements are
    presented in millions of U.K. pounds sterling. U.S. dollar
    amounts are presented solely for the convenience of the reader
    at the rate of £1.00 = $1.5790, 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, 2003. These translated amounts should
    not be construed as representations that the U.K. pounds
    sterling amounts could have been, or could in the future, be
    converted into U.S. dollars at this or any other exchange rate.
|
| | (3) | We adopted EITF 00-19, Accounting for
    Derivative Instruments Indexed to, and Potentially Settled in,
    the Companys Own Stock in fiscal 2002. The value of
    such instruments, as of the implementation date, was recorded as
    a cumulative effect of a change in accounting principles of
    £240 million in fiscal 2002.                                                                                                                                                                                                                                                                                                     

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RISK FACTORS

We have significant debt outstanding and
significant debt service requirements which makes us more
vulnerable to economic downturns and reduce our
flexibility.

We have significant debt outstanding. As of
March 31, 2003, our total debt was £4.4 billion.
After giving pro forma effect to our financial restructuring,
our total long-term debt was approximately
£764 million. This is likely to limit our ability to
obtain additional financing on satisfactory terms to fund
working capital, capital expenditures, product development
efforts and acquisitions of new assets in excess of those in our
current business plan. In addition, we will be required to
devote a significant proportion of our cash flow from operations
to the payment of interest on our debt obligations, thereby
reducing the funds available for other purposes. Our level of
debt and the fixed nature of a portion of our debt service costs
will make us more vulnerable to economic downturns, reduce our
flexibility to respond to changing business and economic
conditions and limit our ability to pursue business
opportunities, to finance our future operations or business
needs and to implement our business strategies.

We are required to comply with restrictive
covenants and affirmative financial covenants, which
significantly limit our financial and operational
flexibility.

The terms of the instruments governing our
outstanding Notes and our credit facilities require us and our
subsidiaries to comply with restrictive covenants and, from and
after September 30, 2005, to comply with some affirmative
financial covenants. These restrictive covenants, among other
things, restrict our and our subsidiaries ability to:



| |   |                                                                                       
| | - | --------------------------------------------------------------------------------------
| |  | incur additional indebtedness,                                                        
|
| |  | pay dividends on and redeem our and our
    subsidiaries shares,                     
|
| |  | redeem some subordinated obligations,                                                 
|
| |  | make investments,                                                                     
|
| |  | undertake sales of assets,                                                            
|
| |  | engage in certain transactions with affiliates,                                       
|
| |  | sell or issue capital stock of subsidiaries,                                          
|
| |  | permit liens to exist,                                                                
|
| |  | operate in other lines of business,                                                   
|
| |  | engage in certain sale and leaseback
    transactions, and                            
|
| |  | engage in mergers, consolidations or sales of all
    or substantially all our assets.

Restrictions stemming from these covenants and
from the need to comply with the affirmative financial covenants
will significantly limit our financial and operational
flexibility and could have a significant adverse effect on our
business, results of operations and financial condition.

Our ability to satisfy our affirmative financial
covenants will be affected by changes affecting our business,
results of operations and financial condition and, is therefore,
subject to the other risks described in this annual report. A
failure to comply with the restrictive covenants or the
affirmative financial covenants would, if not cured or waived,
constitute an event of default under some of our debt
obligations. The occurrence of an event of default in respect of
any of these debt obligations may permit acceleration of all
amounts borrowed thereunder. This acceleration in turn could
constitute a cross-default under other borrowing arrangements to
which we or our subsidiaries are party. In such circumstances,
there can be no assurance that we would have sufficient
resources to repay the full principal amount of our debt
obligations. If this were to occur, our shareholders might then
receive no return on their investment. Moreover, a failure to
comply with restrictive covenants constituting an event of
default under one of our credit facilities would permit the
lenders under that facility to terminate their commitments to
make

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further extensions of credit thereunder. This
would likely have a material adverse effect on our business,
results of operations and financial condition.


The telecommunications industry is
experiencing a severe downturn, many of our customers have
reduced, and are continuing to reduce, capital expenditure and,
as a result, demand for our products and services has declined
and may continue to decline.

The telecommunications industry is currently
experiencing a prolonged and severe downturn. Many of our
current and potential customers are network operators with high
levels of indebtedness and, in some cases, emerging or weak
revenue streams. Adverse economic conditions, network
over-capacity due to excess build-out, lack of funding for
telecommunications development and overspending on license fees
have forced network operators to undertake extensive
restructuring and cost-cutting initiatives. In light of market
conditions, many of our customers have delayed delivery of
orders previously placed and have implemented drastic reductions
in capital expenditure in 2002 and 2003 as compared to 2001, and
may further reduce capital expenditure. As a result, demand for
our products and network roll-out services has declined.

Our near-term financial objectives do not depend
on assumptions or expectations of improvement in market
conditions for the telecommunications industry or improvement in
current levels of sales in our businesses. However, they do
assume that there will not be a further material deterioration
in current market conditions or a material decline in sales
levels. Additionally, achievement of our longer-term financial
objectives will depend upon an increase in our sales volumes
based on an improvement in demand for our products and services,
due to a recovery of the industry or otherwise. Consequently, if
demand remains weak for our products and services, resulting
from the financial condition of our customers, market and
industry conditions or otherwise, it is likely to have a
material adverse effect on our business, results of operations
and financial condition in the longer term. In particular, this
may affect our ability to achieve our profitability and cash
flow objectives and, consequently, it may impact on our future
funding requirements.

We cannot assure you that the telecommunications
market will improve within any particular timeframe or at all,
or that it will not experience subsequent, and possibly more
severe and/or prolonged, downturns in the future.

We are currently not profitable, have been
experiencing net operating cash outflows and will need to effect
further changes in our business in order to achieve our
near-term financial objectives.

We are currently not profitable. We have not made
an operating profit in the last two fiscal years. We do not
expect trading conditions in the telecommunications market to
improve in the near-term and, as discussed above, we cannot be
sure that those conditions will improve at all. Accordingly, our
ability to become profitable and generate positive cash flow in
the future depends significantly on improving gross margins
through changes in product mix, achieving operating efficiencies
and reducing operating costs as well as there being no further
material decline in sales.

Our total sales have declined quarter on quarter
for the past four quarters, reflecting the current downturn in
the telecommunications industry as a whole. If sales in our
Network Equipment and Network Services businesses continue to
decline materially for a prolonged period, it is unlikely that
we will be able to return to and maintain profitability or
generate positive cash flow solely through gross margin
improvements and operating cost reductions.

Because of these risks and uncertainties, as well
as the other risks and uncertainties discussed in this annual
report, we cannot be certain that our actual experience will
correspond with our assumptions and expectations. Thus, we
cannot be certain that we will be able to return to
profitability or generate positive operating cash flows within a
particular timeframe or at all. Moreover, even if we do attain
profitability and positive operating cash flow, we may not be
able to sustain or increase this from quarter to quarter or from
year to year.

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If we fail to become and remain profitable and to
generate positive operating cash flow it, will affect our
ability to pay dividends on the ordinary shares. In addition, we
may find that we have limited or no ability to raise additional
capital through offerings of debt or equity securities in the
capital markets in the near or medium term.

A relatively small number of customers account
for a large proportion of our business. In particular, the loss
of British Telecommunications plc as a customer would have a
significant adverse effect on our results.

A relatively small number of customers account
for a significant proportion of our revenues. In fiscal 2003,
sales to our 10 largest customers represented approximately
48 percent of our total sales. Because of this
concentration, adverse changes that affect only a small number
of customers or customer relationships could have a significant
adverse effect on our results.

British Telecommunications plc and its
subsidiaries, BT, are of particular importance to us. For fiscal
2003, sales to BT represented approximately 18 percent of
our total sales. The loss of BT as a customer, or any
substantial reduction in orders by BT, particularly for the
products and services of our Network Equipment and Network
Services businesses, would have a significant adverse effect on
our results.

We operate in a highly competitive and rapidly
changing market and may be unable to invest sufficiently in
research and development to sustain or increase sales of our
products.

Our products are sold in markets that are
characterized by rapid adoption of new technologies, many new
product introductions, shortening product lifecycles and
evolving industry standards. If our products cease to be
competitive, we would be likely to lose customers and sales,
which would materially adversely affect our business, results of
operations and financial condition.

The process for developing new products based on
rapidly moving technologies for broadband fixed networks and
optical networks is complex and variable. It requires innovative
solutions that are cost effective and based on accurate insights
into technology and trends. Success depends on the timely and
effective introduction of new products or enhancements to
existing products in a way that meets customer needs and
differentiates our products from those offered by our
competitors. At the same time, these new product introductions
must achieve market acceptance, anticipate and accommodate
emerging industry standards and be compatible with current and
competitor products. If there is an unforeseen change in one or
more of the technologies affecting telecommunications, our
products may cease to be competitive.

As part of our cost reduction effort, we have
refocused and significantly reduced our spending on research and
development. We are aiming to reduce overall research and
development spending with a target spend of around 10% of total
sales. We have focused more of our research and development
expenditure on key products. However, this may not be sufficient
to maintain the competitiveness of our key products or enable us
to increase our market share in key market segments. Moreover,
as discussed above, we will be subject to restrictive covenants
and other limitations and are likely to have difficulty
obtaining additional sources of financing, which may affect our
ability to increase spending or otherwise develop our
technologies effectively.

A number of our competitors have greater
financial and technological resources than we do and, therefore,
are in a better position to invest in developing and acquiring
proprietary technology, to expand into new business segments and
to increase their market shares. We may not be able to develop
new products and services at the same rate, maintain
compatibility of our products with competitors products or
keep up with technology market trends. If our products and
services are not competitive, it is likely that we will lose
customers and business, our revenues will decline and our
business will be materially adversely affected.

We are dependent on key management personnel
and skilled technology workers whose departure could adversely
affect our ability to develop our products and operate our
business.

The overall headcount of our businesses has been
reduced to approximately 15,500 at March 31, 2003 from
30,300 at March 31, 2002, excluding the impact of our
discontinued operations (medical systems,

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data systems and strategic communications). This
reduction has been due to the implementation of cost-reduction
plans and disposals of assets and businesses. Included in the
number of employees that have left us are managers with many
years of experience in the management and operations of our
business as well as highly skilled technology workers and other
employees with years of operational experience in our business.
Further workforce reductions are planned and could include key
employees with valuable skills and knowledge whose departure
would adversely affect our ability to continue to develop new,
and enhance existing, products.


At the same time, the uncertainties associated
with headcount reductions and our prospects generally may cause
key employees to leave and otherwise increase employee and
management turnover, which may contribute to and result in
inefficiencies in running our business. In addition, our new
incentive arrangements that were implemented in connection with
our restructuring may be perceived as unattractive in comparison
with those offered by our competitors, which may make it more
difficult to retain personnel and attract qualified replacements
for those who leave. The loss of additional key managers and
highly skilled technology workers may result in our inability to
develop new products on a timely basis, improve current
technologies or operate our business efficiently.

We rely on the continued performance of third
parties in relation to some of our outsourcing
arrangements.

We rely on outsourcing arrangements for
information technology and the manufacture of some products and
components and are considering further potential outsourcing
opportunities in our supply chain and logistics organization. If
the third parties on whom we rely or will rely in relation to
these outsourcing arrangements do not fulfil their obligations
under such contracts, or seek to terminate or change the terms
of their contracts due to perceived uncertainty with respect to
our ongoing ability to perform under such contracts, or if we do
not otherwise properly manage these relationships, such supplies
or services could be severely disrupted or reduced. A
significant increase in the price of key supplies or services or
constraints on suppliers capacities, particularly during
periods of significant demand, in the absence of an alternative
supplier, would adversely affect our business. Moreover,
outsourcing initiatives ultimately may not yield the benefits we
expect, and may raise product costs and delay product production
and service delivery.

Measures to reduce operating costs could
adversely affect relations with our employees, our suppliers
and/or our partners, which could disrupt our business.

In order to further reduce operating costs, we
intend to reduce the size of our workforce, in part through
further rationalization of our activities and outsourcing
initiatives. We are also seeking to renegotiate some existing
contracts with suppliers and partners in order to obtain more
favorable terms. The implementation of these plans may increase
demands on, and/or negatively impact relations with, our
employees, and our suppliers and partners. That negative impact
may result in a decline in employee morale, labor disruptions,
strikes and/or labor-related lawsuits against us, our suppliers
or partners. Any of these results could diminish the efficient
operation of our business, disrupt services at our facilities,
our suppliers or partners and inhibit the realization of the
operating cost reductions that are fundamental to our financial
objectives, which would have a material adverse effect on our
business, financial condition and results of operations.

In Europe, particularly, employees are protected
by laws giving them, through local and central work councils,
rights of consultation with respect to specific matters
regarding their employers business and operations,
including the downsizing or closure of facilities and employee
terminations. These laws, and collective bargaining agreements
to which we, our suppliers or partners may be subject, could
impair our flexibility as we continue to pursue reductions in
operating expenses.

Our financial reporting systems require
significant operational resources.

As a result of our rapid expansion in 1999 and
2000, the number of different acquired systems and the disposal
of a number of businesses, the operation of our financial
reporting systems has required and will continue to require
considerable personnel resources. Taken together with the
demands of our

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restructuring, this has placed significant
pressure on the resources of our finance department. We are also
in the process of implementing a number of changes to our
consolidation and financial reporting systems, with a view to
streamlining the existing reporting processes. Although we
currently believe that our financial reporting systems are, and
without the changes referred to above would remain, fit for this
purpose, the continued effectiveness of these systems following
our restructuring is dependent on a combination of the continued
availability of sufficient finance team resources and any
changes that are made to the financial reporting system being
successfully implemented.


Funding of pension plans may become more
difficult.

The interaction of poor equity markets and low
interest rates over the last few years has had a significant
negative impact on the funded status of, and liabilities under,
our defined benefit pension plans and contribution obligations
under such plans. We either sponsor such plans or are exposed to
liabilities with respect to plans sponsored by affiliates or
former affiliates. It is possible that unless equity markets
and/or interest rates improve, such obligations may require us
and/or our affiliate sponsoring companies to those plans to make
additional contributions. Likewise, changes in the statement of
investment principles of the GEC 1972 Pension Plan, or U.K.
plan, that is described elsewhere in this annual report, the
actuarial assumptions employed in conjunction with any such
plans or legislation could also result in a need for us and/or
our affiliates to make additional contributions to such plans.

If the U.K. plan is wound up, it is unlikely that
it will have sufficient assets to discharge in full all
liabilities, calculated on a winding-up rather than an on-going
basis. No plans have been made to wind up the U.K. plan but
should such a decision be made, as opposed to operating it as a
plan closed to new members, we would be required to make good
any statutory debt. If a statutory debt were to arise, the size
of the debt could have a materially detrimental effect on our
resources. The significance of the potential detrimental effect
should be seen against our estimate that, as at March 31,
2003, the value of the U.K. plans assets was
£2.2 billion and the value of its liabilities was
£2.4 billion. There is no guarantee that the value of
the U.K. plans assets will not deteriorate nor that
legislation will not be introduced to oblige employers to make
further contributions to pension plans which are not fully
funded on a specified basis which is stricter than that required
by current legislation. In its Green Paper published on
December 17, 2002, the U.K. Government has said that it is
considering replacing the statutory minimum funding requirement
with a scheme-specific minimum funding level, which could be
higher.

Following the sale of our 50% stake in General
Domestic Appliances Holdings Limited to Merloni
Elettrodomestici SpA in 2001, the trustee of the U.K. plan
is expected to make a payment to the buyers pension plan
in respect of the accrued benefits of the employees who
transferred to the buyer. Although a basis for calculation of
the transfer amount was agreed in the sale agreement for the
sale of General Domestic Appliances, this does not bind the
trustee of the U.K. plan. We are responsible for 50 percent
of any shortfall between the transfer amount agreed in the sale
agreement and the amount actually paid by the trustee.
Anticipating a shortfall at the time of the sale, an allowance
of £3.3 million was made in the sale price. Should the
trustee adopt the basis of calculation agreed in the sale
agreement, and employing enhanced early retirement factors,
there will be a payment of £0.77 million due from
Merloni to us, adjusted for investment returns from
June 30, 2002 to the transfer payment date. However, the
actuary is not bound by its representations and a final
determination of the transfer amount is not likely until the
trustee has signed a pension transfer agreement that will
confirm the transfer basis adopted by the trustee. There can be
no assurance that the trustee will not decide to follow a basis
which results in a greater liability for us than we currently
expect or that any such liability would not have a material
adverse effect on us. Indeed, if the trustee refuses or fails to
transfer the whole or any agreed amount, we will be liable for
50 percent of the shortfall less the buyers
prevailing rate of corporation tax, which could produce a
significantly larger liability. We expect our maximum liability
under the shortfall obligation, based on early retirement
factors currently in force by the trustee, to be
£14.7 million, adjusted for investment returns from
June 30, 2002 to the transfer payment date, less the
£3.3 million allowance made in the purchase price.

There is a risk that third party intellectual
property rights will be asserted against us.

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We rely on patents, trademarks, trade secrets,
design rights, 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.

The ringfencing of our U.S. operations will
give rise to operational and financial inefficiencies and other
costs which may adversely affect our business and the market
price of our ordinary shares.

As described in Item 4: 
Information on the Company  History and Development
of the Company  History 
Restructuring, some of our U.S. businesses have been
contractually separated or ringfenced from the rest
of our group in connection with the restructuring. This U.S.
ringfencing may have significant implications for you.

The covenants in the indentures governing our
outstanding Notes regulate the type of financial, operational
and other dealings that the non-ringfenced entities can have
with the ringfenced entities. These covenants also require us to
separate the North American Access business, BBRS business and
OPP business into separate subsidiaries within the U.S.
ringfencing no later than May 19, 2005. Moreover, the
non-ringfenced entities are generally prohibited from providing
funding for any of the ringfenced entities and, following the
separation of the three principal businesses within the U.S.
ringfencing, the North American Access business, BBRS business
and OPP business will generally be prohibited from providing
funding to each other. The ringfenced entities have entered into
various agreements with the non-ringfenced entities necessary to
ensure that those dealings that they are permitted to engage in
with each other will be provided in the ordinary course of
business on an arms-length basis or otherwise as permitted
by the covenants in those indentures. The arrangements for the
provision of such services may lead to higher costs for us as a
whole which may affect our results of operations.

In addition to the foregoing, the operational and
financial inefficiencies and other costs associated with the
U.S. ringfencing arrangements could have an adverse effect on
our business and on the market price of the ordinary shares.

The funding status of our U.S. pension plans
and the agreement entered into by us with the Pension Benefit
Guaranty Corporation with respect to those plans could delay or
adversely affect the terms of the sale of our U.S.
businesses.

The funding status of some tax-qualified defined
benefit plans subject to the regulation of the Pension Benefit
Guaranty Corporation, or PBGC, in the United States could result
in action being taken by the PBGC that might delay or otherwise
adversely affect the sale of our U.S. businesses or assets used
therein, or the net proceeds realized therefrom. The likelihood
of that type of action will depend in part on the funded status
of those plans at the time of any such sale, the
creditworthiness of the purchaser following that sale and the
extent to which the purchaser assumes pension liabilities in any
such sale. Although we have entered into a memorandum of
understanding with the PBGC with a view to making an adverse
action less likely, under this memorandum of understanding
specified conditions must be satisfied in connection with any
such sale. To the extent that these matters give rise to any
delay or other adverse consequences with respect to the sale of
our U.S. businesses, holders of ordinary shares could be
adversely affected.

It is unlikely that we will pay dividends for
the foreseeable future.

We do not anticipate that we will pay dividends
on the ordinary shares in the foreseeable future. Moreover, even
if we have distributable reserves and become cash flow positive
and profitable and so are in a position to pay dividends, the
indentures governing our outstanding Notes significantly
restrict our ability to pay dividends. Furthermore, as described
in Item 4: Information on the Company 
History and Development of the Company 
History  Restructuring, in connection with our
financial restructuring and associated capital reduction we were
required to create a special reserve that also

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restricts our ability to pay dividends. In
addition, Marconi Corporation plc is a holding company and is
wholly dependent on receiving funds from its subsidiaries to pay
dividends. Some institutional investors may only invest in
dividend-paying equity securities or may operate under other
restrictions that may prohibit or limit their ability to invest
in the ordinary shares. This may reduce the demand for the
ordinary shares until we are able to pay dividends in respect of
the ordinary shares, which may in turn adversely affect the
price of the ordinary shares in the market.


We may be unable to repay our Notes at
maturity.

We currently intend to repay any principal amount
outstanding in respect of our outstanding Notes at their
maturity in part from cash generated by our group. Our ability
to generate significant positive cash flow in the future is
subject to significant risks and uncertainties. If we are unable
to generate sufficient cash to allow us to repay the Notes at
maturity, we would need to obtain other financing for this
purpose. However, also as discussed above, our ability to obtain
such financing may be extremely limited. Accordingly, we cannot
assure you that we will be able to repay any of the Notes at
their maturity.

Our Notes are subject to a redemption
obligation at a premium upon a change of control, which may
discourage potential bidders.

Upon the occurrence of specific kinds of change
of control or merger events, we will be required to offer to
repurchase all of our outstanding Notes at the greater of 110%
of their aggregate principal amount or a make-whole amount based
on 50 basis points above the yield on U.S. treasuries of similar
maturity plus, in each case, accrued and unpaid interest. This
obligation to redeem the Notes at a premium could have the
effect of deterring third parties who might otherwise offer to
acquire a controlling interest in us or could adversely affect
the terms on which any such offer is made. This redemption
obligation may accordingly have an adverse effect on the market
price of our shares and could deprive shareholders of an
opportunity to receive a premium for their shares upon a change
of control.

Pre-emptive rights for non-UK holders of
ordinary shares may not be available.

In the case of, amongst other things, an increase
of our share capital, existing shareholders are entitled to
pre-emptive rights pursuant to the U.K. Companies Act 1985 and
our articles of association, unless waived by a resolution of
the shareholders at a general meeting or in the circumstances
stated in our articles of association. Even where pre-emptive
rights apply, holders of the ordinary shares in the United
States, South Africa, Australia, Canada and other jurisdictions
outside the United Kingdom may in practice not be able to
exercise pre-emptive rights in respect of their ordinary shares
unless we decide to comply with applicable local laws and
regulations and, in the case of holders of the ordinary shares
in the United States, a registration statement under the U.S.
Securities Act of 1933 is effective with respect to such rights,
or an exemption from the registration requirements thereunder is
available. We intend to evaluate at the time of any pre-emptive
rights offering the costs and potential liabilities associated
with any registration statement and compliance with other
applicable local laws and regulations, as well as the indirect
benefits to us of thereby enabling or facilitating the exercise
by holders of the ordinary shares in the United States and such
other jurisdictions of their pre-emptive rights for new
securities in respect of their ordinary shares. In addition, we
will consider any other factors we consider appropriate at the
time, and then make a decision as to how to proceed and whether
to file a registration statement or comply with those other
applicable local laws and regulations. We cannot assure you that
any registration statement with respect to the securities
offered under a pre-emptive issue would be filed or any of those
other local laws and regulations would be complied with to
enable the exercise of that holders pre-emptive rights.

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EXCHANGE RATE INFORMATION

The noon buying rate for pounds sterling
expressed in U.S. dollars per pounds sterling on June 25,
2003 was £1.00 = U.S.$1.6787.

The following table sets forth the high and low
noon buying rate for pounds sterling expressed in U.S. dollars
per pound sterling for each of the previous six months:

|                             |  |      |        |     |  |  |        | 
|---------------------------- |  | ---- | ------ | --- |  |  | ------ | 
|2003                         |  | High |        | Low
|                             |  |     
|                             |  |     
|January                      |  |      | 1.6482 |     |  |  | 1.5975 | 
|February                     |  |      | 1.6480 |     |  |  | 1.5727 | 
|March                        |  |      | 1.6129 |     |  |  | 1.5624 | 
|April                        |  |      | 1.6000 |     |  |  | 1.5500 | 
|May                          |  |      | 1.6484 |     |  |  | 1.5930 | 
|June (through June 25, 2003) |  |      | 1.6840 |     |  |  | 1.6278 | 

The following table sets forth the average noon
buying rate for pounds sterling expressed in U.S. dollars per
pound sterling for each of the five most recent fiscal years,
based on the noon buying rate on the last business day of each
month.

|                            |  |         |        | 
|--------------------------- |  | ------- | ------ | 
|Fiscal year ended March 31, |  | Average
|                            |  |        
|1999                        |  |         | 1.6526 | 
|2000                        |  |         | 1.6085 | 
|2001                        |  |         | 1.4737 | 
|2002                        |  |         | 1.4320 | 
|2003                        |  |         | 1.5541 | 

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Item 4: Information on the
Company




HISTORY AND DEVELOPMENT OF THE
COMPANY

History

Early history

Marconi Corporation, previously called The
General Electric Company, p.l.c., or GEC, was incorporated as a
private limited company in England in 1900 under the name The
General Electric Company (1900) Limited. GEC originally
operated in the electrical industry. The more significant events
in our development are as follows:



| |   |                                                                                      
| | - | -------------------------------------------------------------------------------------
| |  | 1960s: We expanded significantly in the
    electrical industry through acquisitions;
|
| |  | 1970s and 1980s:                                                                     



| |   |                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We acquired Videojet Systems International Inc.,
    a data systems business, Picker International Holdings Inc., a
    medical systems business, and Gilbarco Inc., a commerce systems
    business.                                        
|
| |  | We formed GEC Plessey Telecommunications Holdings
    Limited, or GPT, a 50% joint venture with The Plessey Company
    plc, subsequently increasing our stake to 60%.                                                                       
|
| |  | We formed two 50% joint ventures, GEC Alsthom
    N.V. with Alcatel S.A., and General Domestic Appliances Limited,
    now known as General Domestic Appliances Holdings Limited, with
    the General Electric Company of the United States.



| |   |       
| | - | ------
| |  | 1990s:



| |   |                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We reduced our stake in the GEC Alsthom joint
    venture to a 24% shareholding in Alstom.                                                                   
|
| |  | We acquired the minority 40% stake in GPT and
    formed Marconi Communications.                                                                             
|
| |  | We combined the GPT business with the Marconi
    telecommunications operations in Italy, Hong Kong and South
    Africa under the same management structure.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 1999: GEC separated the Marconi Electronic
    Systems business, or MES, its international aerospace, naval
    shipbuilding, defense electronics and defense systems business,
    which merged with British Aerospace plc, now known as BAE
    SYSTEMS plc, or BAE. GECs remaining businesses were
    reorganized under Marconi plc, with GEC becoming a wholly-owned
    subsidiary of Marconi plc. Shareholders of GEC became
    shareholders of Marconi plc.

Modern history

Following the separation of MES, we focused our
strategy on communications technology and services.

Acquisitions

From that time until we completed the operational
review in fiscal 2002 referred to below, we acquired a number of
business, including the following:

Fiscal 2000:



| |   |                                            
| | - | -------------------------------------------
| |  | RELTEC Corporation,                        
|
| |  | FORE Systems,                              
|
| |  | the business of RDC Communications Limited,
|
| |  | Nokias transmission equipment business,   

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| |   |                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the public networks business of Bosch,                                                                                                                                                        
|
| |  | the Australian communications solutions business
    of Scitec, and                                                                                                                           
|
| |  | a 27% interest in Atlantic Telecom which was
    diluted in June 2000 to 19.7% as a result of Atlantic
    Telecoms acquisition of First Telecom. Atlantic Telecom is
    now in liquidation.

Fiscal 2001:



| |   |                                              
| | - | ---------------------------------------------
| |  | Metapath Software International Inc., or MSI,
|
| |  | Systems Management Specialist, Inc.,         
|
| |  | Albany Partnership Limited, and              
|
| |  | Mariposa Technology, Inc.                    

Fiscal 2002:



| |   |                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------
| |  | a 71.9% economic interest, and 49.9% of voting
    share capital, in Easynet Group plc in July, 2001.

Reorganization
and dispositions

Following a profit warning that we made on
July 4, 2001, we undertook an operational review of our
activities, the results of which we announced in September 2001.
These results included a change in management with the
appointment of a new chief executive officer and interim
chairman. Subsequently, in December 2002, a new chairman was
appointed to our board. The review also covered our markets,
operations and scope of business and focused on adapting the
group to the changed circumstances of the telecommunications
market during the substantial decline in market demand for the
groups products and services. As a consequence of the
review, we streamlined our activities and disposed of a number
of businesses and investments, including the following:

Fiscal 2002:



| |   |                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our remaining 24% interest in Alstom in February
    and June 2001,                                                                                         
|
| |  | our 92% interest in ipsaris Limited, as part of
    the Easynet acquisition referred to above;                                                              
|
| |  | our remaining 1.49% interest in Lagardère
    SCA in September 2001,                                                                                        
|
| |  | Marconi Medical Systems Group in October 2001,                                                                                                              
|
| |  | a 6.5% interest in Lottomatica SpA in November
    2001 and February 2002,                                                                                  
|
| |  | Marconi Commerce Systems Group in February 2002,                                                                                                            
|
| |  | the Marconi Optical Components business in
    February 2002 for a 9% interest in Bookham Technology p.l.c.
    which was later diluted to approximately 6%,
|
| |  | Marconi Data Systems Group in February 2002, and                                                                                                            
|
| |  | our 50% interest in General Domestic Appliances
    Holdings Limited in March 2002.                                                                         

Fiscal 2003:



| |   |                                                                                                  
| | - | -------------------------------------------------------------------------------------------------
| |  | our applied technologies division in July 2002,                                                  
|
| |  | our strategic communications business (Mobile) in
    August 2002,                               
|
| |  | OTE SpA, our private mobile networks division,
    which was also known as TETRA in January 2003,

15



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| |   |                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------
| |  | our 50% interest in Ultramast Limited, a joint
    venture, in February 2003 through a capital reduction, and
|
| |  | Marconi Online, in January 2003.                                                                             

We also reorganized our businesses with effect
from March 31, 2002, into two main divisions: Core, which
focuses primarily on network communications, and Capital, which
comprises certain non-Core businesses that we manage for value
and ultimately for disposal. This division is reflected in our
historical financial statements included in this annual report.
We further divided our Core business into two main business
types, Network Equipment and Network Services.

In connection with our financial restructuring,
we are commencing the process of adopting a new organizational
structure that segments our businesses along geographical lines.
Commencing with the fiscal quarter ending September 30,
2003, we will report the results of our Network Equipment and
Network Services operations of our businesses based in Europe
and the rest of the world other than the U.S. separately from
the results of our Network Equipment and Network Services
businesses based in the U.S. Under this new structure, our U.S.
segment consists primarily of our BBRS, North American Access
and OPP Network Equipment operations and our Network Services
operations that support such businesses, and our Europe and
rest-of-world segment consists primarily of our optical
networks, European Access and other Network Equipment operations
and all our Network Services operations other than those that
support our BBRS, North American Access and OPP businesses. Our
new segmentation is connected with the contractual separation or
ring-fencing of our U.S.-based businesses that we
implemented as part of our financial restructuring, as described
below. Our Capital segment will remain essentially unchanged,
but we will refer to it as our Other segment.

Financial
Restructuring

On May 19, 2003, we concluded our financial
restructuring. The restructuring was effected through two
separate schemes of arrangement under the U.K.
Companies Act 1985. A scheme of arrangement is a procedure under
English law through which a company may enter into a voluntary
compromise or arrangement with one or more classes of its
creditors to effect a restructuring of its financial
obligations. One scheme of arrangement involved all of the
creditors of Marconi Corporation plc, other than certain
excepted categories of creditors but including the syndicate
banks and bondholders to whom our primary financial indebtedness
was owed. The second scheme of arrangement involved creditors of
Marconi plc, our former parent holding company. As a result of
the restructuring, Marconi Corporation plc became the new parent
holding company of our group, replacing Marconi plc, and Marconi
plc ceased to be a member of our group.

Our financial restructuring covered approximately
£4.8 billion of creditors claims, comprising
£4.0 billion of syndicated bank debt and our
externally held U.S. dollar and euro denominated bonds and
£800 million of related party debt. In exchange for
the cancellation of their claims against us, on May 19,
2003 we distributed to the creditors covered by our scheme of
arrangement:



| |   |                                                                                                                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Cash:£340 million in cash;                                                                                                                                                                                                                                                                                                                                                
|
| |  | Senior Notes:U.S.$717,139,584 (approximately £437 million) in
    aggregate principal amount of new guaranteed senior secured
    notes due April 2008 issued by Marconi Corporation plc, with
    interest payable quarterly in cash at a rate of 8% per annum;                                                                                                          
|
| |  | Junior Notes:U.S.$486,881,472 (approximately £297 million) in
    aggregate principal amount of new guaranteed junior secured
    notes due October 2008 issued by Marconi Corporation plc, with
    interest payable quarterly in cash at a rate of 10% per annum
    or, at our option, in kind, by issuing additional junior notes,
    at a rate of 12% per annum; and

16



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| |   |                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Marconi Corporation plc
    Shares:995 million ordinary
    shares, representing 99.5% of our issued ordinary share capital
    on May 19, 2003.

We refer to our Junior Notes and Senior Notes
together as the Notes. In addition, we issued 5 million
ordinary shares, representing 0.5% of our issued ordinary share
capital upon consummation of the financial restructuring, and
warrants to subscribe for up to 50 million additional
ordinary shares, equal to 5% of our issued ordinary share
capital upon consummation of the financial restructuring, to
shareholders of Marconi plc. In connection with the
restructuring we listed our ordinary shares on the London Stock
Exchange and established an ADR program in respect of those
shares.

As part of the financial restructuring process,
Marconi Corporation plc separately obtained the sanction of the
High Court of Justice of England and Wales for the purpose of
implementing a capital reduction under the U.K. Companies Act,
1985. The capital reduction involved the cancellation of the
non-voting deferred shares of Marconi Corporation plc and the
cancellation of approximately £4.37 billion standing
to the credit of Marconi Corporation plcs share premium
account, which represented Marconi Corporation plcs entire
share premium account following the effectiveness of the Marconi
Corporation plc scheme of arrangement. This was effected to
create a reserve which will eliminate the deficit on the profit
and loss account shown on the balance sheet of Marconi
Corporation plc as at March 31, 2003 with the excess
reserve over the deficit on the profit and loss account
initially being credited to a special reserve which will not be
distributable to shareholders of Marconi Corporation plc until
the creditors of Marconi Corporation plc so protected have been
paid off or the High Court of Justice of England and Wales has
agreed otherwise.

In connection with the financial restructuring,
the ordinary shares of Marconi plc were delisted from the London
Stock Exchange. While Marconi plcs ordinary shares remain
outstanding, all of Marconi plcs remaining assets, other
than assets necessary to fund the cost of administering its
scheme of arrangement, will be distributed to Marconi plcs
creditors over time in accordance with its scheme of
arrangement. We expect that Marconi plc will be liquidated or
dissolved in the future following the completion of those
distributions.

Prior to the financial restructuring, we and
Marconi plc had issued options in respect of
Marconi plcs shares to group employees under a number
of different option plans. In order to hedge some of the
potential cost of acquiring the shares necessary to satisfy the
groups obligations under these plans, we, through an ESOP
trust entity, entered into contracts, which we refer to as ESOP
derivative transactions, to purchase shares in the future at
prices that were fixed at the dates of the contracts. In
connection with the restructuring process, on March 26,
2003 we and Marconi plc entered into a final settlement with the
banks, which we refer to as the ESOP derivative banks, that were
the counterparties under the ESOP derivative transactions. This
settlement agreement definitively settled the claims of the ESOP
derivative banks against us in relation to the ESOP derivative
transactions. Under the settlement, which was conditional on our
financial restructuring becoming effective, we paid a total of
£35 million to the ESOP derivative banks and we
excluded the claims of the ESOP derivative banks under the ESOP
derivative transactions from our schemes of arrangement.

As part of our financial restructuring, we
contractually separated or ringfenced our U.S.-based businesses
from the rest of our group. The ringfenced businesses are our
North American Access business, BBRS business and OPP business.
While the business units that were ringfenced are located
predominantly in the United States, the ringfenced entities are
not limited to subsidiaries that are organized or incorporated
under the laws of the United States, the states thereof or the
District of Columbia but also include subsidiaries that are
organized and incorporated under the laws of other jurisdictions
including Ireland, Mexico and Switzerland.

The covenants in the indentures governing the
Notes significantly restrict the type of financial, operational
and other dealings that the non-ringfenced entities can have
with the ringfenced entities. The covenants for the Notes also
require us to separate the North American Access business, BBRS
business

17



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and OPP business into separate subsidiaries, or
groups of subsidiaries, within the ringfencing no later than
May 19, 2005. Moreover, the non-ringfenced entities are
generally prohibited from providing funding for any of the
ringfenced entities. Following the separation of the three
principal businesses within the ringfencing, the North American
Access business, BBRS business and OPP business will generally
be prohibited from providing funding to each other.


18



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BUSINESS OVERVIEW

We are a global vendor of telecommunications
equipment and services. Our customers include a number of the
leading telecommunications operators throughout the world, with
whom we have a large base of installed equipment.

Market environment

The late 1990s saw unprecedented growth in
capital expenditure on telecommunications equipment as
established and new operators invested in increased capacity to
meet expected growth in both data and mobile traffic. Although
data and mobile traffic has grown, it has not grown as strongly
as expected and operators turnover has not matched the
investment in capacity. Both new and incumbent carriers have
become overextended financially and capital spending has been
dramatically curtailed. In this environment, telecommunications
equipment vendors, like us, have experienced substantial
declines in turnover. The speed of this decline has been far
greater than anticipated. In this environment, we, along with
our major competitors, have been unable to reduce the cost base
of the business at the same rate. Consequently, we have
experienced a significant decline in business performance.

We believe that the slowdown in Network Equipment
sales has been driven primarily by oversupply rather than
reduced demand in the end-user telecommunications services
markets. Underlying data and mobile traffic growth, driven by
broadband, data and mobile services, remains quite strong. As
this absorbs installed over-capacity, we believe carriers will
invest in additional infrastructure.

Our strategy

As a provider of networking technology and
services that enable telecommunications operators to evolve
narrowband networks to next generation broadband and mobile
networks, we are now focusing our strategy around:



| |   |                                                                                                                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | nurturing pre-existing relationships with our
    customers in current generation technologies and then evolving
    these to next generation technologies, for example, Syncronous
    Digital Hierarchy (SDH) to next generation Dense Wavelength
    Division Multiplexing, or DWDM, optical networks;
|
| |  | developing and effective marketing of genuine
    best in class solutions; and                                                                                                                                                                                                                         
|
| |  | developing and enhancing the network services
    offered to existing and new customers.                                                                                                                                                                                                                 

We have taken extensive action to reduce the
scope of our activities and to rationalize or curtail
non-essential areas. Our near-term objective is to restore our
Network Equipment and Network Services businesses to operating
profitability. In the longer term, we aim to develop and expand
our product portfolio and markets on a basis that is consistent
with our business strategy. We believe that partnerships, where
research and development and routes to market are shared for
mutual benefit, will be an increasingly important factor in the
industry and we expect to be an active participant.

Business positioning

Development of our optical networks business is
one of our strategic priorities. Our objective is to maintain a
leading position in the European optical networking markets and
to build market share in Central and Latin America as well as
the Asia-Pacific region. Development of our Network Services
businesses is our other key strategic objective, with the aim of
increasing our turnover derived from such services activities.

We are also seeking to increase market share in
selected product and geographic markets where we have strong
customer relationships. Accordingly, we will deploy resources in
developing our portfolio of fixed wireless transmission and
access products as well as our best in class Access
Hub multi-service access node.

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We believe that we have a number of developing or
newly developed products which are potentially best in
class where we have yet to penetrate major new
telecommunications company customers. In particular, we are
focused on developing the North American market for our leading
edge range of multi-service switches and the U.K. market for our
class 5 SoftSwitch solution.

We are managing our OPP and North American Access
businesses for value and ultimately for disposal.

Organizational efficiency and
effectiveness

Since September 2001, we have embarked on a
sequence of substantial cost reduction programs to reduce sales
and marketing, general and administrative and research and
development costs. These programs remain in place and continue
to deliver cost reductions.

Organizationally, extensive rationalization will
continue to be an important part of our strategy in order to
reduce costs in all areas of production and overhead. In
particular, we will continue to restructure our supply chain to
remove excess capacity and reduce break-even points.

As part of this strategy, we will retain control
of functions only where we possess key competencies. We will
continue to outsource other functions, such as the manufacturing
of non-complex products, and we will continue to rationalize the
supply chain cost base to a level more in line with expected
sales volumes.

Principal operations

Our principal executive office is in Coventry
with principal operating sites in:

        United
Kingdom:Coventry, Beeston, Chorley, Camberley,
Liverpool, London, Stafford and Wellingborough.

        United
States and Canada:Florida, Pennsylvania, Ontario,
Georgia, Mississippi, North Carolina, Illinois, Texas, Ohio and
Quebec.

        Italy:Genova, Marcianise and Pisa.

        Germany:Backnang, Offenburg, Frankfurt and
Radeberg.

        Spain:Madrid.

        Australia:Melbourne and Sydney.

        China:Beijing, Guilin and Hong Kong.

        Malaysia:Daralam and Kuala Lumpur.

        New
Zealand:Auckland.

        India:New Delhi.

        Saudi
Arabia:Riyadh.

        United Arab
Emirates:Dubai.

        South
Africa:Johannesburg.

        Brazil:Sao Paulo and Votorantim.

        Mexico:Naucalpan de Juarez and Huixquilucan
Edo de Mexico.

As of March 31, 2003, we were organized into
main divisions: Core and Capital.

Core businesses

For the purposes of our historical financial
reporting, we divided our Core activities into two main business
types: Network Equipment, comprising optical networks, BBRS,
European Access, North

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American Access, OPP and other network equipment;
and Network Services, comprising installation, commissioning and
maintenance and valued added services.


Our customer base includes telecommunications
companies and providers of internet services for their public
networks. In addition, we count certain large corporations,
government departments and agencies, utilities and educational
institutions for their private networks as customers.

Sales,
marketing and distribution

We sell our Network Equipment and Network
Services using our direct sales force as well as indirect
channels such as local partners and distribution partners. Our
sales activities include sales and marketing organizations in
all major geographic regions. There are specialized product
marketing groups which support these organizations internally.
In addition, we have 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, technical support and contract negotiation.

Our distribution partners include Ericsson,
Italtel, Nokia and Siemens. We entered into a seven-year
agreement with Ericsson in July 1999 that allows Ericsson to
market the full range of our SDH equipment throughout the world.
In June 2002, we entered into an additional seven-year agreement
enabling Ericsson to source our range of next-generation DWDM
optical networking equipment as well as encompassing the
existing 1999 agreement on SDH equipment. We also entered into a
five-year agreement with Nokia in November 1999 to market our
SDH and DWDM systems.

Customers

We benefit from the continued support of our
strong customer base which comprises mainly well-established
incumbent telecommunications operators and government agencies.

The main customers of our Network Equipment and
Network Services include:



| |   |                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------
| |  | Europe:BT, the
    Metro City Carriers in Germany, Telecom Italia, the U.K.
    Government and Vodafone Group.
|
| |  | United States:BellSouth, Qwest, Sprint, the U.S. Federal Government and
    Verizon.                          
|
| |  | Asia-Pacific:China
    Railcom, China Telecom, China Unicom, Telkom Malaysia and
    Telstra.                 
|
| |  | Central and Latin
    America:Brasil Telecom, Telcel,
    Telecentro Oeste, Telefonica and Telmex.            

These customers accounted for approximately 52%
of our total sales during fiscal 2003.

Customers of our optical networks and European
Access businesses are predominantly based in Europe as well as
in the Asia-Pacific region and Central and Latin America.
Customers of our BBRS, OPP and North American Access businesses
are predominantly based in the Americas. In addition, we provide
network services to a number of customers in the transportation
and utility sectors, mainly in Europe.

Except for BT, each of our customers accounted
for less than 6% of total sales for fiscal 2003. For the same
period, BT accounted for approximately 18% of our total sales.

We have entered into frame contracts with most of
our major customers. While the terms of the frame contracts vary
from customer to customer, these contracts generally set out the
terms and conditions, including pricing, on which we will supply
a customer with products and services. The length of frame
contracts varies from customer to customer and can range from
one to five years. Some of the frame contracts establish price
and volume expectations which provide us with some visibility of
expected sales during the terms of the contracts. However, the
frame contracts do not typically guarantee the volume or value
of products or services actually supplied by us, which remain at
the discretion of the

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relevant customer. Near the end of their term,
some frame contracts impose an obligation on the parties to
negotiate in good faith to agree an extension of the contract.


Customers are not normally contractually bound
under their frame contracts to purchase products or services
solely from us. Customers also often have the right to terminate
a frame contract after a specified notice period.
Notwithstanding the flexibility customers have in terms of the
volume and value of the orders they place and whether they place
those orders with us or one of our competitors, customers will
often have a commercial incentive to continue to purchase all of
their requirements for specific types of products and services
from, and to have those parts of their networks serviced by us.

Network
Equipment

We design and supply communications systems that
transmit and switch voice, data and video traffic predominantly
in public networks. Our network equipment products include
optical networking systems, broadband and narrowband switches,
routers and aggregation devices, wireless transmission systems
and software management systems. In addition, we sell outside
plant and power products for use in communications networks.

Aggregate sales for all of our Network Equipment
businesses for fiscal 2003 were £1,131 million,
representing 60% of our total sales, compared to
£1,812 million, or 56% of total sales, in fiscal 2002
and £3,268 million, or 66% of total sales, in fiscal
2001.

Overview
of the public network market and competition

Historically, government-owned or
government-regulated monopolies have operated public networks,
which traditionally transmitted voice calls between users.
Privatization and deregulation of public networks contributed to
the entry of a large number of new companies into the public
network market, offering new voice, data and video services.

The public network markets in which we operate
are highly competitive. Our principal competitors include
Alcatel, Cisco Systems, Ericsson, Fujitsu, Lucent Technologies,
Nortel Networks and Siemens. The primary method of competition
in the public network market is the widespread use of open bids
for equipment purchases. Buyers use a combination of factors to
evaluate bids, including price, technical compliance, ability to
deliver in the required timescale and provide after-sales
support, financial stability and long-term viability. A number
of our competitors have substantial technological and financial
resources, including research and development resources, and
operate in a number of 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. In
addition, competitors may emerge in rapidly developing
telecommunications markets such as China.

A typical public network can be portrayed as
comprising three high level layers. These are the service,
switching and transport layers. Traffic in the network is moved
around the network by equipment in the transport layer and
routed to different points in the network by equipment in the
switching layer. Equipment in the services layer defines and
makes available the service associated with each particular
class of network traffic, for example, voice, data or video
services. Public networks, which comprise the three layers
above, can typically be either access, metro or core networks,
depending on the connections they establish. The access network
typically connects an end user of a service to a network
operators local exchange, where switches are located. The
core network usually connects an operators major points of
presence like, for example, the routes between two cities. The
metro network typically provides connections between the access
and core networks, for example, between a major city and the
various local exchanges or points of presence within a
particular geographic region.

Our equipment can be found in most parts of the
typical public network with:



| |   |                                                                          
| | - | -------------------------------------------------------------------------
| |  | our optical products predominantly operating in
    the transport layer; 
|
| |  | our multi-service switches and softswitch in the
    switching layer; and

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| |   |                                                                             
| | - | ----------------------------------------------------------------------------
| |  | our range of access products found in most layers
    of the access network.

Optical
Networks

Communications service providers primarily use
three technology standards, SDH, SONET and DWDM, to transmit
voice, data and video traffic over fiber optic communications
networks. DWDM is a relatively new transmission standard that is
used worldwide. SDH is the digital transmission standard that is
used in most regions except North America and Japan. SONET is
the predominant standard that is used in North America and
Japan. In June 2002, we announced that we were ceasing
development of our SONET products because of continuing weak
market conditions. We have never made material sales of SONET
products. Sales of our optical networks products constituted 23%
of our total sales in both fiscal 2003 and 2002. During the
latter period, sales were predominantly in Europe and Asia, with
the remainder from the Americas.

We have focused our development on a
comprehensive range of optical transmission equipment based on
SDH and, more recently, DWDM.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Synchronous Digital Hierarchy:We were a pioneer of SDH technology
    following its introduction in the early 1990s and have continued
    to introduce next generation SDH products. We are a leading
    supplier of SDH transmission equipment within Europe and believe
    we have a tenable position in other markets including the
    Central and Latin American and Asia-Pacific regions. SDH
    contributed approximately 84% of optical networks
    businesss sales in both fiscal 2003 and 2002.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our add-drop multiplexers transport voice, data
    and video traffic streams over ring-based optical fiber networks
    to provide protection against network failures. Our line systems
    transport high-capacity voice, data and video traffic streams
    between major traffic centers. We also supply cross-connects to
    provide points of flexibility and restoration within an SDH
    network and to switch traffic streams from one transmission line
    to another. By fiscal year 2004, we intend to launch a number of
    more cost effective next generation SDH products with greater
    functionality, for use both in core networks and for connecting
    residential and business customers to the core network, such as
    our SMA Series 4 range of add-drop multiplexers and the MSH
    range of cross-connects announced in September 2002.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Dense Wavelength-Division Multiplexing:DWDM is the transmission of closely
    spaced signals through a single optical fiber using wavelengths
    each of which functions as a separate, independent signal, and
    allows the capacity of installed optical fiber to be increased
    substantially to meet future growth in demand for voice, data
    and video traffic capacity. Our DWDM equipment is complementary
    to our SDH equipment and enables service providers to increase
    significantly the bandwidth of installed fiber optic cabling
    while still using the existing network infrastructure. Over the
    past few years, our share of the next generation DWDM market in
    Europe has grown significantly.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We have already established what we believe is a
    tenable market position with our photonic line system, or PLx.
    We have recently launched a solution-based, ultra-long-haul
    photonic line system, or UPLx, that extends the distance that
    traffic can be transported before regeneration of the signal is
    required. We are developing this product specifically for ultra
    and extended long-haul DWDM networks which will have much higher
    per fiber capacity than SDH or SONET networks. In 2000, we
    launched a remotely re-configurable photonic add-drop
    multiplexer, or PMA. This product allows traffic streams to be
    inserted and removed from a transmission ring without disturbing
    other traffic streams. We have also developed a range of
    point-to-point and ring-based metro products, PMM. DWDM
    contributed approximately 14% of our optical networks
    businesss sales in both fiscal 2003 and 2002.
|
| | Because our DWDM equipment is complementary to
    our SDH equipment, we intend to take advantage of our positions
    in the SDH markets of Europe, Central and Latin America and Asia-                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

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| |                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Pacific to sell our DWDM products to our existing
    SDH customer base as well as to new customers that want to make
    a cost effective and simple increase in their available
    bandwidth.

Our network management system, or ServiceOn,
manages our transmission equipment. ServiceOn provides a broad
range of management functions required by a network operator. It
can be used by service providers to remotely re-configure their
networks in accordance with changing traffic patterns. ServiceOn
also provides network performance information and has fault
detection capability to support the day-to-day operation of the
network.

Our broad portfolio of optical networks products,
coupled with scalability and ease of upgrade, enables us to sell
optical networks to our customers which optimize network design
and cost for those customers. Our focus on overall optical
networks solutions, rather than single product solutions,
enables us to design more cost effective networks and to
integrate future product offerings over the life of frame
contracts. We believe that our installed base of SDH equipment,
deep customer relationships, superior knowledge of the incumbent
network design, and interoperability of our products with that
installed base of SDH equipment, are an important competitive
advantage for both the existing and next generation SDH and DWDM
product ranges.

Our objective is to maintain a leading position
in the European optical networking markets and to build market
share in the Asia-Pacific region as well as Central and Latin
America.

Broadband
Routing and Switching

In 2001, we refocused our technical and
commercial resources in our BBRS business towards customers
requiring more resilient networking platforms of the sort found
in carrier class networks, namely government and military
agencies, selected telecommunications service providers and
other large corporations. Our BBRS business also continues to
provide support services to our approximately 1,000 U.S. Federal
Government, service provider and enterprise customers. Our
single largest customer of BBRS products is the U.S. Federal
Government with whom we have enjoyed a long relationship. To
date, this has resulted in an installed base of BBRS products in
U.S. Federal Government communications networks of approximately
U.S.$1.3 billion in value.

Our BBRS business contributed approximately 6% of
the total revenues in fiscal 2003 and approximately 4% in fiscal
2002. The BBRS business sales are made predominantly in
the North American market and these sales accounted for
approximately 5% of our total sales in the latter period.

Our products address the three principal
packet-oriented protocols in use today:



| |   |                                                                                                                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | asynchronous transfer mode, or ATM;                                                                                                                                                                                                                                                                                     
|
| |  | internet protocol, or IP; and                                                                                                                                                                                                                                                                                           
|
| |  | multi-protocol label switching, or MPLS, an
    emerging standard which provides greater predictability, quality
    of service, or QoS, and differentiated service levels for
    IP-based data, voice and video communications when compared with
    services available over traditional, connectionless IP networks.

Our principal products comprise a range of
multi-service switch-router devices that both establish the
physical communication links between end points and determine
the optimal route across the network. In addition, we also
develop and sell a range of integrated access devices, or IADs,
which are cost-effective solutions supporting converged voice,
data and video transmissions over a single circuit. We have
focused on the sale and support of our ASX-200BX, ASX-1000 and
ASX-4000 range of multi-service switches, while continuing the
development of our next generation BXR-48000. We believe the
BXR-48000 provides the highest capacity of any multi-service
switch currently available in the telecommunications industry.

We design our switch router product platforms,
such as the ASX-4000 and BXR-48000, to support communications
traffic transmitted by ATM, IP and MPLS protocols. We design
them to enable operators to build on their existing switching
and routing infrastructure to continue to support their legacy
services

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while offering the flexibility and scalability to
roll-out next generation IP, wireless and packet voice services.
We also design them to enable operators to reduce their capital
investment and operating costs.


The ASX-4000 can switch at transmission speeds
ranging from 10 to 40 gigabits per second, or Gbps, and can be
positioned either within the core, or at the edge, of service
provider networks or high-capacity private networks. Recent
developments of the ASX-4000 switch include applications to
allow service providers to transport voice traffic over packet
switched infrastructures such as ATM (VTOA) or IP (VoIP).

The BXR-48000 can operate at transmission speeds
ranging from 40 Gbps to 480 Gbps. It can be configured as a very
high capacity router or a very high capacity switch. Routers
function in the IP (packet) networking domain, while switches
typically operate in the traditional voice, frame relay and ATM
domains. In March 2002, following technical trials on the first
BXR-48000 unit, the U.S. Department of Defenses Naval
Research Laboratory, or NRL, demonstrated the high performance,
high security, speed, reliability and functionality of this
product. Subsequently, in September 2002, the U.S. Department of
Defense placed a firm order for the product. The military-grade
capabilities demonstrated by the BXR-48000 are equally
applicable for the voice, video, data and multiservice networks
of service providers and large non-military institutions. In
December 2002, we announced a further sale of the BXR-48000 to a
leading European financial institution.

We also provide support services to customers of
our BBRS products. We report these revenues within our Network
Services segment. The BBRS business service offerings range from
routine technical support and assistance for our switch-routers,
to dedicated, on-site project and program support for complex
network environments.

Within the broadband switching and routing
market, we believe that the IP router market will be a
significant source of potential growth in the longer term due to
the continued growth in IP traffic and the launch of new
services such as VoIP. We note, however, that the introduction
of these new services is dependent on the development of
technologies that permit the toll-grade
transmission, over IP, of voice and real-time multimedia
services. In the meantime, concern from carriers and security
sensitivity of private network operators over the security and
reliability of their networks are expected to lead to continued
growth in the ATM market.

Consequently, we intend to continue to focus our
research and development on the further development of our
multi-service products which support ATM, IP and MPLS protocols.
In particular, our BBRS equipment is designed to enable carrier
operators to address the divergent demands of todays
difficult market environment. The market demands continued
support for the ATM networks that transport todays
services as well as providing a safe and viable migration path
for the convergence of these networks with data oriented IP
networks. The BXR-48000 is a key strategic platform through
which we aim to deploy further our range of BBRS products into
the networks of large telecommunications providers. Our BBRS
business is now part of our U.S. ringfenced group.

European
Access

Access equipment connects the end user to a
service providers switch or local exchange across what has
been traditionally known as the last mile or
local loop. This is the physical wire, fiber or
wireless link that runs from a subscribers telephone set
or other communications device to the service providers
local exchange. We design, manufacture, sell and support a range
of access equipment which maximizes the capabilities of physical
transport media, including copper telephone lines, fiber optics,
and both licensed and unlicensed wireless spectra. Our access
systems activities have undergone significant rationalization
and are now focused on leveraging our reputation and
relationships in Europe to continue penetration of key customers
with fixed wireless, access hub and voice software systems. Our
European Access business contributed approximately 14% of our
total revenues in fiscal 2003 and approximately 11% in fiscal
2002. During the latter period, approximately 85% of the
European Access business sales were in EMEA, and
approximately 10% in the Asia-Pacific region, with the remainder
in Central and Latin America.

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The our principal access systems products are:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Digital Subscriber Line Access Multiplexer, or
    DSLAM.These products are typically
    located within an operators local exchange on one end of
    the subscriber loop providing broadband internet/DSL data and
    voice services. Our access hub, which can be configured as an
    advanced high density DSLAM, also incorporates integrated ATM
    edge switching and IP multi-casting functionality. This enables
    it to perform as a broadband aggregator for multiple
    applications including voice, video and data services as well as
    providing conventional DSLAM functionality, such as asymmetric
    digital subscriber line, or ADSL, capabilities. This next
    generation product offers one of the highest port densities
    available in the industry and is optimized for ease of
    configuration and management. We launched our access hub
    platform in 2001 and have already won two major frame contracts
    with Telecom Italia and Telkom (South Africa). Wind (Italy) is
    also a customer.
|
| |  | Fixed Wireless.Our
    Skyband MDRS product family encompasses our point-to-point, or
    PtP, portfolio which offers long and short haul SDH transmission
    for services ranging from trunk networking, local access bypass
    and mobile network feeder applications. Our Skyband MDMS
    point-to-multi-point, or PtMP, portfolio offers cost-effective
    broadband wireless solutions ranging from 2.4 Ghz to 32 Ghz,
    depending on the countrys frequency allocation, and
    supports subscriber voice and broadband data, using both
    standards-based and optimized techniques. Our radio planning and
    installation services enhance our ability to offer customized,
    cost-effective solutions for network operators and service
    providers. The main customers of our range of fixed wireless
    access products include mmO2 (Germany) and E-plus
    (Germany).                                                                                                                                              
|
| |  | Voice Systems.We
    provide switching hardware and software to telecommunications
    and media carriers in both legacy narrowband and next generation
    networks. The three main activities are:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Narrowband Switch Support.We continue to supply upgrades and
    extensions to our significant installed base of narrowband voice
    telephony systems, or System X. The majority of this installed
    base is in the United Kingdom. The need for operators to adapt
    their networks to changing traffic patterns, predominantly
    caused by the growth in internet traffic, has driven upgrades
    and extensions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | SoftSwitch.This
    next generation product is a system which builds on many of the
    features of the narrowband switch allowing network operators to
    combine their traditional telephony services with broadband
    multimedia and high-speed data services across a single
    broadband packet switched network. Our SoftSwitch is currently
    one of only a limited number of products offering full
    class 5 capability available in the market. It can
    therefore address both public and private network applications
    and has been designed to allow customers significantly to reduce
    the cost of operating their networks. We have installed our
    SoftSwitch in the Dubai Marina project where it is currently
    delivering voice and multimedia services. It is also undergoing
    trials with a number of customers in the United Kingdom. In
    December 2002, we announced the sale of our SoftSwitch system to
    support Jersey Telecoms roll out of a suite of commercial
    and residential broadband services.
|
| |  | Intelligent
    Networks.As legacy narrowband services have
    evolved, operators have experienced an increasing need to
    provide additional value added services that can be billed to
    individual subscribers. We believe our intelligent networks
    products are amongst the leading products in the U.K. market in
    the provision of hardware and software for fixed networks that
    allow carriers to offer a range of enhanced voice services,
    beyond those contained in existing narrowband switching
    products. These services, such as 0800 numbers, voicemail, call
    waiting and ringback, can be controlled from a small number of
    service points where data and applications can be stored and
    updated centrally. Intelligent network products also work with
    switches from other manufacturers, increasing their
    attractiveness to operators whose systems contain a range of
    products.                                                                                                                 

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The services offered by these products provide
    differentiating capability for our customers. We therefore
    undertake directly customer-funded developments as well as
    self-funded research and development. The voice systems
    activities primary geographical market is the United
    Kingdom where we have a strong position in the U.K. circuit
    switching market and we are an equipment supplier to customers
    such as BT, Cable and Wireless, NTL and Telewest, each of which
    relies on us for upgrades and care and maintenance of installed
    equipment. Our narrowband switching products are deployed in
    approximately 70% of BTs local telephone exchanges and are
    central to the U.K. public service telephone network, or PSTN.
    We see our initial market entry for our new SoftSwitch product
    as the confluence of the growth in IP Voice, IP managed VPN, and
    the growth of DSL. This creates an opportunity to develop a new
    range of cost-effective services for corporations, by extending
    the reach of their private networks to smaller locations and,
    through DSL connectivity to home workers.
|
| | Initially establishing the SoftSwitch as a major
    supplier in this sector will provide the foundation for further
    expansion into small-to medium-sized enterprises and then pure
    residential services, as opposed to corporate home workers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          



| |   |                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Other Access Products.We have a range of other access
    products that are deployed in our customers networks,
    including our Deep Fiber DMP product. This product brings the
    high bandwidth of the core fiber network into the access network.

North
American Access

We design, sell and support a range of copper and
fiber based access platforms for markets that use North American
communications standards. Our largest customers are BellSouth
and Sprint and we are one of the main suppliers of digital loop
carrier systems by market share in North America. Our North
American Access business contributed approximately 5% of our
total sales in fiscal 2003 and approximately 4% of our total
sales in fiscal 2002.

The DLC DISC*S family of products provides copper
based access for voice and data services. We have provided over
ten million lines of digital local loop equipment based on the
DISC*S platform throughout the United States and have recently
introduced a smaller footprint broadband high density version of
the platform.

Our fiber to the curb solutions support a mix of
voice, broadband data and video services to each customer. They
deploy fiber all the way to a curbside pedestal and utilize
copper or coax cables only for the short final drop to the
customers premises.

We have significantly rationalized the North
American Access business and we are managing it for value and
ultimately for disposal. The proceeds of this disposal will be
used to repay part of our outstanding Notes.

Outside
Plant and Power

We are one of the major providers of outside
plant and power products and services in North America. We are
one of the major suppliers to Qwest, Verizon BellSouth, SBC,
Sprint, AT&T and MCI. In addition, we are a supplier to
Cingular, Telcel and U.S. Cellular. We currently have contracts
to provide services to Bechtel in the building of wireless
networks for AT&T and Cingular. Our OPP business contributed
approximately 7% of our total revenues in fiscal 2003, and
approximately 8% in fiscal 2002.

Our OPP business has three primary product lines:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Outside Plantsupplies connection, protection and enclosure products for the
    local loop, and is a supplier in enclosure design such as
    thermal management and analysis, water and dust intrusion,
    equipment packaging techniques and corrosion resistance.
    Although these are primarily passive hardware products, the
    trend of placing sensitive electronics outside the local
    exchange and closer to the subscriber requires increasingly
    sophisticated enclosures and static protection. The

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| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | connection and protection products include
    distribution pedestals, building entrance terminals, cross
    connect terminals, cable television enclosure products, fiber
    optic splice enclosures, large electronic configuration
    cabinets, central office main distribution frames, heat
    management systems, power surge protection devices and
    connection blocks and terminals. The enclosure products are
    metal and plastic cabinets that house equipment such as power
    supplies, connection products, and digital and wireless
    transmission equipment.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Powersupplies power
    systems to service providers and telecommunications equipment
    manufacturers for the local loop, local exchange switching,
    wireless sites and other customer equipment such as computer
    networks. Our power products and systems include large power
    systems for local exchange applications, smaller cabinet power
    systems with plug and play flexibility, modular
    power systems, custom power subsystems sold to OEMs, DC
    distribution and DC-DC conversion systems and traditional
    ringing and signaling equipment. We market our family of power
    products under Vortex, Lorain and other brand names. We base
    them on a single integrated platform suitable for multiple
    wireline and wireless applications. This microprocessor-based
    plug and play architecture allows for software-based
    configuration, management, monitoring and local and remote power
    system access that is easily expanded for system configuration
    and control.
|
| |  | Servicesprovides
    customers with software that allows for remote monitoring and
    control of power systems as well as complete program management
    support for communications systems deployment. Additionally, we
    provide a range of customer services, including site contract
    maintenance and breakdown service, spare parts provisioning,
    equipment depot repair, and training.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

The OPP businesss principal geographic
markets are in North America and Central and Latin America. Our
OPP business is now part of our U.S. ringfenced group.

We have significantly rationalized the OPP
business and we are managing it for value and ultimately for
disposal. The proceeds of this disposal will be used to repay
part of our outstanding Notes.

Other
Network Equipment businesses

Other Network Equipment businesses contributed
approximately 3% of our total sales in fiscal 2003, and
approximately 4% in fiscal 2002. These comprise mainly the
following businesses:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Marconi Interactive Systems, or MIS:MIS manufactures payphones and
    multimedia terminals which range from an indoor desk
    top phone through to sophisticated street multimedia
    terminals which have voice telephony and internet access
    capability. The business is predominantly U.K.-based and sells
    primarily to the major public network customers such as BT,
    Telecom Italia, Singtel, Telenor, Teledanmark and, through
    Loxley Business Information Technology Company Limited,
    TelecomAsia.
|
| |  | Network Equipment  South Africa:Our operations in South Africa include
    the design, manufacture and supply of a range of terminal
    products including telephones, PABX key-systems and public
    payphones. On December 23, 2002, we disposed of our 51%
    interest in our optic fiber cable and copper cable business, ATC
    (Proprietary) Limited.                                                                                                                                                                  

Network
Services

Our Network Services activities comprise a broad
range of support services to telecommunications operators and
other providers of communication networks. We support both our
own products as well as those of other vendors of network
equipment.

Aggregate sales of all our Network Services
activities for fiscal 2003 were £742 million, or
approximately 39% of our total sales, compared to
£969 million or approximately 30% of total sales in
fiscal 2002 and £1,016 million or approximately 21% of
total sales in fiscal 2001.

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Overview
of the Network Services market

The substantial reduction in sales of network
equipment has led to corresponding reductions in the network
planning, installation and commissioning services associated
with the sales of new products. However, as network operators
have sought to reduce expenditures to cope with excess capacity,
the requirements for maintenance and support have continued. In
some cases new opportunities have emerged as operators have
sought to consolidate vendors and outsource additional services.
We believe this is a trend that is expected to continue and to
mitigate, to some extent, the decline in sales of services
related to new products sales.

The fragmented nature of the network support
services market means there are no dominant competitors in the
provision of services to the public network market. However,
major telecommunications vendors, such as Alcatel, Cisco
Systems, Ericsson and Lucent Technologies are extending their
service capabilities to offer total solutions in direct
competition to us. In addition, major information technology and
systems integrators, such as CSC, EDS and IBM, 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 principal method of competition in this
market is through open bidding. Services may also be sold as a
part of, or linked to, equipment sales.

Service
offerings

We provide, plan, build and operate support
services to both fixed line and wireless network operators in
many countries around the world. We target customers in the
service provider, large-scale carrier class markets
and in the government, transport and utilities sector. The
services segment has two main sub-groupings:



| |   |                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------
| |  | Installation, Commissioning and
    Maintenance,or IC&M, which
    comprises the following activities:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Customer Fulfillmentprovides project management, installation and commissioning,
    field engineering support and customer training. The main
    markets are the United Kingdom, North America, Germany and
    Italy. The North American activities are associated with the OPP
    business and are included in the U.S. ringfenced group.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | Managed Servicessupports the installed base of our equipment worldwide through
    technical support, on-site maintenance and spares & repairs
    management. Managed services also remotely monitors, manages and
    supports customers live networks. Services are provided
    from a global network of technical assistance centers, or TACs,
    and stock hubs and network operation centers, or NOCs. We
    operate thirteen TACs, five in the United States, two in the
    United Kingdom, two in the rest of Europe, two in Canada, and
    one in each of Japan and Australia, offering around-the-clock
    telephone assistance to customers. We also have five NOCs, one
    in each of Australia, Germany, Italy, the United Kingdom and the
    United States, for remote monitoring, fault diagnosis and
    network repair. We can support our own product range as well as
    products supplied by other communication equipment companies.
|
| |  | Operational Support
    Systemsprovides the software systems
    and systems integration services that enable operators to
    maximize the efficiency of their networks and the quality of the
    services they provide to customers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

The bulk of these services are related to the
sale of our products, although we also have considerable
experience of working with equipment from other vendors.



| |   |                                                                               
| | - | ------------------------------------------------------------------------------
| |  | Value-Added Services, or
    VAS, which comprise the following
    activities:



| |   |                                                                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Integrated Systemsprovides turnkey projects and plan, build and operate services
    for non-telecommunications businesses in market sectors such as
    transportation and government. The projects involve planning,
    building, operating and supporting carrier class
    telecommunications

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | infrastructure and are generally long-term. The
    principal geographical markets are the United Kingdom, Germany
    and the Middle East.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Wireless Servicesprovides radio frequency consulting services to both wireless
    and wireline network operators. These are primarily consulting
    and contractual services for site acquisition, mast design and
    construction, radio frequency cell site planning and network
    optimization. Our radio planning and installation services
    enhance our ability to offer customized, cost-effective
    solutions for network operators and service providers. In North
    America, our primary focus is on radio cell site planning and
    network optimization. In Europe, the Middle East and Africa, or
    EMEA, our principal geographical markets are the United Kingdom,
    Saudi Arabia, the Netherlands and Germany.
|
| |  | Managed Servicesprovides customer support services associated with our BBRS
    equipment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

We have developed our services businesses over a
number of years. In EMEA, installation and commissioning
services were necessary to support equipment sales to service
providers. In North America, the business developed through
supporting the data networking and power markets. The integrated
systems activities have developed organically to support complex
mission critical network projects for large enterprises.

We intend to continue to drive process and
efficiency improvements throughout Network Services
operations to reduce costs, improve customer satisfaction and
increase both revenues and margins. In addition, we intend to
increase the proportion of equipment sales that include support
contracts and more cross-selling of existing services across
markets and customers.

Within Integrated Systems, our key initiative is
to expand out of our strong U.K. base into carefully selected
overseas markets, for example, Germany through a combination of
skills transfers and working with selected partners.

We intend to grow our Wireless Services business
by targeting mobile network operators operating 2G networks and
planning 3G networks and equipment vendors providing turnkey
projects to the mobile network operators who require service
partners.

Capital Businesses

Our Capital businesses comprise certain
non-essential businesses that we manage for value and ultimately
for disposal. Activities in the Capital segment included our
holdings in Easynet Group Plc and Bookham Technology plc.

Easynet
Group Plc

On July 26, 2001, we merged our 92% interest
in ipsaris Limited into Easynet Group Plc, a U.K. registered
company listed on the London Stock Exchange. We acquired 71.9%
of the issued share capital of Easynet and control of 49.9% of
Easynets issued voting capital. Easynets share
capital comprises voting ordinary shares and non-voting
convertible shares. The closing of the Ultramast Limited capital
reduction on February 24, 2003 and the settlement of the
litigation associated with Ultramast Limited allowed us to
acquire approximately a further 1.3 million ordinary shares
in Easynet. However, these shares, together with some of the
ordinary shares we already held, have been converted into
convertible ordinary shares so that we do not own more than
49.9% of the voting ordinary shares. Our economic interest in
Easynet is 72.7%. Easynet operates an internet network and data
center infrastructures. In the United Kingdom, Easynet has a
national broadband network. We account for Easynet as an
affiliate in our consolidated financial statements.

Bookham
Technology plc

On December 17, 2001, we sold our optical
components business to Bookham Technology plc in exchange for 9%
of its issued ordinary shares. Bookham is a provider of optical
components to us and

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other network equipment vendors. Pursuant to a
subsequent agreement between Bookham and Nortel Networks
Corporation, we now own approximately 6% of Bookham.


Other

The Capital businesses also include our
Italian-based public mobile radio networks business, which
develops base stations and controllers for 3G networks. We have
announced the commencement of steps to close this business and
will continue to seek buyers for the business during the closure
period. Closure of this business will involve some cash costs to
us but we currently do not expect that this will have a material
adverse effect on our results of operations or financial
position.

Other activities in the Capital segment include a
number of minor activities, investments and assets.

Intellectual property

We own a number of intellectual property rights
including patents and designs 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, we may not always retain
proprietary rights to the products we develop.

We rely on patents, trademarks, trade secrets,
design rights, 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 Item 8: Financial Information  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.

In connection with our restructuring, we
consolidated our patents and patent applications owned by our
U.S. and U.K. subsidiaries into three separate special purpose
vehicles organized for that purpose. Those patents and patent
applications have been allocated as follows:



| |   |                                                                                                                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Patents and patent applications owned by our U.K.
    subsidiaries were assigned to Marconi Intellectual Property U.K.
    Limited and then each licensed back to the appropriate operating
    subsidiary.                                                                                        
|
| |  | Patents and patent applications that were owned
    by U.S. subsidiaries and used in the North American Access
    business, BBRS business or OPP business were assigned to Marconi
    Intellectual Property (Ringfence), Inc. and then licensed back
    to the appropriate operating subsidiary.
|
| |  | Patents and patent applications that were owned
    by U.S. subsidiaries and not used in the North American Access
    business, BBRS business or OPP business were assigned to Marconi
    Intellectual Property, Inc. and then licensed back to the
    appropriate operating subsidiary.        
|
| |  | Patents and patent applications as well as any
    other intellectual property owned by our German subsidiaries
    were assigned to a security trustee to facilitate the granting
    of security in Germany and then licensed back to the appropriate
    operating subsidiary.                  
|
| |  | Patents and patent applications that were not
    owned by U.S., U.K. or German subsidiaries remained in place.                                                                                                                                                                                    

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In addition, security interests have been granted
to our scheme creditors over all of our intellectual property.
In connection with granting the security interests, we agreed to
limit the transfer of patents and patent applications within the
group and to third parties. In so doing, we agreed to limit
those transfers to transfers made in the ordinary course of
business or, if not in the ordinary course of business, made
with the consent of Marconi Corporation.

Environmental And Other Regulations

Environmental, and employee health and
safety matters

We are subject to increasingly stringent
regulation under various U.K., U.S., EU and other international,
national and local laws and regulations relating to employee
safety and health, and environmental protection, including law
and regulations governing air emissions, water discharges and
the use, management and disposal of hazardous substances.

One of the many environmental laws affecting us
in the United States is CERCLA, which is the primary
federal statute governing clean-up of contaminated properties.
CERCLA can impose joint, several and retroactive liability for
the costs of investigating and cleaning up contaminated
properties, without regard to fault or the legality of the
original conduct. Potentially liable parties under CERCLA can
include current and former owners or operators of a site, as
well as those who generate or arrange for the disposal of
hazardous substances. Environmental laws in other jurisdictions
can also impose significant clean-up liabilities.

We are currently conducting an investigation or
clean-up at approximately 20 contaminated sites, principally in
the United States including three clean-ups under obligations
imposed under CERCLA. The remaining sites are being cleaned up
voluntarily in connection with a prior property sale or
purchase, or pursuant to government directive. We estimate the
total cost to clean up all of these sites will be between
approximately £10 million and £20 million. A
number of these and other of our current and former sites were
associated with hazardous substance use and may give rise to
unforeseen liabilities. We could therefore incur additional
clean-up costs upon the discovery of new contamination at these
or other sites for which we may be found to be responsible,
either directly under CERCLA or other laws, or through a
contractual indemnity obligation as the result of a prior
property or business sale. We could also incur additional costs
as a result of any related personal injury or property damage
claims. Although such additional costs, if any, could be
substantial, we are not aware of any material claims and do not
expect future clean-up or related costs to have a material
affect on us. Litigation is by its nature an unpredictable form
of risk and is disclosed wherever unliquidated damages are
sought but no information is currently available that indicates
a material liability.

The European Commission has issued two directives
which will require member states of the EU to meet certain
targets for collection, re-use and recovery of waste electrical
and electronic equipment. It is likely that these obligations
will be achieved through legislation placing the responsibility
for meeting these obligations on equipment producers. Producers
will also be required to phase out certain hazardous materials
from the equipment. This legislation could significantly
increase costs to producers of electrical and electronic
equipment.

We regularly audit our facilities
compliance with employee safety and environmental requirements.
We have not incurred material capital expenditures for
environmental, health or safety matters during the past three
financial years, nor do we anticipate having to incur material
capital expenditures during the current or the succeeding
financial years. Although environmental costs cannot be
predicted with certainty, we believe that costs relating to
non-compliance or liability under current environmental, health
and safety laws and regulations will not have a material adverse
effect on our financial condition or results of operations as a
whole.

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Other government regulation

Our products are subject to industry-specific
government regulation and legislation in the United States, the
European Union and throughout the world. For example, our
Network Equipment business must comply with U.S. Federal
Communications Commission requirements and regulations and other
safety regulations governing communications products sold in the
United States. Our businesses would suffer if they failed to
obtain or lost the certifications, clearances and authorizations
required to participate in new or existing projects. In
addition, we could be subject to fines, criminal sanctions or
the revocation of important licenses and certifications if we
fail to comply with government regulations. We believe that any
non-compliance or liability under current government regulations
will not have a material adverse effect on our financial
condition or results of operation as a whole.

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PROPERTY, PLANT AND EQUIPMENT

Our registered office is located at New Century
Park, P.O. Box 53, Coventry, Warwickshire, CV3 1HJ.
Our London office is located at Regents Place, 338 Euston Road,
London, NW1 3BT.

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

Owned property

|                                                                               |  |        |                       |                               |  |                                                            |  |                  |                       |               |                                        |  |             |  |                         |  |  |  |  | 
|------------------------------------------------------------------------------ |  | ------ | --------------------- | ----------------------------- |  | ---------------------------------------------------------- |  | ---------------- | --------------------- | ------------- | -------------------------------------- |  | ----------- |  | ----------------------- |  |  |  |  | 
|                                                                               |  |        |                       | If current                    |  |                                                            |  |                  |                       |              
|                                                                               |  |        |                       | Leasehold,                    |  | If leasehold                                               |  | Building or site |                       |              
|Location                                                                       |  | Tenure |                       | Rent per annum                |  | Expiry of term                                             |  | area sq ft       |                       | Principal use
|                                                                               |  |       
|                                                                               |  |       
|122 Edward Street
    St. Thomas, Ontario
    N5P 1Z2Canada                    |  |        | Freehold              |                               |  | Not applicable                                             |  | Not applicable   |                       |               | 45,000                                 |  |             |  | Manufacturing           | 
|Hueftelaecker 1
    T BacknangGermany                                          |  |        | Freehold              |                               |  | Not applicable                                             |  | Not applicable   |                       |               | 8,762                                  |  |             |  | Offices R&D            
|Gerberstrasse 33
    71522 BacknangGermany                                     |  |        | Freehold              |                               |  | Not applicable                                             |  | Not applicable   |                       |               | 714,160                                |  |             |  | Offices R&D            
|Max-Planck Str. 1
    77656 OffenburgGermany                                   |  |        | Freehold              |                               |  | Not applicable                                             |  | Not applicable   |                       |               | 454,000                                |  |             |  | Manufacturing           | 
|MAIN SITE S.P.
    Casapuzzano MarcianiseItaly                                 |  |        | Freehold              |                               |  | Not applicable                                             |  | Not applicable   |                       |               | 113,021                                |  |             |  | Manufacturing           | 
|Via Ambrogio
    Negrone 1/A
    (excluding L1 floor)
    16153 GenovaItaly    |  |        | Freehold              |                               |  | Not applicable                                             |  | Not applicable   |                       |               | 284,899including Via  Ludovico Calda 5 |  | Offices R&D
|Via Ludovico Calda 5
    16153 GenovaItaly                                     |  |        | Freeholdfinance lease | Finance LeasePayment £755,834 |  | Finance Lease Arrangement ends January 2007, then Freehold |  |                  | See Via Negrone above |               | Offices R&D                           
|Iron Road, New Era
    Springs
    Johannesburg 1560South Africa               |  |        | Freehold              |                               |  | Not applicable                                             |  | Not applicable   |                       |               | 318,289                                |  |             |  | Manufacturing & Offices
|18/20 Denington Road
    Wellingborough
    NorthantsU.K.                      |  |        | Freehold              |                               |  | Not applicable                                             |  | Not applicable   |                       |               | 44,929                                 |  |             |  | Offices & Services     
|Reltec Corporation
    104 Wiley Road                                          |  |        | Freehold              |                               |  | Not applicable                                             |  | Not applicable   |                       |               | 172,004                                |  |             |  | Manufacturing           | 
|La Grange
    Georgia 30240U.S.A.                                              |  |        |                       |                               |  |                                                            |  |                  |                       |               |                                        |  |             |  |                         |  |  |  |  | 
|956 North Broadway
    Extended
    Greenville, Mississippi
    MS 38702U.S.A. |  |        | Freehold              |                               |  | Not applicable                                             |  | Not applicable   |                       |               | 126,416                                |  |             |  | Manufacturing & Offices

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|                                                                                      |  |        |          |                |  |                |  |                  |  |               |         |  |  |                                |  |  |  |  |  | 
|------------------------------------------------------------------------------------- |  | ------ | -------- | -------------- |  | -------------- |  | ---------------- |  | ------------- | ------- |  |  | ------------------------------ |  |  |  |  |  | 
|                                                                                      |  |        |          | If current     |  |                |  |                  |  |              
|                                                                                      |  |        |          | Leasehold,     |  | If leasehold   |  | Building or site |  |              
|Location                                                                              |  | Tenure |          | Rent per annum |  | Expiry of term |  | area sq ft       |  | Principal use
|                                                                                      |  |       
|                                                                                      |  |       
|Evergood, 325 Welcome
    Center Blvd.
    Welcome, NC 27374
    North CarolinaU.S.A. |  |        | Freehold |                |  | Not applicable |  | Not applicable   |  |               | 158,000 |  |  | Manufacturing & Offices       
|1000 Marconi Drive
    Warrendale, PA 15086
    PennsylvaniaU.S.A.                    |  |        | Freehold |                |  | Not applicable |  | Not applicable   |  |               | 574,286 |  |  | Manufacturing, Offices and R&D
|1122F Street
    Lorain, 44502
    OhioU.S.A.                                         |  |        | Freehold |                |  | Not applicable |  | Not applicable   |  |               | 311,495 |  |  | Manufacturing & Offices       

Leased properties

|                                                                               |  |        |           |                |  |                |                                           |                  |      |               |      |  |         |  |         |  |               |  |                            | 
|------------------------------------------------------------------------------ |  | ------ | --------- | -------------- |  | -------------- | ----------------------------------------- | ---------------- | ---- | ------------- | ---- |  | ------- |  | ------- |  | ------------- |  | -------------------------- | 
|                                                                               |  |        |           | If current     |  |                |                                           |                  |      |              
|                                                                               |  |        |           | Leasehold,     |  | If leasehold   |                                           | Building or site |      |              
|Location                                                                       |  | Tenure |           | Rent per annum |  | Expiry of term |                                           | area sq ft       |      | Principal use
|                                                                               |  |       
|                                                                               |  |       
|SCALA West
    Solmsstrasse 83
    60486 FrankfurtGermany                      |  |        | Leasehold |                |  |                | £1,570,000                                |                  |      |               | 2011 |  |         |  | 116,500 |  |               |  | Offices and R&D           
|Lot 24
    Kumlim Industrial Estate
    00009, Kulm, Kedah
    DaralamMalaysia |  |        | Leasehold |                |  |                | No cost to Marconi Joint Venture Property |                  | 2046 |               |      |  | 348,483 |  |         |  | Manufacturing | 
|New Century Park
    PO Box 53
    Coventry CV3 1HJUK                          |  |        | Leasehold |                |  |                | £1,313,200                                |                  |      |               | 2021 |  |         |  | 618,924 |  |               |  | Offices and R&D           
|New Horizon Park
    Waterman Road
    CoventryUK                              |  |        | Leasehold |                |  |                | £645,579                                  |                  |      |               | 2005 |  |         |  | 314,000 |  |               |  | Offices and Manufacturing 
|13 Wilison Road
    Huyton
    Liverpool L36 6AEUK                             |  |        | Leasehold |                |  |                | £23,000                                   |                  |      |               | 2076 |  |         |  | 105,497 |  |               |  | Warehousing & Distribution
|Edge Lane
    Liverpool L7 9NWUK                                               |  |        | Leasehold |                |  |                | £1,454,000                                |                  |      |               | 2012 |  |         |  | 221,010 |  |               |  | Offices & R&D             

There has been significant consolidation from
existing facilities concentrating our activities on our
remaining major key hub locations. We believe that our principal
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 are idle.

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ORGANIZATION STRUCTURE

Set forth below is the simplified legal structure
chart of the Marconi Plc group companies prior to our financial
restructuring as at March 31, 2003. The chart does not show
all intermediate companies. As at March 31, 2003, all
companies shown were wholly owned directly or indirectly by
Marconi plc and wholly owned directly or indirectly by Marconi
Corporation plc, as applicable, unless otherwise stated. The
dotted lines show how these companies fit within our business
groups as at March 31, 2003, respectively.




Pre-Financial Restructuring Business
Groups

(ORGANIZATIONAL STRUCTURE)

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##### Table of Contents



Set forth below is the simplified legal structure
chart of our principal group companies following our financial
restructuring and reflecting our pending resegmentation as at
June 23, 2003. The chart does not show all intermediate
companies. As at June 23, 2003, all companies shown were
wholly-owned directly or indirectly by Marconi Corporation plc
unless otherwise stated.




Post-Financial Restructuring Business
Groups

(ORC CHART)

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Item 5:     Operating
and Financial Review and Prospects

This discussion and analysis should be read in
conjunction with Risk Factors, the Selected
Consolidated Financial Information and the consolidated
financial statements and related notes and the descriptions of
our businesses included elsewhere in this document.

Overview

We are a global vendor of telecommunications
equipment and services. Our customers include a number of the
leading telecommunications operators throughout the world, with
whom we have a large base of installed equipment. Conditions in
the telecommunications market continued to deteriorate
throughout fiscal 2003, with further reductions in capital
investment by telecommunications operators. As a result, our
total revenues of £1,896 million in fiscal 2003
decreased £1,350 million or 41.6% as compared with
£3,246 million in fiscal 2002. In our Network
Equipment and Network Services segments, revenues of
£1,874 million in fiscal 2003 decreased
£907 million or 32.6% as compared with
£2,781 million in fiscal 2002. We expect a further
contraction in market volumes and revenues during fiscal 2004 as
telecommunications operators continue to maintain tight controls
over capital expenditure.

We have taken extensive action to reduce the
scope of our activities and to rationalize or curtail non-core
areas. Since September 2001, we have embarked on a sequence of
substantial cost reduction programs to reduce sales and
marketing, general and administrative and research and
development costs. We have achieved significant reductions in
annual expenditures through focused headcount reductions,
organization consolidation, site rationalization (including the
relocation of our U.K. corporate headquarters) and closure of
sales offices worldwide. In addition, we have also reduced
discretionary marketing spend. These programs remain in place
and continue to deliver cost reductions. As a result, our total
operating expense of £973 million in fiscal 2003,
which includes approximately £290 million of business
restructuring and asset impairment charges, was reduced from
approximately £6,370 million, which includes
approximately £4,364 million of business restructuring
and asset impairment charges, in fiscal 2002. Excluding business
restructuring and impairment charges, operating expenses in
fiscal 2003 decreased by £1,323 million or 66% as
compared with fiscal 2002.

In the near term, the continued low level of
capital expenditure by telecommunications operators is
exacerbated by ongoing instability in the Middle East and the
impact of the SARS virus in Asia Pacific, particularly China. As
a result, we expect sales to fall below £400 million
during the first quarter of fiscal 2004. While we plan to make
further progress in reducing our cost of goods sold and
operating costs, the expected lower volume of revenues will have
an adverse impact on our gross margin during the first quarter
of fiscal 2004. We monitor sales forecasts on a weekly basis and
will continue to take all actions necessary to align our cost
base to forecasted revenue volumes. In addition, we will
continue to initiate cost saving actions during fiscal 2004 in
order to reduce our annual operating costs. We plan to achieve
cost savings through a combination of headcount and other cost
reduction initiatives such as product cost reductions and
savings in third party professional spend. We currently expect
that our headcount will have declined to approximately 13,000
employees by the end of March 2004, and to that end we already
have plans and proposals to reduce our headcount to a level of
approximately 13,500 employees.

Our objectives continue to be to restore our
Network Equipment and Network Services businesses to operating
profitability and generate positive operating cash flow. In the
longer term, we aim to develop and expand our product portfolio
and markets on a basis that is consistent with our business
strategy. We believe that partnerships, where research and
development and routes to market are shared for mutual benefit,
will be an increasingly important factor in the industry and we
expect to be an active participant. Organizationally, extensive
rationalization will continue to be an important part of our
strategy in order to reduce costs in all areas of production and
overhead. In particular, we will continue to restructure our
supply chain to remove excess capacity and reduce break-even
points.

As part of this strategy, we will retain control
of functions only where we possess key competencies. We will
continue to outsource other functions, such as the manufacturing
of non-complex products, and we will continue to rationalize the
supply chain cost base to a level more in line with expected
sales

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volumes. As part of this plan, on May 27,
2003, we entered into a ten-year outsourcing agreement for the
management of our internal information technology systems with
Computer Sciences Corporation. Under the terms of the agreement,
Computer Sciences Corporation will acquire the majority of our
information technology assets for cash proceeds of approximately
£26.3 million. We will retain these cash proceeds,
which will substantially complete the permitted retention of the
first £82 million of disposal proceeds that we
previously agreed to with creditors in our restructuring. We
expect to pay £450 million to Computer Sciences
Corporation for information technology management services over
the ten-year term of the agreement.


We expect cash outflows of approximately
£100 million during fiscal 2004 in relation to our
ongoing operational reorganization. Approximately half of this
amount will result from settling obligations accrued at
March 31, 2003 relative to onerous leases and the
reorganization of our manufacturing operations. In addition,
during the first quarter of fiscal 2004, we have distributed
£340 million in cash to creditors in our financial
restructuring, paid £35 million in cash to the ESOP
derivative banks in settlement of claims relating to our ESOP
derivatives transactions, and spent a further
£15 million on advisor fees and other related costs to
complete our financial restructuring. However, offsetting these
cash outflows in fiscal 2004, we are targeting to achieve a
positive operating cash inflow through further improvements in
operating performance, inventory management and, to a lesser
extent, through our continued focus on improvements in our days
sales outstanding and trade payables day ratios.

On May 19, 2003, we concluded our financial
restructuring, which was effected through two separate schemes
of arrangement under the U.K. Companies Act 1985. As a result of
the restructuring, Marconi Corporation plc became the new parent
holding company of our group, replacing Marconi plc, and Marconi
plc ceased to be a member of our group. As a result of the
substantial decrease in debt achieved through the financial
restructuring, our interest burden will be significantly reduced
to around £82 million per annum in fiscal 2005 from
£365 million in fiscal 2003. Interest expense will be
comprised primarily of 8% cash interest payable on the
U.S.$717 million (approximately £437 million) of
Senior Notes issued in the restructuring and 10% interest (if
paid in cash) payable on the U.S.$487 million
(approximately £297 million) of Junior Notes issued in
the restructuring. We have the option with respect to the Junior
Notes to pay interest in cash at 10% per annum or in kind, by
issuing additional Junior Notes, at 12% per annum and will make
this decision and the necessary notifications on a quarterly
basis. We expect our interest payments to be partially offset by
modest amounts of interest received on our cash balances. During
fiscal 2004, we expect net interest payments to amount to
approximately £40 million. See the additional
discussion of our financial restructuring in Liquidity and
Capital Resources below.



| |                      
| | ---------------------
| | Basis of presentation

Our financial statements included in this annual
report have been prepared in accordance with accounting
principles generally accepted in the United States
(U.S. GAAP). The discussion and analysis below of our
consolidated results of operations and financial condition are
based upon these financial statements.

The requirements of U.S. GAAP applied to our
group have resulted in us preparing our discussion and analysis
of segment results using information prepared in accordance with
generally accepted accounting principles in the United Kingdom
(U.K. GAAP). The U.S. Financial Accounting Standards Board
standard  Statement of Financial Accounting Standards
No.131  Disclosure about Segments of an Enterprise
and Related Information requires us to determine and
review our segments as reflected in the management information
systems reports that our managers use in making decisions. As we
are an English company and we prepare our consolidated statutory
financial statements under U.K. GAAP, our chief operating
decision maker evaluates our segment performance using U.K. GAAP
measures. Therefore, we have presented our discussion and
analysis of segment revenues and operating (loss)/profit below
based upon information prepared in accordance with U.K. GAAP.

39



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During the period to March 31, 2003, we
divided our continuing operations into three separate segments:
the Network Equipment and Network Services segments, which
comprised what we referred to as our Core businesses, and the
Capital segment, as follows:



| |   |                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Network Equipment segment, which comprises
    Optical Networks, Broadband Routing and Switching (BBRS),
    European Access, North American Access, Outside Plant &
    Power (OPP) and Other Network Equipment;
|
| |  | The Network Services segment which comprises
    Installation, Commissioning & Maintenance (IC&M) and
    Value-Added Services (VAS); and                                                                            
|
| |  | The Capital segment, which comprises businesses
    that we manage for value and ultimately for disposal.                                                                                                            

During fiscal 2003, the Capital segment comprised
the following: Marconi Applied Technologies, until its disposal
on July 12, 2002; Infochain, until its closure on
August 18, 2002; and Online, until its disposal on
March 5, 2003. In fiscal 2002, Capital also included GDA
and Marconi Optical Components.

Under U.K. GAAP, the Capital segment also
included: Strategic Communications, until its disposal on
August 2, 2002; TETRA, until its disposal on March 5,
2003; and our UMTS mobile activities, all of which were treated
as discontinued operations under U.S. GAAP. In addition,
the Medical and Data Systems segments are presented as
discontinued under U.S. GAAP for all years presented. We
also have an economic interest of 72.7% in Easynet Group plc,
which we included in our Capital segment. We account for Easynet
using the equity method of accounting.

In February 2002, we were obliged to acquire by a
put option 1,324,054 ordinary shares in Easynet for
£20 million. We disputed the legal basis of the put
option and entered into litigation with Railtrack Group. In
February 2003, the litigation with Railtrack Group was settled
and we became beneficial owners of the 1,324,054 Easynet
ordinary shares under the put option. Consequently, the
£20 million and related impairment have been reflected
in equity in loss of affiliates. The put option increased our
equity holding to 72.7% and our holding of voting shares to
51.6%. However, under the articles of association of Easynet and
our relationship agreement with Easynet, our voting rights in
Easynet are limited to 49.9%. Accordingly, Easynet applied in
April 2003 to the U.K. Listing Authority to cancel the 1,324,054
ordinary shares and non-voting convertible shares have been
issued to us in exchange. Since we were not able to exercise
control over Easynet at anytime, we have continued to account
for Easynet using the equity method of accounting.

In connection with our financial restructuring we
are commencing the process of adopting a new organizational
structure that segments our businesses along geographical lines.
Commencing with the fiscal quarter ending September 30,
2003, we will report the results of the Network Equipment and
Network Services operations of our businesses based in Europe
and the rest of the world other than the U.S. separately from
the results of our Network Equipment and Network Services
businesses based in the U.S. Under this new structure, our U.S.
segment consists primarily of our BBRS, North American Access
and OPP Network Equipment operations and our Network Services
operations that support such businesses, and our Europe and
rest-of-world segment consists primarily of our optical
networks, European Access and other Network Equipment operations
and all our Network Services operations other than those that
support our BBRS, North American Access and OPP businesses. Our
new segmentation is connected with the contractual separation or
ring-fencing of our U.S.-based businesses that we
implemented as part of our financial restructuring. Our Capital
segment will remain essentially unchanged, but we will refer to
it as our Other segment. In fiscal 2004, we will reflect segment
information on both the new and old basis, as it is
impracticable for us to restate prior period information.

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| |                                         
| | ----------------------------------------
| | Results of operations 
    Consolidated

The following table presents our results of
operations for the three years ended March 31, 2003
prepared in accordance with U.S. GAAP.

|                                                                                                                                                 |                                          |               |        |          |   |      |       |          |    |   |        |          |   |  |        |      |    |  |       |      |   |  |      |      |   
|------------------------------------------------------------------------------------------------------------------------------------------------ | ---------------------------------------- | ------------- | ------ | -------- | - | ---- | ----- | -------- | -- | - | ------ | -------- | - |  | ------ | ---- | -- |  | ----- | ---- | - |  | ---- | ---- | --
|                                                                                                                                                 |                                          |               |        |          |   |     
|                                                                                                                                                 |                                          | 2003          |        | 2002     |   | 2001
|                                                                                                                                                 |                                          |               |        |          |   |     
|                                                                                                                                                 |                                          |               |        | % of     |   |      |       | % of     |    |   |        | % of    
|                                                                                                                                                 |                                          | £             |        | revenues |   | £    |       | revenues |    | £ |        | revenues
|                                                                                                                                                 |                                          |               |        |          |   |      |       |          |    |   |        |         
|                                                                                                                                                 |                                          |              
|                                                                                                                                                 |                                          | (In millions)
|Revenues:                                                                                                                                        |                                          |               |        |          |   |      |       |          |    |   |        |          |   |  |        |      |    |  |       |      |   |  |      |     
|Network Equipment                                                                                                                                |                                          |               | 1,131  |          |   |      |       |          |    |   | 1,812  |          |   |  |        |      |    |  | 3,268 |      |   |  |      |     
|Network Services                                                                                                                                 |                                          |               | 743    |          |   |      |       |          |    |   | 969    |          |   |  |        |      |    |  | 1,016 |      |   |  |      |     
|Capital                                                                                                                                          |                                          |               | 22     |          |   |      |       |          |    |   | 465    |          |   |  |        |      |    |  | 637   |      |   |  |      |     
|                                                                                                                                                 |                                          |               |        |          |   |      |       |          |    |   |        |          |   |  |        |      |    |  |       |      |   |  |      |     
|                                                                                                                                                 |                                          |               | 1,896  |          |   |      |       |          |    |   | 3,246  |          |   |  |        |      |    |  | 4,921 |      |   |  |      |     
|                                                                                                                                                 |                                          |               |        |          |   |      |       |          |    |   |        |          |   |  |        |      |    |  |       |      |   |  |      |     
|Direct costs                                                                                                                                     |                                          |               | 1,522  |          |   |      | 80.3  | %        |    |   | 3,297  |          |   |  | 101.6  | %    |    |  | 3,034 |      |   |  | 61.7 | %   
|                                                                                                                                                 |                                          |               |        |          |   |      |       |          |    |   |        |          |   |  |        |      |    |  |       |      |   |  |      |     
|Gross margin                                                                                                                                     |                                          |               | 374    |          |   |      | 19.7  | %        |    |   | (51    | )        |   |  | (1.6   | %)   |    |  | 1,887 |      |   |  | 38.3 | %   
|                                                                                                                                                 |                                          |               |        |          |   |      |       |          |    |   |        |          |   |  |        |      |    |  |       |      |   |  |      |     
|Selling, general and administrative expenses                                                                                                     |                                          |               | 356    |          |   |      | 18.8  | %        |    |   | 836    |          |   |  | 25.8   | %    |    |  | 783   |      |   |  | 15.9 | %   
|Research and development                                                                                                                         |                                          |               | 290    |          |   |      | 15.3  | %        |    |   | 525    |          |   |  | 16.2   | %    |    |  | 506   |      |   |  | 10.3 | %   
|Amortization of goodwill and intangibles                                                                                                         |                                          |               | 44     |          |   |      | 2.3   | %        |    |   | 436    |          |   |  | 13.4   | %    |    |  | 647   |      |   |  | 13.1 | %   
|Business restructuring charges                                                                                                                   |                                          |               | 221    |          |   |      | 11.7  | %        |    |   | 396    |          |   |  | 12.2   | %    |    |  |      |      |   |  |     |     
|Impairments of long-lived assets                                                                                                                 |                                          |               | 69     |          |   |      | 3.6   | %        |    |   | 3,968  |          |   |  | 122.1  | %    |    |  |      |      |   |  |     |     
|Other (income) expenses                                                                                                                          |                                          |               | (7     | )        |   |      | 0.4   | %        |    |   | 209    |          |   |  | 6.4    | %    |    |  | 3     |      |   |  |     |     
|                                                                                                                                                 |                                          |               |        |          |   |      |       |          |    |   |        |          |   |  |        |      |    |  |       |      |   |  |      |     
|Total operating expenses                                                                                                                         |                                          |               | 973    |          |   |      | 51.3  | %        |    |   | 6,370  |          |   |  | 196.2  | %    |    |  | 1,939 |      |   |  | 39.4 | %   
|                                                                                                                                                 |                                          |               |        |          |   |      |       |          |    |   |        |          |   |  |        |      |    |  |       |      |   |  |      |     
|Operating loss                                                                                                                                   |                                          |               | (599   | )        |   |      | (31.6 | %)       |    |   | (6,421 | )        |   |  | (197.8 | %)   |    |  | (52   | )    |   |  | (1.1 | %)  
|Other income (expense):                                                                                                                          |                                          |               |        |          |   |      |       |          |    |   |        |          |   |  |        |      |    |  |       |      |   |  |      |     
|                                                                                                                                                 | (Loss) gain on sales of investments, net |               |        | (5       | ) |      |       | (0.3     | %) |   |        | 81       |   |  |        | 2.5  | %  |  |       | 475  |   |  |      | 9.7  | % 
|                                                                                                                                                 | Impairment of investments                |               |        | (40      | ) |      |       | (2.1     | %) |   |        |         |   |  |        |     |    |  |       |     |   |  |      |     |   
|                                                                                                                                                 | Provision for related party receivables  |               |        | (299     | ) |      |       | (15.8    | %) |   |        |         |   |  |        |     |    |  |       |     |   |  |      |     |   
|                                                                                                                                                 | Interest expense, net                    |               |        | (320     | ) |      |       | 16.9     | %  |   |        | (238     | ) |  |        | (7.3 | %) |  |       | (151 | ) |  |      | (3.1 | %)
|                                                                                                                                                 |                                          |               |        |          |   |      |       |          |    |   |        |          |   |  |        |      |    |  |       |      |   |  |      |     
|(Loss) income from continuing operations before
    income taxes, minority interests, cumulative effects of changes
    in accounting principles |                                          |               | (1,263 | )        |   |      | (66.6 | %)       |    |   | (6,578 | )        |   |  | (202.6 | %)   |    |  | 272   |      |   |  | 5.5  | %   
|Income tax benefit/(provision)                                                                                                                   |                                          |               | 209    |          |   |      | 11.0  | %        |    |   | 471    |          |   |  | 14.5   | %    |    |  | (17   | )    |   |  | (0.3 | %)  
|Equity in loss of affiliates                                                                                                                     |                                          |               | (62    | )        |   |      | (3.3  | %)       |    |   | (196   | )        |   |  | (6.0   | %)   |    |  | (137  | )    |   |  | (2.8 | %)  
|Minority interests                                                                                                                               |                                          |               |       |          |   |      |      |          |    |   |       |          |   |  |       |      |    |  | (3    | )    |   |  | (0.1 | %)  
|                                                                                                                                                 |                                          |               |        |          |   |      |       |          |    |   |        |          |   |  |        |      |    |  |       |      |   |  |      |     
|(Loss) income from continuing operations, before
    cumulative effects of changes in accounting principles                                      |                                          |               | (1,116 | )        |   |      | (58.9 | %)       |    |   | (6,303 | )        |   |  | (194.2 | %)   |    |  | 115   |      |   |  | 2.3  | %   
|(Loss) income from discontinued operations                                                                                                       |                                          |               | (74    | )        |   |      | (3.9  | %)       |    |   | (64    | )        |   |  | (2.0   | %)   |    |  | 59    |      |   |  | 1.2  | %   
|Gain on sale of discontinued operations                                                                                                          |                                          |               | 23     |          |   |      | 1.2   | %        |    |   | 248    |          |   |  | 7.6    | %    |    |  | 20    |      |   |  | 0.4  | %   
|                                                                                                                                                 |                                          |               |        |          |   |      |       |          |    |   |        |          |   |  |        |      |    |  |       |      |   |  |      |     
|Net (loss) income before cumulative effect of
    changes in accounting principles                                                               |                                          |               | (1,167 | )        |   |      | (61.6 | %)       |    |   | (6,119 | )        |   |  | (188.5 | %)   |    |  | 194   |      |   |  | 3.9  | %   
|Cumulative effect of changes in accounting
    principles                                                                                        |                                          |               |       |          |   |      |      |          |    |   | (240   | )        |   |  | (7.4   | %)   |    |  |      |      |   |  |     |     
|                                                                                                                                                 |                                          |               |        |          |   |      |       |          |    |   |        |          |   |  |        |      |    |  |       |      |   |  |      |     
|Net (loss) income                                                                                                                                |                                          |               | (1,167 | )        |   |      | (61.6 | %)       |    |   | (6,359 | )        |   |  | (195.9 | %)   |    |  | 194   |      |   |  | 3.9  | %   
|                                                                                                                                                 |                                          |               |        |          |   |      |       |          |    |   |        |          |   |  |        |      |    |  |       |      |   |  |      |     

41



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| |         
| | --------
| | Revenues

The following table sets forth our revenues by
geographical region of destination for the three years ended
March 31, 2003 as reported under U.S. GAAP:

|                                 |                                             |               |     |          |  |      |      |          |   |   |       |          |  |  |      |       |   |  |       |       |  |  |      |       |  
|-------------------------------- | ------------------------------------------- | ------------- | --- | -------- |  | ---- | ---- | -------- | - | - | ----- | -------- |  |  | ---- | ----- | - |  | ----- | ----- |  |  | ---- | ----- | -
|                                 |                                             |               |     |          |  |     
|                                 |                                             | 2003          |     | 2002     |  | 2001
|                                 |                                             |               |     |          |  |     
|                                 |                                             |               |     | % of     |  |      |      | % of     |   |   |       | % of    
|                                 |                                             | £             |     | revenues |  | £    |      | revenues |   | £ |       | revenues
|                                 |                                             |               |     |          |  |      |      |          |   |   |       |         
|                                 |                                             |              
|                                 |                                             | (In millions)
|United Kingdom                   |                                             |               | 500 |          |  |      | 26.4 | %        |   |   | 837   |          |  |  | 25.8 | %     |   |  | 1,418 |       |  |  | 28.8 | %    
|Italy                            |                                             |               | 156 |          |  |      | 8.2  | %        |   |   | 201   |          |  |  | 6.2  | %     |   |  | 197   |       |  |  | 4.0  | %    
|Other                            |                                             |               | 512 |          |  |      | 27.0 | %        |   |   | 757   |          |  |  | 23.3 | %     |   |  | 1,170 |       |  |  | 23.8 | %    
|                                 |                                             |               |     |          |  |      |      |          |   |   |       |          |  |  |      |       |   |  |       |       |  |  |      |      
|                                 | Total Europe, Middle East and Africa (EMEA) |               |     | 1,168    |  |      |      | 61.6     | % |   |       | 1,795    |  |  |      | 55.3  | % |  |       | 2,785 |  |  |      | 56.6  | %
|United States                    |                                             |               | 519 |          |  |      | 27.4 | %        |   |   | 1,064 |          |  |  | 32.7 | %     |   |  | 1,560 |       |  |  | 31.7 | %    
|Central and Latin America (CALA) |                                             |               | 62  |          |  |      | 3.3  | %        |   |   | 118   |          |  |  | 3.7  | %     |   |  | 229   |       |  |  | 4.7  | %    
|Other                            |                                             |               | 15  |          |  |      | 0.8  | %        |   |   | 39    |          |  |  | 1.2  | %     |   |  | 16    |       |  |  | 0.3  | %    
|                                 |                                             |               |     |          |  |      |      |          |   |   |       |          |  |  |      |       |   |  |       |       |  |  |      |      
|                                 | Total Americas                              |               |     | 596      |  |      |      | 31.4     | % |   |       | 1,221    |  |  |      | 37.6  | % |  |       | 1,805 |  |  |      | 36.7  | %
|Asia-Pacific (APAC)              |                                             |               | 132 |          |  |      | 7.0  | %        |   |   | 230   |          |  |  | 7.1  | %     |   |  | 331   |       |  |  | 6.7  | %    
|                                 |                                             |               |     |          |  |      |      |          |   |   |       |          |  |  |      |       |   |  |       |       |  |  |      |      
|                                 | Total revenues                              |               |     | 1,896    |  |      |      | 100.0    | % |   |       | 3,246    |  |  |      | 100.0 | % |  |       | 4,921 |  |  |      | 100.0 | %
|                                 |                                             |               |     |          |  |      |      |          |   |   |       |          |  |  |      |       |   |  |       |       |  |  |      |      

Approximately 37%, 24% and 28% of our fiscal 2003
revenues were made in Sterling, Euros and U.S. dollars,
respectively as compared with 33%, 21% and 31%, respectively in
fiscal 2002, and 39%, 20% and 31%, respectively in fiscal 2001.

The average currency exchange rates for the Euro
to the Sterling were 1.55, 1.63 and 1.63 in fiscal 2003, 2002
and 2001, respectively. The average currency exchange rates for
the U.S. dollar to the Sterling were 1.55, 1.43 and 1.48 in
fiscal 2003, 2002 and 2001, respectively.



| |                                             
| | --------------------------------------------
| | Comparison of fiscal 2003 to fiscal
    2002

Total revenues of £1,896 million in
fiscal 2003 reflected a decrease of £1,350 million or
42% as compared with £3,246 million in fiscal 2002.
This decrease, observed across all major geographic zones and
product lines, was primarily the result of continued reduced
demand in the global market for telecommunications equipment and
services, resulting in lower sales in our Network Equipment and
Network Services segments. Sales in our Capital segment have
also declined substantially since the previous year as a result
of business disposals and, in particular, the disposal of
Marconi Applied Technologies in fiscal 2003 and Marconi Commerce
Systems in fiscal 2002.

Europe, the Middle East, and Africa
(EMEA) and the United States are our primary markets
on a geographic basis. The majority of our revenues in the EMEA
region are generated by our Optical Networks business, while
revenues in the United States are primarily generated by our
access, Outside Plant and Power (OPP) and Broadband
Routing and Switching (BBRS) businesses. See the
detailed segmental discussion and analysis below.

Revenues in EMEA, of £1,168 million,
fell by £627 million or 35% as compared to
£1,795 million in fiscal 2002. A large proportion of
this decline related to Optical Networks as telecom operators
have maximized utilization in their existing networks to the
detriment of new network build. Other types of Network Equipment
sales also featured significant declines throughout EMEA,
compared to the previous year, in particular access systems in
the German market. Sales of Network Services in EMEA also fell
from the previous year though were comparatively more robust
than Network Equipment sales largely as a result of the phasing
of long-term service contracts, particularly in the Middle East
and the U.K.

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Revenues in the U.S., of £519 million,
fell by £545 million or 51% in fiscal 2003 as compared
to £1,064 million in fiscal 2002. A large proportion
of the reduction related to the Outside Plant and Power
business. As in EMEA, the poor general market conditions have
led to substantial reductions in capital expenditure by U.S.
telecom operators. U.S. sales of Optical Networks in the
year amounted to only £4 million following the
Groups decision to cease development and manufacture of
its SONET product range in April 2002.

Revenues in CALA also witnessed a significant
regional reduction in sales as they fell by
£56 million or 47% in fiscal 2003 to
£62 million as compared to £118 million in
fiscal 2002. Sales were down across all products and service
activities as a result of the deterioration in economic
conditions and currency exchange rates compared to the prior
year period and the consequent reductions in capital expenditure
by most of the major telecom operators in the region.

Revenues in APAC, of £132 million, fell
by £98 million or 43% in fiscal 2003 as compared to
£230 million in fiscal 2002. The main area of decline
was Optical Networks, and this was mainly as a result of the
lower levels of sales recorded in China following the completion
of large network build projects in the region in fiscal 2002.
There have also been delays to certain major build projects by a
number of the Groups Chinese customers.



| |                                             
| | --------------------------------------------
| | Comparison of fiscal 2002 to fiscal
    2001

Total revenues of £3,246 million in
fiscal 2002 decreased by £1,675 million, or 34%, as
compared to £4,921 million in fiscal 2001. This
decrease was recorded across all of our major geographic regions
and was primarily the result of reduced demand in the overall
telecommunications industry where capital expenditure was
reduced in fiscal 2002 compared to the levels reported in fiscal
2001. Market conditions in the communications market continued
to deteriorate throughout fiscal 2002, with the high levels of
telecommunications operators capital investment in the
latter part of the 1990s having proved unsustainable. The
combination of a growing number of operators competing for the
same customers, overly optimistic expectations for demand
growth, and technological improvements contributed to an
oversupply of bandwidth. As a result, in calendar year 2001
capital expenditure fell significantly among wire line operators
around the world as they focused on their own profitability and
cash generation. Every supplier in the communications market was
affected by the rapid downturn in demand for telecommunications
equipment. The speed of the decline meant that our revenues
declined faster than the corresponding cost of goods sold and
operating expenses could be reduced.

The decrease in revenues in the U.K. of
£581 million or 41% and other countries in the EMEA
region of £409 million or 30% in fiscal 2002 compared
to fiscal 2001 was broadly in line with the declining market
trend for SDH, the digital transmission standard used throughout
Europe. However, this was exacerbated by the more rapid decrease
in capital expenditure by our major incumbent customers, for
example BT, compared to other operators. This reduction was less
pronounced in the other EMEA countries as compared to the U.K.
as spending by mainly European operators remained resilient.
Access Systems revenues also suffered as legacy contracts were
completed and European customers moved away from narrowband
products. The decline was partially offset by a slight increase
in revenue from maintenance contracts within Network Services.
See the further segmental discussion and analysis below.

This decline in revenues in the Americas of
£584 million or 32% in fiscal 2002 compared to fiscal
2001 was primarily due to the decline in sales of access
products, which resulted from a general downturn in customer
spending and a switch of capital expenditures to broadband
access products. The reduction in Network Equipment revenues
also had a knock-on effect on Network Services revenues. See the
detailed segmental discussion and analysis below.

43



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| |             
| | ------------
| | Gross margin



| |                                             
| | --------------------------------------------
| | Comparison of fiscal 2003 to fiscal
    2002

Gross margin of £374 million in fiscal
2003 reflects an increase of £425 million as compared
to (£51) million in fiscal 2002. Inventory write-downs
and other charges negatively and significantly affected gross
margin in fiscal 2002, with approximately £647 million
related to inventory write-downs and other charges and an
additional £158 million related to manufacturing
outsourcing agreements recorded in fiscal 2002. The continuing
deterioration in market conditions resulted in an additional
£25 million write-down of inventory in fiscal 2003
relative to slow moving and obsolete inventories.

Excluding these charges of £805 million
in fiscal 2002 and £25 million in fiscal 2003, gross
margin declined £355 million or 47% in fiscal 2003 as
compared to fiscal 2002. This decline resulted primarily from
lower sales volumes, particularly for Network Equipment. This
was compounded by an unfavorable sales mix where the relatively
lower gross margin services business became a higher proportion
of the total sales in fiscal 2003. Additionally price erosion
had an impact on gross margin, particularly in the European and
APAC Network Equipment areas. Partially offsetting these impacts
to gross margin were significant cost savings achieved during
fiscal 2003 in both the Network Equipment and Network Services
segments. These cost savings principally resulted from headcount
reductions and facility closures.



| |                                             
| | --------------------------------------------
| | Comparison of fiscal 2002 to fiscal
    2001

Gross margin of (£51) million in fiscal
2002 reflects a decrease of £1,938 million, or 102.7%,
as compared to £1,887 million in fiscal 2001. As noted
above, inventory and other charges negatively and significantly
affected gross margins in fiscal 2002, with approximately
£647 million related to inventory write-downs and
other charges and £158 million related to
manufacturing outsourcing agreements. Of the
£647 million in inventory and other charges,
£556 million represented provisions for slow-moving
and obsolete inventory against a number of product lines,
primarily Optical Networks products, and £91 million
was recorded related to supplier commitments. Of the
£158 million charge relative to outsourcing
arrangements, £127 million represents additional costs
incurred as a result of our decision in fiscal 2002 to outsource
certain manufacturing operations to Jabil Circuit, Inc., with
the remaining balance of £31 million related to
obligations for equipment leasing and supply contracts under
minimum purchase agreements, which we committed to in fiscal
2002 as part of our operational reorganization. Excluding this
charge of £805 million in fiscal 2002, gross margins
declined £1,133 million or 60% in fiscal 2002 as
compared with fiscal 2001.

The Network Equipment and Network Services
segments contributed approximately £1.1 billion, or
57%, of the decline in gross margins experienced in fiscal 2002,
as compared with fiscal 2001. The lower gross margins were
primarily a result of the deterioration in sales volumes
discussed above and an unfavorable product mix in fiscal 2002 as
compared with 2001. As a strong indication of this mix swing,
the relatively lower gross margins services business represented
35% of the combined Network Equipment and Network Services
revenue in fiscal 2002 as opposed to only 23% in fiscal 2001. In
addition, the speed of this deterioration in revenues was more
rapid than our ability to re-scale the cost base of our
business, which contributed further to reduced gross margins.
Businesses sold in fiscal 2002, including our commerce systems
and optical components businesses, resulted in an additional
£57 million reduction in gross margins in fiscal 2002
as compared with fiscal 2001.



| |                   
| | ------------------
| | Operating expenses



| |                                                 
| | ------------------------------------------------
| | Selling, general and administrative
    expenses



| |                                             
| | --------------------------------------------
| | Comparison of fiscal 2003 to fiscal
    2002

Selling, general and administrative expenses of
£356 million, or 18.8% of revenues, in fiscal 2003,
declined by £480 million or 57% compared with
£836 million, or 25.8% of revenues, in fiscal 2002. We
achieved significant reductions in annual expenditures through
focused headcount reductions, organization consolidation, site
rationalization (including the relocation of our U.K. corporate
headquarters) and closure

44



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##### Table of Contents



of sales offices worldwide. A reduced level of
discretionary marketing spend also contributed to lower costs in
fiscal 2003. We achieved significant savings across
substantially all categories of selling, general and
administrative expense in fiscal 2003 as compared with fiscal
2002.




| |                                             
| | --------------------------------------------
| | Comparison of fiscal 2002 to fiscal
    2001

Selling, general and administrative expenses of
£836 million, or 25.8% of revenues, in fiscal 2002
increased £53 million or 7% as compared with
£783 million, or 15.9% of revenues, in fiscal 2001. In
fiscal 2002, we recorded a provision for doubtful accounts of
£175 million in response to the deteriorating
telecommunications market conditions, which affected the
creditworthiness of some of our customers. Offsetting this
provision of £175 million were reductions in expense
in fiscal 2002, which we achieved primarily through headcount
reductions. The increase in selling, general and administrative
expenses in fiscal 2002 as a percentage of revenues is primarily
the result of the decline in our revenues, which was more rapid
than our ability to re-scale the cost base of our business.
Additionally, offsetting selling, general and administrative
expenses in fiscal 2001 were a legal claim settlement and an
adjustment of insurance-related obligations. In addition,
charges of £26 million related to compensatory stock
option plans increased £19 million in fiscal 2002,
compared to a charge of £7 million in fiscal 2001.



| |                         
| | ------------------------
| | Research and development



| |                                             
| | --------------------------------------------
| | Comparison of fiscal 2003 to fiscal
    2002

Research and development expenses of
£290 million, or 15.3% of revenues, in fiscal 2003
decreased £235 million or 44.8% as compared with
£525 million or 16.2% of revenues in fiscal 2002. The
majority of the cost savings have been achieved as a result of
headcount reductions and significant site rationalization,
consolidation and closure initiatives, particularly in Europe,
the U.S., Canada and Israel. Other factors contributing to the
overall reduction in R&D expenditure included lower levels
of third party and materials spend, continued reductions in the
level of depreciation as a result of the write-down of
development and test models relating to well-established or
discontinued products and lower levels of capital expenditures.
Optical Networks remains the key focus of our R&D
investment, accounting for 40% of total Network Equipment and
Network Services R&D expenses in fiscal 2003 as compared
with 34% of total Network Equipment and Network Services R&D
expenses in fiscal 2002. Major recent programs include the
development and launch of our new high capacity SDH platform
(MSH2K) and further enhancements to the data handling capacity
of our next generation low capacity SDH platform (SMA
Series 4). Our access product portfolios in North America
and Europe have been streamlined during fiscal 2003. As a
result, our North American and European Access R&D
activities are now primarily focused on programs relating to our
new multi-service access node, the Access Hub, and our
class 5 SoftSwitch as well as the continued development of
our Fixed Wireless Access range. European Access, North American
Access and BBRS accounted for 19%, 5% and 23% of Network
Equipment and Network Services R&D spend in fiscal 2003 as
compared with 22%, 9%, and 23% of Network Equipment and Network
Services R&D spend in fiscal 2002, respectively, with
greater than 50% of these expenditures focused on the further
development of our multi-service core switch-router, the
BXR-48000. Other ongoing R&D initiatives include further
enhancements to our ASX-1000 and ASX-4000 product ranges. The
remaining 13% of our R&D expenses incurred in fiscal 2003
related mainly to OPP and wireless software developments within
Network Services.



| |                                             
| | --------------------------------------------
| | Comparison of fiscal 2002 to fiscal
    2001

R&D expenses of £525 million, or
16.2% of revenues, in fiscal 2002 increased
£19 million, or 3.8%, as compared with
£506 million, or 10.3% of revenues, in fiscal 2001.
The increase was primarily a result of the BBRS and Optical
Networks businesses, which increased by £22 million
and £27 million, respectively, in fiscal 2002 as
compared with fiscal 2001. These increases were driven by the
development and launch of key products such as the
BXR 48000 multi-service core switch, new additions to the
SmartPhoniX range of equipment, notably ultra long haul and
metro DWDM product ranges, as well as further development of SDH
technology to produce a fourth generation SDH multiplexer.
Partially offsetting these increases was a

45



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##### Table of Contents



£37 million reduction in research and
development expenditure within our access business, which was
part of our strategy to increase focus on certain broadband
access product lines, primarily fixed wireless access and the
recently launched access hub. We terminated expenditure on areas
such as Skyband WipLL.




| |                         
| | ------------------------
| | Amortization of goodwill



| |                                             
| | --------------------------------------------
| | Comparison of fiscal 2003 to fiscal
    2002

Effective April 1, 2002, we discontinued
amortizing goodwill upon the adoption of Statement of Financial
Accounting Standard No. (SFAS) 142. As a
result, there was no amortization expense in fiscal 2003 as
compared with £393 million or 12.1% of revenues in
fiscal 2002.



| |                                             
| | --------------------------------------------
| | Comparison of fiscal 2002 to fiscal
    2001

Goodwill amortization expense of
£393 million or 12.1% of revenues in fiscal 2002
decreased £212 million or 35% as compared with
£605 million or 12.3% of revenues in fiscal 2001. The
decrease was primarily a result of impairments recorded in
fiscal 2002, which reduced the carrying value of goodwill and
the resulting amortization expense.

Amortization
of intangibles



| |                                             
| | --------------------------------------------
| | Comparison of fiscal 2003 to fiscal
    2002

Intangible asset amortization expense of
£44 million or 2.3% of revenues in fiscal 2003
increased by £1 million, or 2.3%, as compared with
intangible assets amortization expense of £43 million
or 1.3% of revenues in fiscal 2002.



| |                                             
| | --------------------------------------------
| | Comparison of fiscal 2002 to fiscal
    2001

Intangible asset amortization expense of
£43 million or 1.3% of revenues in fiscal 2002
increased by £1 million, or 2.4%, as compared with
£42 million or 0.8% of revenues in fiscal 2001.



| |                               
| | ------------------------------
| | Business restructuring charges



| |                                             
| | --------------------------------------------
| | Comparison of fiscal 2003 to fiscal
    2002

Business restructuring charges of
£221 million or 11.7% of revenues in fiscal 2003
decreased £175 million or 44% as compared to
£396 million or 12.2% of revenues in fiscal 2002. Of
the £221 million amount recorded in fiscal 2003,
£128 million related to employee severance,
£36 million to site rationalization and
£64 million to advisors fees incurred and accrued to
complete our financial restructuring. These charges were
partially offset by the favorable settlement of litigation
relating to an information technology systems implementation.

46



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The following table summarizes the activity
relative to business restructuring charges reflected as charges
to operating expenses in fiscal 2003 and the balances remaining
in other liabilities at March 31, 2003:

|                              |                                                 |            |  |           |     |          |  |            |     |           |  |     |     |  |  |    |    |  |  |    |    | 
|----------------------------- | ----------------------------------------------- | ---------- |  | --------- | --- | -------- |  | ---------- | --- | --------- |  | --- | --- |  |  | -- | -- |  |  | -- | -- | 
|                              |                                                 |            |  |           |     |          |  |           
|                              |                                                 |            |  |           |     | Utilized |  |           
|                              |                                                 | Balance at |  | Charged   |     |          |  | Balance at
|                              |                                                 | March 31,  |  | in fiscal |     | Net cash |  | Non cash   |     | March 31,
|(in millions)                 |                                                 | 2002       |  | 2003      |     | payments |  | Movement   |     | 2003     
|                              |                                                 |            |  |           |     |          |  |            |     |          
|                              |                                                 | £          |  | £         |     | £        |  | £          |     | £        
|Business restructuring costs: |                                                 |            |  |           |     |          |  |            |     |           |  |     |     |  |  |    |    |  |  |   
|                              | Employee severance                              |            |  | 30        |     |          |  | 128        |     |           |  | 148 |     |  |  |   |    |  |  | 10 |   
|                              | Site rationalization                            |            |  | 40        |     |          |  | 36         |     |           |  | 30  |     |  |  |   |    |  |  | 46 |   
|                              | Contractual commitments and other restructuring |            |  | 13        |     |          |  |           |     |           |  |    |     |  |  | 10 |    |  |  | 3  |   
|                              | Systems implementation                          |            |  | 24        |     |          |  | (7         | )   |           |  | 17  |     |  |  |   |    |  |  |   |   
|                              | Advisor fees                                    |            |  |          |     |          |  | 64         |     |           |  | 63  |     |  |  |   |    |  |  | 1  |   
|                              |                                                 |            |  |           |     |          |  |            |     |           |  |     |     |  |  |    |    |  |  |   
|                              |                                                 | Total      |  |           | 107 |          |  |            | 221 |           |  |     | 258 |  |  |    | 10 |  |  |    | 60 | 
|                              |                                                 |            |  |           |     |          |  |            |     |           |  |     |     |  |  |    |    |  |  |   



|  |                   
|- | ------------------
| | Employee severance

As a consequence of our objective to further
reduce our annual operating cost base, we recorded a charge of
£128 million during fiscal 2003 associated with
redundancy payments for approximately 7,500 employees.
Approximately 500 employees are expected to leave in fiscal
2004. We expect to make cash payments in fiscal 2004 with
respect to the balance of the unused charged amount remaining at
March 31, 2003.



|  |                     
|- | --------------------
| | Site rationalization

We recorded a charge of £36 million in
fiscal 2003 relative to site rationalization representing
additional costs associated with closing and consolidating
various sites around the world as part of our business
reorganization. In fiscal 2002, we recorded a charge of
£40 million. These site closures and consolidations
were all commenced prior to December 15, 2002.



|  |                                                    
|- | ---------------------------------------------------
| | Contractual commitments and other
    restructuring

During fiscal 2002, we recorded a charge of
£46 million in respect of other costs associated with
our business reorganization program. We made cash payments of
£26 million during fiscal 2002 and recorded a non-cash
charge of £7 million, leaving a balance at
March 31, 2002 of £13 million. Of this balance,
non-cash costs of £10 million have been charged during
fiscal 2003 leaving a balance of £3 million at
March 31, 2003. We expect to make cash payments in fiscal
2004 with respect to the balance of the unused charged amount
remaining at March 31, 2003.



|  |                       
|- | ----------------------
| | Systems implementation

As discussed below, we had planned to implement a
new global information technology system. However, in light of
our revised trading outlook and our continued focus on cost
reduction, we terminated the implementation in fiscal 2002.
During fiscal 2003, we revised our previous estimate of the
overall costs, leading to the release of £7 million
from the amounts accrued in fiscal 2002.



|  |             
|- | ------------
| | Advisor fees

The charge of £64 million that we
recorded in fiscal 2003 relative to advisor fees represents
charges from our external advisors with respect to our financial
restructuring. We made cash payments totaling
£63 million during fiscal 2003 and a balance of
£1 million remains at March 31, 2003. We expect
to make cash payments in fiscal 2004 with respect to the balance
of the unused charged amount remaining at

47



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March 31, 2003. Additional amounts of
approximately £39 million are expected to be expensed
as incurred during fiscal 2004.




| |                                             
| | --------------------------------------------
| | Comparison of fiscal 2002 to fiscal
    2001

Business restructuring charges were
£396 million or 12.2% of revenues in fiscal 2002 as
compared with £nil in fiscal 2001. As a result of the
sudden and significant downturn in market conditions in the
global telecommunications markets in 2001, in the first half of
fiscal 2002 we announced plans to reorganize our group into the
two main reporting divisions (Core and Capital), reduce our debt
and reduce our operating cost base. As a result, in fiscal 2002
approximately 10,000 employees left the group under voluntary
redundancy arrangements, we closed and consolidated various
sites around the world, and we discontinued implementation of a
new information technology system.

Of the £396 million recorded in fiscal
2002, charges of £237 million related to employee
severance, £40 million related to site
rationalization, £46 million related to contractual
commitments and other restructuring charges and
£73 million related to costs for the discontinuance of
the information technology systems implementation.

The following table summarizes the activity
relative to business restructuring charges reflected as charges
to operating expenses in fiscal 2002 and the balances remaining
in other liabilities at March 31, 2002:

|                              |                                                 |             |  |          |     |            |  |           |     |  |  |   |   |  |  |    |     | 
|----------------------------- | ----------------------------------------------- | ----------- |  | -------- | --- | ---------- |  | --------- | --- |  |  | - | - |  |  | -- | --- | 
|                              |                                                 |             |  |          |     |           
|                              |                                                 |             |  | Utilized |     |           
|                              |                                                 | Charged     |  |          |     | Balance at
|                              |                                                 | in          |  | Net cash |     | Non cash   |  | March 31,
|(in millions)                 |                                                 | fiscal 2002 |  | payments |     | movement   |  | 2002     
|                              |                                                 |             |  |          |     |            |  |          
|                              |                                                 | £           |  | £        |     | £          |  | £        
|Business restructuring costs: |                                                 |             |  |          |     |            |  |           |     |  |  |   |   |  |  |   
|                              | Employee severance                              |             |  | 237      |     |            |  | 207       |     |  |  |  |   |  |  | 30 |    
|                              | Site rationalization                            |             |  | 40       |     |            |  |          |     |  |  |  |   |  |  | 40 |    
|                              | Contractual commitments and other restructuring |             |  | 46       |     |            |  | 26        |     |  |  | 7 |   |  |  | 13 |    
|                              | Systems implementation                          |             |  | 73       |     |            |  | 49        |     |  |  |  |   |  |  | 24 |    
|                              |                                                 |             |  |          |     |            |  |           |     |  |  |   |   |  |  |   
|                              |                                                 | Total       |  |          | 396 |            |  |           | 282 |  |  |   | 7 |  |  |    | 107 | 
|                              |                                                 |             |  |          |     |            |  |           |     |  |  |   |   |  |  |   



|  |                   
|- | ------------------
| | Employee severance

In fiscal 2002, we recorded a charge of
£237 million to reflect the cost associated with
voluntary redundancy payments for approximately
10,000 employees. We made cash payments of
£207 million in fiscal 2002.



|  |                     
|- | --------------------
| | Site rationalization

The charge of £40 million in respect of
site rationalization in fiscal 2002 represents costs associated
with closing and consolidating various sites around the world as
part of our business reorganization.



|  |                                                    
|- | ---------------------------------------------------
| | Contractual commitments and other
    restructuring

During fiscal 2002, we recorded a charge of
£46 million in respect of other costs associated with
our business reorganization program. We made cash payments of
£26 million during fiscal 2002 and recorded a non-cash
charge of £7 million, leaving a balance at
March 31, 2002 of £13 million.



|  |                       
|- | ----------------------
| | Systems implementation

During fiscal 2002, we planned to implement a new
global information technology system. In light of our revised
trading outlook and our continued focus on costs reduction, we
terminated the implementation. The £73 million charge
represents £43 million of capitalized external
consultancy costs associated with the

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##### Table of Contents



implementation, £24 million of hardware
and software costs expensed, and £6 million of other
associated costs of the project. We made cash payments of
£49 million in fiscal 2002.




| |                                
| | -------------------------------
| | Impairment of long-lived assets

Comparison of
fiscal 2003 to fiscal 2002

During fiscal 2003, we recorded a charge of
£69 million related to the impairment of property,
plant and equipment as compared with a charge of
£154 million in fiscal 2002. There was no impairment
of goodwill or intangibles in fiscal 2003 as compared with a
charge of £3,814 million in fiscal 2002.



|                                         | 
|---------------------------------------- | 
|Comparison of fiscal 2002 to fiscal 2001 | 

During fiscal 2002, we recorded a charge for the
impairment of assets of £3,814 million related to
goodwill and intangibles and £154 million related to
property, plant and equipment, primarily related to Fore Systems
Inc. (£2,152 million), Reltec Corporation
(£951 million) and Metapath Software International,
Inc. (£336 million). The balance of the charge of
£529 million related to a number of smaller,
prior-year acquisitions, none individually significant. We did
not record any charges for asset impairment in fiscal 2001.



| |                                    
| | -----------------------------------
| | (Loss)/gain on sales of investments



|                                         | 
|---------------------------------------- | 
|Comparison of fiscal 2003 to fiscal 2002 | 

We recorded a loss on the sale of investments of
£5 million or 0.3% of revenues in fiscal 2003 as
compared with a gain of £81 million or 2.5% of
revenues in fiscal 2002. In fiscal 2002, we recognized gains of
£282 million on the disposal of our investments
discussed below. These gains were partially offset by charges of
£154 million also discussed below.



| |                                             
| | --------------------------------------------
| | Comparison of fiscal 2002 to fiscal
    2001

Gains on the sale of investments of
£81 million or 2.5% of revenues in fiscal 2002
decreased £394 million or 82.9% as compared with
£475 million or 9.7% of revenues in fiscal 2001. In
fiscal 2002, we recognized gains on the disposal of our
investments in Lottomatica S.p.A., General Domestic Appliances,
Siemens Telcommunications Pty Ltd, ipsaris Limited and our
remaining stake in Alstom of approximately
£282 million in total. These gains were partially
offset by charges of £154 million related to other
investments including NetDecisions Holdings Limited, Easynet
Group plc and Atlantic Telecom Group plc. In fiscal 2001, we
recognized a net gain of £390 million on the disposal
of an 18% interest in Alstom. In addition, we recognized net
gains in the amount of £71 million on businesses
disposed of in fiscal 2001 including Avery Berkel and Woods Air
Movement.



| |                          
| | -------------------------
| | Impairment of investments

We recorded a charge of £40 million or
2.1% of revenues in fiscal 2003 as compared with £nil in
fiscal 2002. This charge related to declines in the value of
equity securities, primarily our holdings in Arraycom and
Bookham Technology, of £38 million that we judged to
be other than temporary and a charge of £2 million
relating to the carrying value of investments in affiliates.



| |                                           
| | ------------------------------------------
| | Provision for related party
    receivable

We recorded a provision of £299 million
or 15.8% of revenues in fiscal 2003 related to amounts due to us
from Marconi plc, which we did not consider to be
recoverable due to the terms of our financial restructuring.

49



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| |                      
| | ---------------------
| | Interest expense, net



| |                                             
| | --------------------------------------------
| | Comparison of fiscal 2003 to fiscal
    2002

Net interest expense of £320 million or
16.8% of revenues in fiscal 2003 increased £82 million
or 34% as compared to £238 million or 7.3% of revenues
in fiscal 2002. The charge in fiscal 2003 related primarily to
interest on our bonds and syndicated bank debt of
£289 million. This amount included
£115 million of accrued but unpaid interest that was
subsequently included as claims in our scheme of arrangement and
compromised in our financial restructuring. The interest charges
were partly offset by net interest received on deposits,
insurance and a tax refund.



| |                                             
| | --------------------------------------------
| | Comparison of fiscal 2002 to fiscal
    2001

Net interest expense of £238 million or
7.3% of revenues in fiscal 2002 increased by
£87 million, or 57.6%, from £151 million or
3.1% of revenues in fiscal 2001. This increase was the result of
higher average borrowings during fiscal 2002 compared to fiscal
2001 and a full year of interest charges related to our yankee
bonds in fiscal 2002. Interest expense in both fiscal 2002 and
fiscal 2001 was primarily related to our euro and yankee bonds,
which we issued in March 2000 and September 2000, respectively.



| |                   
| | ------------------
| | Income tax expense



| |                                             
| | --------------------------------------------
| | Comparison of fiscal 2003 to fiscal
    2002

In fiscal 2003, our effective income tax rate was
16.5% compared to the U.K. statutory rate of 30%. This
difference was primarily due to net non-deductible expenses
(£138 million) such as business restructuring charges
and provisions for a related party receivable. This amount was
partially offset by the release of tax provisions in respect of
prior years following progress to resolve historic U.S. and U.K.
tax issues and audits. In addition, the valuation allowance
recorded against losses and other deferred tax assets increased
by £126 million to £841 million.

In comparison, the fiscal 2002 effective income
tax rate was negative 7.2% compared to the U.K. statutory rate
of 30%. The effective income tax rate in fiscal 2002 is
explained below.



| |                                             
| | --------------------------------------------
| | Comparison of fiscal 2002 to fiscal
    2001

In fiscal 2002, the effective income tax rate was
negative 7.2% compared to the U.K. statutory rate of 30%. This
was primarily due to non-deductible goodwill amortization and
goodwill impairment charges of £1,276 million and a
valuation allowance recorded against losses and other deferred
tax assets of £715 million. These amounts were
partially offset by the benefit of non-UK tax rate differences
(£177 million), taxes recorded on items no longer
considered permanently reinvested (£63 million), and
other non taxable items (£242 million) such as book
gains versus taxable gains and a U.S. GAAP difference relating
to the treatment of realized gains and losses on the sale of
investments that attracts no additional tax. The fiscal 2001
effective rate was 6.3% compared to the U.K. statutory rate of
30%. The main reason for the difference was a book gain versus
taxable gain (£100 million), income from investments,
which attracts no additional U.K. tax (£10 million),
and a benefit for the impact of non-UK tax rate differences
(£33 million). These amounts were partially offset by
the tax effect of non-deductible goodwill amortization
(£93 million) and taxes recorded on items no longer
considered permanently reinvested (£39 million).



| |                             
| | ----------------------------
| | Equity in loss of affiliates



| |                                             
| | --------------------------------------------
| | Comparison of fiscal 2003 to fiscal
    2002

We recognized a loss on equity in loss of
affiliates of £62 million or 3.3% of revenues in
fiscal 2003 as compared with a loss of £196 million or
6.0% of revenues in fiscal 2002. This loss in fiscal 2003
relates primarily to losses in Easynet (£22 million)
and losses in joint ventures of £40 million. The loss
of £196 million or 6.0% of revenues in fiscal 2002 was
primarily a result of our share of the net losses in

50



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Easynet. As at December 31, 2002, Easynet
had net liabilities under U.S. GAAP of which our share was
approximately £40 million. Since we have no commitment
to provide further financing to Easynet, we discontinued
recording our share of Easynets losses once we reduced the
carrying value of our investment to £nil.




| |                                             
| | --------------------------------------------
| | Comparison of fiscal 2002 to fiscal
    2001

We recognized a loss on equity in loss of
affiliates of £196 million or 6% of revenues in fiscal
2002 as compared with a loss of £137 million or 2.8%
of revenues in fiscal 2001. In fiscal 2002, the equity in loss
of affiliates recognized was primarily our share of the net
losses in Easynet, which we acquired in July 2001. In fiscal
2001, the equity in loss of affiliates was primarily due to a
loss of £146 million, representing our share of the
losses in Alstom at September 30, 2000, the date for which
the most recent U.S. GAAP financial data was available
prior to our disposal of the majority of our holdings in Alstom
in February 2001.



| |                  
| | -----------------
| | Minority interest

In fiscal 2003, minority interest was £nil
representing no change from fiscal 2002. In fiscal 2002,
minority interest of £nil decreased by £3 million
from £3 million in fiscal 2001. The decrease resulted
from the recognition of the net losses in businesses in which
there was a minority shareholding.



| |                                                          
| | ---------------------------------------------------------
| | Cumulative effect of changes in accounting
    principles

At March 31, 2001, the Marconi Employee
Trust had entered into various agreements to purchase shares of
Marconi plcs common stock from various counter parties in
order to satisfy market purchase obligations related to share
option plans. The contracts were recorded in temporary equity at
an amount equivalent to the net cash settlement of the shares
outstanding under the contracts at March 31, 2001. On
June 30, 2001, we adopted Emerging Issues Task Force (EITF)
No. 00-19, Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a
Companys Own Stock, which requires such instruments
to be marked to market and the obligations recorded as a
liability. As a result, we recorded a cumulative effect of
change in accounting principle of £240 million related
to the loss on such instrument as of the implementation date in
fiscal 2002 (June 30, 2001), which was previously recorded
within additional paid in capital.

Subsequent to the implementation date, we
recorded additional market losses of £95 million from
the implementation date up to March 31, 2002 in other
expenses in the statement of operations. There were no
additional market losses recognized in fiscal 2003.



| |                                      
| | -------------------------------------
| | Results of operations 
    Segmental

The requirements of U.S. GAAP applied to our
group have resulted in us preparing our discussion and analysis
of segment results using information prepared in accordance with
U.K. GAAP. The U.S. Financial Accounting Standards Board
standard  Statement of Financial Accounting Standards
No.131  Disclosure about Segments of an Enterprise
and Related Information requires us to determine and
review our segments as reflected in the management information
systems reports that our managers use in making decisions. As we
are an English company and we prepare our consolidated statutory
financial statements under U.K. GAAP, our chief operating
decision maker evaluates our segment performance using U.K. GAAP
measures. Therefore, we have presented our discussion and
analysis of segment revenues and operating (loss)/profit below
based upon information prepared in accordance with U.K. GAAP.

A reconciliation of revenue and segment operating
(loss)/profit as reported under U.K. GAAP to the amounts
presented in accordance with U.S. GAAP is set out in note 9
of the notes to our consolidated financial statements contained
elsewhere herein.

51



---



##### Table of Contents





| |                                   
| | ----------------------------------
| | Segmental revenues (U.K.
    GAAP)

The following table presents our revenues by
product area in accordance with U.K. GAAP for the three
years ended March 31, 2003:

|                           |       |                                                           |       |          |       |      |      |          |     |   |       |          |       |  |      |      |     |   |       |       |       |  |      |      |       |  
|-------------------------- | ----- | --------------------------------------------------------- | ----- | -------- | ----- | ---- | ---- | -------- | --- | - | ----- | -------- | ----- |  | ---- | ---- | --- | - | ----- | ----- | ----- |  | ---- | ---- | ----- | -
|                           |       |                                                           |       |          |       |     
|                           |       | 2003                                                      |       | 2002     |       | 2001
|                           |       |                                                           |       |          |       |     
|                           |       |                                                           |       | % of     |       |      |      | % of     |     |   |       | % of    
|                           |       | £                                                         |       | revenues |       | £    |      | revenues |     | £ |       | revenues
|                           |       |                                                           |       |          |       |      |      |          |     |   |       |         
|                           |       |                                                          
|                           |       | (In millions)                                            
|Network Equipment:         |       |                                                           |       |          |       |      |      |          |     |   |       |          |       |  |      |      |     |   |       |       |       |  |      |     
|Optical Networks           |       |                                                           | 439   |          |       |      | 23.4 | %        |     |   | 737   |          |       |  | 26.6 | %    |     |   | 1,408 |       |       |  | 32.2 | %   
|BBRS                       |       |                                                           | 142   |          |       |      | 7.6  | %        |     |   | 209   |          |       |  | 7.5  | %    |     |   | 427   |       |       |  | 9.8  | %   
|European Access(1)         |       |                                                           | 258   |          |       |      | 13.8 | %        |     |   | 361   |          |       |  | 13.0 | %    |     |   |       |       |       |  |      |     
|North American Access(1)   |       |                                                           | 95    |          |       |      | 5.1  | %        |     |   | 121   |          |       |  | 4.4  | %    |     |   | 1,524 |       |       |  | 34.8 | %   
|Outside Plant & Power(1)   |       |                                                           | 140   |          |       |      | 7.5  | %        |     |   | 247   |          |       |  | 8.9  | %    |     |   |       |       |       |  |      |     
|Other Network Equipment(1) |       |                                                           | 57    |          |       |      | 3.0  | %        |     |   | 129   |          |       |  | 4.7  | %    |     |   |       |       |       |  |      |     
|                           |       |                                                           |       |          |       |      |      |          |     |   |       |          |       |  |      |      |     |   |       |       |       |  |      |     
|                           | Total |                                                           |       | 1,131    |       |      |      | 60.4     | %   |   |       | 1,804    |       |  |      | 65.1 | %   |   |       | 3,359 |       |  |      | 76.8 | %    
|Network Services:          |       |                                                           |       |          |       |      |      |          |     |   |       |          |       |  |      |      |     |   |       |       |       |  |      |     
|IC&M                       |       |                                                           | 370   |          |       |      | 19.7 | %        |     |   | 528   |          |       |  | 19.0 | %    |     |   | 656   |       |       |  | 15.0 | %   
|VAS                        |       |                                                           | 373   |          |       |      | 19.9 | %        |     |   | 441   |          |       |  | 15.9 | %    |     |   | 360   |       |       |  | 8.2  | %   
|                           |       |                                                           |       |          |       |      |      |          |     |   |       |          |       |  |      |      |     |   |       |       |       |  |      |     
|                           | Total |                                                           |       | 743      |       |      |      | 39.6     | %   |   |       | 969      |       |  |      | 34.9 | %   |   |       | 1,016 |       |  |      | 23.2 | %    
|                           |       |                                                           |       |          |       |      |      |          |     |   |       |          |       |  |      |      |     |   |       |       |       |  |      |     
|                           |       | Total Network Equipment and
    Network Services revenues |       |          | 1,874 |      |      |          | 100 | % |       |          | 2,773 |  |      |      | 100 | % |       |       | 4,375 |  |      |      | 100.0 | %
|Capital                    |       |                                                           | 40    |          |       |      |      |          |     |   | 390   |          |       |  |      |      |     |   | 540   |       |       |  |      |     
|Discontinued               |       |                                                           | 88    |          |       |      |      |          |     |   | 1,404 |          |       |  |      |      |     |   | 2,027 |       |       |  |      |     
|                           |       |                                                           |       |          |       |      |      |          |     |   |       |          |       |  |      |      |     |   |       |       |       |  |      |     
|Total revenues             |       |                                                           | 2,002 |          |       |      |      |          |     |   | 4,567 |          |       |  |      |      |     |   | 6,942 |       |       |  |      |     
|                           |       |                                                           |       |          |       |      |      |          |     |   |       |          |       |  |      |      |     |   |       |       |       |  |      |     



---



|    |                                                                                                                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In fiscal 2003, we realigned our Network
    Equipment businesses. As a result, comparative information for
    certain businesses is not available for fiscal 2001. For those
    businesses, changes from fiscal 2001 to fiscal 2002 are
    discussed below in the aggregate.



| |                                             
| | --------------------------------------------
| | Comparison of fiscal 2003 to fiscal
    2002



| |                  
| | -----------------
| | Network Equipment

Overall, Network Equipment revenues in fiscal
2003 of £1,131 million, or 60.4% of total Network
Equipment and Network Services revenues in fiscal 2003,
decreased £673 million or 37.3%, as compared with
£1,804 million or 65.1% of total Network Equipment and
Network Services revenues in fiscal 2002.



|  |                 
|- | ----------------
| | Optical Networks

Optical Networks is comprised of our range of SDH
and DWDM transmission equipment as well as our network
management systems. During fiscal 2003, 75% of Optical Network
sales were generated in EMEA, 18% in APAC, 6% in CALA and only
1% in the United States following our decision to cease the
development and manufacture of our SONET product range in April
2002.

Optical Networks revenues in fiscal 2003 were
£439 million, or 23.4% of total Network Equipment and
Network Services revenues in fiscal 2003, a decline of
£298 million or 40.4% compared with
£737 million, or 26.6% of total Network Equipment and
Network Services revenues in fiscal 2002. The main reason for
this decline was the fall in sales of SDH equipment as telecom
operators reoriented their reduced capital expenditure budgets
away from the core of their networks towards the access space.
Sales of SDH and, increasingly, next generation SDH products
have been concentrated on in-fill of existing networks,
particularly in the metro areas. Sales of DWDM have also
decreased largely due to the

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completion of major customer roll outs in the
previous year, particularly in Italy, with no significant new
deployments of DWDM equipment initiated by our customers during
the year.


EMEA accounted for over two thirds of the decline
in Optical Networks sales from fiscal 2002 to fiscal 2003. In
the U.K., the lower level of demand from BT has combined with
the financial difficulties faced by many second tier operators
to lead to a reduction in revenues. We expect that the continued
success of BTs broadband access campaign will over time
lead to increased traffic flows onto the core transmission
network and, in turn, to renewed spending in optical equipment.
Market volumes remained relatively stable in Italy although we
have experienced some increased pricing pressure in this
territory, while elsewhere in Europe major operators cut capital
expenditure budgets during fiscal 2003 as they continued to
focus on debt reduction.



|  |     
|- | ----
| | BBRS

BBRS is primarily comprised of sales of
multi-service products such as the ASX-4000 multi-service core
switch and the smaller ASX and TNX edge switches and a range of
legacy ATM switching and routing products designed for
enterprise customers. It also includes initial sales of our new
BXR-48000. BBRS service revenues are included in Network
Services. During fiscal 2003, 65% of BBRS equipment sales were
made in the U.S., 17% in EMEA, 13% in APAC and 5% in CALA.

BBRS revenues in fiscal 2003 were
£142 million or 7.6% of total Network Equipment and
Network Services revenues in fiscal 2003, a decline of
£67 million or 32% as compared to
£209 million or 7.5% of total Network Equipment and
Network Services revenues in fiscal 2002.

Sales in fiscal 2003 to the U.S. Federal
Government increased slightly compared to fiscal 2002, but sales
in the U.S. declined overall. This was a result of a lower
level of sales to enterprise customers as we have increased our
commercial and technical resources on the service provider
market, where capital expenditure constraints have reduced the
number of significant new business opportunities during the
current fiscal year. The U.S. Federal Government remains the
largest single customer of our BBRS equipment.



|  |                
|- | ---------------
| | European Access

Our European Access business is comprised of four
main sub-groupings: Fixed Wireless Access (33% of fiscal
2003 European Access revenues), Voice Systems (27%), Access
Hub (13%) and other country-specific mature access products
(27%). EMEA accounted for 84% of European Access revenues in
fiscal 2003, with APAC and CALA representing the balance of
revenues.

In fiscal 2003, European Access revenues of
£258 million or 13.8% of total Network Equipment and
Network Services decreased £103 million or 28.5% as
compared with revenues of £361 million or 13% of total
Network Equipment and Network Services in fiscal 2002.

Reductions in capital spending by a number of
European Access customers, particularly second-tier operators in
the United Kingdom and Germany, as well as rationalization of
our legacy product lines were the primary reasons behind this
decline. Sales of Voice Systems were down as a result of the
completion of a significant software upgrade in the final
quarter of the previous year, and sales of Fixed Wireless Access
fell as many European wireless operators deferred the roll-out
of 3G mobile networks. These reductions more than offset a
strong increase in sales of our new Access Hub product platform,
where we had already recorded a number of significant frame
contract wins, particularly in Italy and South Africa.



|  |                      
|- | ---------------------
| | North American Access

Our North American Access business comprises a
portfolio of copper and fiber based digital loop carrier
equipment designed specifically for the U.S. market. We are
currently managing this business for value and ultimately for
disposal. We expect to use net cash proceeds received from a
disposition to pay down our Notes. In fiscal 2003, North
American Access revenues of £95 million or 5.1% of
total Network

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Equipment and Network Services revenues declined
£26 million or 21% as compared with
£121 million or 4.4% of total Network Equipment and
Network Services revenues in fiscal 2002.




|  |    
|- | ---
| | OPP

OPP is comprised of sales of connection,
protection and enclosure products for the outside portion of
access networks as well as sales of power equipment to telecom
service providers and original equipment manufacturers. OPP
service revenues are included in Network Services. The
U.S. accounted for 91% of OPP equipment sales during fiscal
2003, with the balance generated in CALA. We are currently
managing this business for value and ultimately for disposal. We
expect to use all cash proceeds received from a disposition to
pay down our Notes.

In fiscal 2003, sales of OPP equipment amounted
to £140 million or 7.5% of total Network Equipment and
Network Services revenues, a decline of £107 million
or 43% compared with £247 million or 8.9% of total
Network Equipment and Network Services revenues in fiscal 2002.
This decline resulted from significant reductions in capital
spending by U.S. customers as well as the difficult market
conditions in CALA, particularly in the early part of fiscal 2003



|  |                        
|- | -----------------------
| | Other Network Equipment

Other Network Equipment is comprised primarily of
sales of our Interactive Systems activity as well as legacy
operations in APAC and EMEA. Revenues of £57 million
or 3.0% of total Network Equipment and Network Services revenues
in fiscal 2003 declined £72 million or 56% as compared
with £129 million or 4.7% of total Network Equipment
and Network Services revenues in fiscal 2002.

Network
Services

Network Services revenues of
£743 million or 39.6% of total Network Equipment and
Network Services revenues in fiscal 2003 decreased
£226 million or 23.3% as compared with
£969 million in fiscal 2002 or 34.9% of total Network
Equipment and Network Services revenues. EMEA and the
U.S. accounted for 66% and 29%, respectively, of the
Network Services revenues in fiscal 2003, while the balance was
split relatively equally between APAC and CALA.

IC&M

IC&M sales are directly related to the
installation, commissioning and maintenance portion of our
Network Equipment products. IC&M revenues in fiscal 2003
were £370 million or 19.7% of total Network Equipment
and Network Services revenues, a decline of
£158 million or 30% compared with
£528 million or 19% of total Network Equipment and
Network Services revenues in fiscal 2002. The primary reason for
the decline in revenues resulted from the lower Network
Equipment revenues in both EMEA and the U.S., discussed above.

VAS

During fiscal 2003, VAS revenues were comprised
of three main activities:



| |   |                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Integrated systems, which provided integrated
    network solutions to non-telecom customers including government,
    transport and utility organizations;
|
| |  | BBRS services; and                                                                                                                                         
|
| |  | Wireless services which, for reporting purposes,
    consolidates our wireless network planning activities worldwide.                                      

VAS revenues in fiscal 2003 were
£373 million or 19.9% of total Network Equipment and
Network Services revenues in fiscal 2003, a decline of
£68 million or 15% compared with
£441 million or 15.9% of total Network Equipment and
Network Services revenues in fiscal 2002. Almost 75% of the
decline in

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fiscal 2003 as compared to fiscal 2002 related to
sales generated by businesses disposed during fiscal 2003,
particularly Systems Management Specialists, Inc.


The proportionally lower reduction in revenues in
fiscal 2003 compared to many of the other areas of our total
Network Equipment and Network Services businesses is principally
due to the long-term project nature of this business and our
strong customer relationships outside the telecommunications
industry, including government agencies, selected large
enterprise customers and public utilities.

Capital

Total Capital revenue of £40 million in
fiscal 2003 decreased £350 million or 89.7% as compared
with £390 million in fiscal 2002. The decrease in
revenue is primarily related to discontinued operations with the
disposal of the GDA joint venture, which accounted for a
decrease of £257 million.

Comparison
of fiscal 2002 to fiscal 2001

Network
Equipment

Network Equipment revenues of
£1,804 million or 65.1% of total Network Equipment and
Network Services revenues in fiscal 2002 decreased by
£1,555 million, or 46.3%, as compared with
£3,359 million or 76.8% of total Network Equipment and
Network Services revenues in fiscal 2001.



| |   |                 
| | - | ----------------
| |  | Optical networks

Optical networks revenues of
£737 million or 26.6% of Network Equipment and Network
Services revenues in fiscal 2002 decreased by
£671 million, or 47.7% as compared to
£1,408 million or 32.5% of Network Equipment and
Network Services revenues in fiscal 2001. The decrease was due
to the significant fall in sales of SDH equipment, which
accounted for around 85% of total optical networks sales in
fiscal 2002.

Optical networks revenues of
£404 million decreased by £227 million, or
36%, in the period to September 30, 2001 as compared to
£631 million for the period to September 30,
2000. The U.K. market was hardest hit mainly due to the
significant reduction in spending by U.K. second operators
although sales to BT were also down in the period. Sales of
lower capacity SDH products (the digital transmission standard
used throughout Europe) accounted for over 75% of total optical
networks revenues in the first half of fiscal 2002 as telecom
operators sought to maximize utilization in their existing
networks rather than proceeding with new build. However, sales
of these products had decreased 47% in the period compared to
the same period in the previous year as a result of the overall
slowdown in demand for network equipment.

We launched our portfolio of DWDM equipment
during the first half fiscal 2001 and these products continued
to gain market acceptance. New orders were received in China
from China Railway for its Northwest Ring project. Sales of DWDM
equipment were sustained during the first half of fiscal 2002 at
a comparable level to the second half of fiscal 2001 of over
£50 million.

Optical networks revenues of
£333 million decreased £444 million, or
57.1%, in the second half of the year compared to
£777 million in the second half of fiscal 2001. Sales
of SDH equipment continued to decline broadly in line with the
overall market trend for SDH. This decline was offset by
increasing DWDM sales which were a result of the first shipments
of DWDM equipment to Telecom Italia under the exclusive 5-year
frame contract awarded to us in November 2000, and a number of
new customer frame contracts including Vodafone-Omnitel and
Fibernet.

In addition, during the second half of the year,
we made shipments of ultra-broadband DWDM equipment to BT under
the 5-year frame contract that we entered into in April 2001.
Given the nature of this contract, revenue relating to
ultra-broadband products will be recognized when the circuits
provided by this equipment are utilized. As none of the circuits
were utilized prior to March 31, 2002, no revenues
associated with these shipments were recognized during fiscal
2002.

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The underlying decline was broadly in line with
the overall market trend for SDH, but was exacerbated by the
phasing of capital expenditure of our major incumbent customers,
who have decreased spend more rapidly and ahead of other
operators. The latter tend to be customers of our competitors.
Fluctuations in foreign exchange rates also decreased revenues
for the full year by £9 million.



|  |     
|- | ----
| | BBRS

BBRS revenues of £209 million or 7.5%
of total Network Equipment and Network Services revenues in
fiscal 2002 decreased £218 million, or 51.1%, as
compared with £427 million or 9.9% of total Network
Equipment and Network Services revenues in fiscal 2001.
Like-for-like revenues decreased by £222 million, due
to lower sales volumes to both enterprise and telecom service
provider customers.

BBRS revenues of £113 million decreased
by £128 million, or 53.1%, million in the period to
September 30, 2001 compared to the same period in the
previous fiscal year. Sales to internet service providers and
competitive local exchange carriers, the traditional service
provider customers of this business, declined as they reduced
their capital outlays and were not replaced as rapidly as we
anticipated by sales to established operators who have longer
sales cycles. This affected our EMEA, North America and CALA
markets. Sales in Asia-Pacific increased in the first half of
fiscal 2002 compared to the similar period in fiscal 2001 as a
result of new contracts with Telecom Malaysia and CHT (Taiwan).
We also made the first shipments of our MPLS products during the
first half of fiscal 2002.

BBRS revenues of £96 million decreased
by £90 million, or 48.4%, in the second half of fiscal
2002 compared to £186 million in the same period of
fiscal 2001. This was also down 15% on the revenues achieved in
the first half of fiscal 2002. The main reasons for this decline
were the continuing capital expenditure restrictions within the
competitive local exchange carriers and internet service
providers, combined with the impact of focusing the business
towards customers requiring carrier-class networks. In addition,
we have historically sold a third partys broadband
switching equipment into the U.K. market under an original
equipment manufacturers (OEM) distribution agreement.
Sales under this agreement declined during the year as a result
of reduced customer spending and the impact of the pending
termination of this contract during the first half of fiscal
2003.

In line with our strategy adopted in fiscal 2002,
we began focusing technical and commercial resources within BBRS
towards customers requiring carrier-class networks, namely
telecommunications service providers and selected enterprise
customers such as governments and armed forces who require more
resilient switching capacity. We shipped enterprise products to
a number of customers in the year, including the
U.S. Federal Government and Delta Airlines.



|  |                                               
|- | ----------------------------------------------
| | Access systems and other Network
    Equipment

Access system revenues and other network
equipment revenues of £858 million or 30.9% of total
Network Equipment and Network Services revenues in fiscal 2002
decreased by £666 million, or 43.7%, in fiscal 2002 as
compared to £1,524 million or 34.8% of total Network
Equipment and Network Services revenues in fiscal 2001. The
decrease occurred equally across OPP, voice systems, narrowband
access products, and other network equipment. Other Network
Equipment relates primarily to our legacy operations in South
Africa and Hong Kong.

Broadband access revenues decreased 15.6% to
£65 million in the period to September 30, 2001
compared to the same period in the previous fiscal year.
Revenues were down markedly in EMEA and North America as network
operators, in particular Bell South, deferred deployment of
next-generation fiber solutions for economic reasons and instead
rolled out lower volumes of mature access products such as
copper and fiber digital loop carriers. Sales in CALA and
Asia-Pacific remained stable with new contract wins for
fiber-based products in Australia and wireless access systems in
Japan. Revenues in the second half of the fiscal year increased
slightly on the first half to £80 million and
increased £12 million, or 17.6%, compared to the
second half of fiscal 2001. Second half revenues were helped by
increasing sales of our access hub products and broadband
point-to-point radio systems, particularly to German mobile
operators

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for use in 2.5G and 3G networks. First sales of
access hubs were also made to Telecom Italia and Telkom South
Africa.


In narrowband access, which includes our outside
plant and power and mature access products, revenues decreased
38.2% to £345 million in the period to
September 30, 2001 compared to the same period in the
previous fiscal year. Outside plant and power revenues, which
accounted for 45% of narrowband access systems sales, decreased
as a result of a general slowdown in the market for telecoms
equipment and were particularly affected by the rapid decline in
the North American emerging carrier market. Sales of our mature
access products, including our copper and fiber-based DISC*S
access platform, decreased during the first half as a result of
capital expenditure reductions amongst North American incumbent
local exchange carriers, particularly Bell South and Sprint.
Revenues in the second half of the fiscal year decreased by
£430 million, or 64.3%, to £239 million
compared to the same period in the previous year, and decreased
by £106 million, or 30.7%, compared to the first half
of the fiscal year. The continuing decline in capital
expenditure affected the outside plant and power and mature
access businesses. Mature access sales within our U.K. based
voice systems business were further affected as capital
expenditure was switched away from narrowband access to
broadband access products and as a result, completion of
previously awarded contracts was not replaced by new contracts.

Network
Services

Network Services revenues of
£969 million in fiscal 2002 decreased by
£47 million, or 4.6%, as compared with
£1,016 million in fiscal 2001.

IC&M

IC&M revenues decreased by
£4 million, or 1.5%, to £271 million in the
first half of fiscal 2002 compared to £275 million for
the same period in the previous year. However, IC&M sales
were down by £110 million, or 28.9%, compared to the
second half of fiscal 2001. The sequential decrease compared to
the second half of fiscal 2001 was due to the reduction in
installation and commissioning work following the decline in
expenditure on network equipment. This decline was offset by an
increase in maintenance services as operators sought to maximize
the utilization of their existing networks. Revenues in the
second half of fiscal 2002 were £257 million, a
decrease of £124 million, or 32.5%, compared to the
second half of fiscal 2001. This represents a sequential
decrease of £14 million, or 5.2%, compared to the
revenues achieved in the first half of fiscal 2002. This
further decline was the result of the continued downturn in
expenditure on network equipment, which was partially offset by
a slight increase in demand for cable installation in the U.K.



|  |    
|- | ---
| | VAS

VAS revenues of £234 million increased
by £89 million, or 61.3%, in the first half of fiscal
2002 compared to £145 million for the same period in
the previous year. £36 million of this increase came
from the acquired businesses such as MSI, APT (both acquired in
fiscal 2001) and Northwood Technologies (acquired in
fiscal 2002). Excluding the effects of these acquisitions,
the key driver of the organic growth was wireless services
across all regions but particularly in EMEA and North America.
Growth in wireless acquire, design and construct
services have been driven by the increased difficulty for
operators to secure new radio sites and increased demand for
wireless network consultancy services as operators maximize
efficiency in their existing networks and begin to plan for 2.5G
and 3G networks. Revenues in the second half of fiscal 2002
were £207 million, a decrease of £8 million,
or 3.7%, on the comparable period of fiscal 2001, and a
£27 million, or 11.5%, decrease compared to the first
half of fiscal 2002. Second half fiscal 2002 revenues were
reduced following a decrease in wireless network planning and
software sales after the higher volumes in the first half. This
was primarily a result of delayed 3G network rollouts.

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| |        
| | -------
| | Capital

Total Capital revenue of £390 million
in fiscal 2002 decreased £150 million or 27.8% as
compared with £540 million in fiscal 2001. The
decrease in revenue is primarily related to discontinued
operations.

Segmental operating (loss)/profit
(U.K. GAAP)

The table below presents a summary of
U.K. GAAP segmental operating (loss)/profit (defined as
operating (loss)/profit before goodwill amortization and
U.K. GAAP operating exceptional segmental items). A
reconciliation of U.K. GAAP segmental operating
(loss)/profit to operating (loss)/profit on a U.S. GAAP
basis together with a description of the differences between
U.K. and U.S. GAAP is presented in note 9 of the notes
to our consolidated financial statements contained elsewhere
herein.

|                  |  |               |      |      |  |      |      |   |  |  |     |  
|----------------- |  | ------------- | ---- | ---- |  | ---- | ---- | - |  |  | --- | -
|                  |  | 2003          |      | 2002 |  | 2001
|                  |  | £             |      | £    |  | £   
|                  |  |               |      |      |  |     
|                  |  |              
|                  |  | (in millions)
|Network Equipment |  |               | (259 | )    |  |      | (464 | ) |  |  | 442 |  
|Network Services  |  |               | 52   |      |  |      | 35   |   |  |  | 102 |  
|Capital           |  |               | (107 | )    |  |      | (138 | ) |  |  | (14 | )
|Discontinued      |  |               | (2   | )    |  |      | 104  |   |  |  | 224 |  
|                  |  |               |      |      |  |      |      |   |  |  |     |  
|                  |  |               | (316 | )    |  |      | (463 | ) |  |  | 754 |  
|                  |  |               |      |      |  |      |      |   |  |  |     |  



| |                                      
| | -------------------------------------
| | Comparison of fiscal 2003 to
    2002



| |                  
| | -----------------
| | Network Equipment

The segment operating loss in Network Equipment
amounted to £259 million in fiscal 2003, an
improvement of £205 million or 44% compared to an
operating loss of £464 million in fiscal 2002.
There has been significant improvement in operating losses for
Network Equipment both sequentially within fiscal 2003 and
compared to fiscal 2002. We have achieved substantial cost
reductions in our supply chain, in Europe and the U.S., and
across all areas of operating expense. The cost savings have
been sufficient to more than offset the full profit impact of a
37% year-on-year decline in Network Equipment sales volumes.



| |                 
| | ----------------
| | Network Services

The segment operating profit of
£52 million in fiscal 2003 increased
£17 million or 49% as compared with
£35 million in fiscal 2002. There has generally been
significant improvement in operating profits for Network
Services both sequentially within fiscal 2003 and compared to
fiscal 2002. Despite significant declines in Network Equipment
sales and the subsequent impact on IC&M sales, improved
resource utilization in this labor intensive area and other
ongoing cost reduction initiatives facilitated increased
profitability. The area of VAS was comparatively resilient in
terms of revenue. Thus the cost savings we achieved were able to
have a direct benefit to its profitability.



| |        
| | -------
| | Capital

The Capital segment businesses generated an
operating loss of £107 million in fiscal 2003 as
compared with an operating loss of £138 million in
fiscal 2002. This was due principally to the disposal in
February 2002 of the loss making Optical Components business.

Discontinued
Operations

Discontinued operations are comprised of the
Strategic Communications business (sold in August 2002) and
Medical, Data and Commerce systems businesses.

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| |                                      
| | -------------------------------------
| | Comparison of fiscal 2002 to
    2001



| |                  
| | -----------------
| | Network Equipment

The Network Equipment segment operating loss of
£464 million in fiscal 2002 decreased by
£906 million, or 205.0%, as compared with an operating
profit of £442 million in fiscal 2001. Operating
margins declined to a negative 25.7% in fiscal 2002 as
compared to a positive operating margin of 13.2% in
fiscal 2001. Network Equipment operating profit fell
£396 million, or 211.8%, to a loss of
£209 million in the first half of fiscal 2002 compared
to a profit of £187 million for the same period in the
previous year. This was predominantly the result of the
significantly reduced sales volumes and the inability of the
group to adjust our cost base sufficiently rapidly in reaction
to this decline. The reduced sales volumes led to under
utilization of assets in the supply chain and manufacturing
process, which we began to address through a cost reduction
strategy that we identified within our operational review that
we announced on September 4, 2001. The under-utilization in
the supply chain and manufacturing saw Network Equipment gross
margins fall almost 50% in the first half of fiscal 2002
compared to the second half of the previous fiscal year. Gross
margins were also impacted by the change in the business mix,
with the decline of revenues from BBRS and certain narrowband
access products, which have historically achieved higher than
average gross margins. Research and development costs increased
10% in the first half of fiscal 2002 compared to the equivalent
period in the previous year, prior to our change in strategy to
one of focused research and development expenditure, to
concentrate in particular on new products in optical networks
and BBRS.

The Network Equipment operating profit/(loss) in
the second half of fiscal 2002 declined by
£510 million, or 200.0%, to an operating loss of
£255 million compared to an operating profit of
£255 million for the same period in fiscal 2001.
Second half fiscal 2002 operating losses were impacted by the
continuing reduction in sales volumes as well as some price
erosion on certain new contracts, previously agreed contractual
price reductions offered to customers under existing frame
contracts which we were not able to offset with corresponding
product cost reductions and the continuing change in business
mix away from higher margin BBRS and certain narrowband access
products. Second half operating loss was also impacted by
one-off marketing costs to terminate previously committed
marketing activities and programs. Research and development
expenditure also increased slightly as a result of the
development and launch of key products including the BXR-48000
multi-service core switch and new additions to our range of
photonics equipment, notably Ultra Long-Haul and Metro DWDM
product ranges as well as further development of our SDH
technology to produce a fourth generation SDH multiplexer. This
increase was partially offset by the scaling back of our access
systems business to focus more on broadband access product
lines, notably in fixed wireless and the recently launched
access hub. The operating profit of Network Equipment was
reduced due to an £8 million charge in respect of
Financial Reporting Statement (FRS) No. 17
Retirement Benefits.



| |                 
| | ----------------
| | Network Services

The Network Services segment operating profit of
£35 million decreased by £67 million, or
65.7%, in fiscal 2002 from £102 million in fiscal
2001. Operating margins fell to 3.6% in fiscal 2002 as compared
10.0% in fiscal 2001. Network Services operating profit
decreased by £36 million, or 87.8%, to
£5 million in the first half of fiscal 2002 compared
to £41 million for the same period in fiscal 2001. The
decrease was predominantly due to the fall in profitability in
the installation and commissioning business. This
labor-intensive activity saw significant sales growth in fiscal
2001 and the business cost base was geared towards this.
As the revenues fell in line with the decreasing Network
Equipment sales, we were unable to restructure the cost base
quickly enough to prevent margin erosion.

Second half fiscal 2002 operating profit in
Network Services decreased by £31 million, or 50.8%,
to £30 million compared to £61 million for
the same period in the previous year. Although the business
began to benefit from the cost reduction initiatives put in
place during the second half of fiscal 2002, these savings were
not sufficient to compensate for the continuing fall in Network
Equipment sales. The delay in 3G rollouts by mobile operators,
particularly in the U.K., and the change in business mix in the
U.S., with

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higher software sales but a decline in consulting
activities, led to the under-utilization of resources in the VAS
business. This had a negative impact on second half fiscal 2002
operating income.


The operating profit of Network Services was also
reduced by a charge of £6 million (2001
£10 million) in respect of the implementation of
FRS No. 17 Retirement Benefits.



| |        
| | -------
| | Capital

The Capital segment generated an operating loss
of £138 million in fiscal 2002 as compared with an
operating loss of £14 million in fiscal 2001. The
Capital segment included several start-up businesses, including
optical components, infochain, online businesses, and ipsaris
(up to the point of our merger with Easynet in July 2001).
Losses continued to be recorded for these businesses in fiscal
2002 as they continued to incur developmental costs. Optical
components and ipsaris recognized operating losses of
£44 million up to the point of disposal in February
2002 and July 2001, respectively, as compared with
£26 million of losses in fiscal 2001. In addition,
general corporate costs, primarily the U.K. and regional office
headquarters costs, are reflected in the Capital segment.

General corporate costs rose substantially in the
first half of fiscal 2002 with the establishment of centralized
sales and marketing, and information technology teams. However,
these costs were addressed as part of our business
reorganization plan, which focused on company-wide cost
reduction. In fiscal 2001, general corporate costs were
partially offset by income from the sale of trademarks, the
successful settlement of a legal claim and the reduction of
obligations for insurance-related claims. No such income was
recorded in 2002.

The Capital segment operating profitability was
also impacted by the disposal of our commerce systems business
in our equity affiliate GDA in fiscal 2002, which negatively
impacted operating profit by £16 million in fiscal
2002. The disposal of our Avery Berkel business, the Woods group
and Comstar, our equity affiliate with Moscows telephone
network operator, reduced operating income in fiscal 2002 by
approximately £6 million. In our U.S. GAAP
financial statements, both GDA and Comstar are reported in
equity in net income of affiliates.

Liquidity and capital resources

Operating
activities

Net cash used in operating activities of
continuing operations was £599 million in fiscal 2003.
This resulted primarily from the loss from continuing activities
of £1,116 million and a change of
£177 million in current and deferred taxes, partially
offset by a provision for a related party receivable of
£299 million, depreciation and amortization of
£169 million, changes in operating activities, net of
acquisitions of £27 million, impairment of long-lived
assets of £69 million and impairment of investment in
securities of £38 million. The reduction in working
capital was primarily a result of the significant decrease in
sales volumes in fiscal 2003 as compared with fiscal 2002. This
sales decline led to decreases in accounts receivables of
£284 million or 38% as compared with fiscal 2002, and
inventories of £296 million or 56% as compared with
fiscal 2002. The decrease in inventories was also due to our
continued focus on reducing costs in all areas of production and
overhead. In particular, we continued efforts to restructure our
supply chain to remove excess capacity and reduce break-even
points. In addition, fiscal 2003 reflects £258 million
in payments relative to business restructuring charges.

Net cash used in operating activities of
continuing operations was £623 million in fiscal 2002.
This resulted primarily from the loss from continuing activities
of £6,303 million and a change in current and deferred
taxes of £468 million, partially offset by asset
impairments of £3,968 million, a provision for slow moving
and obsolete inventory of £805 million, depreciation
and amortization of £653 million, a provision for
doubtful accounts of £175 million, changes in
operating activities, net of acquisitions, of
£211 million, equity in net loss of affiliates of
£196 million and loss on sale of businesses and
properties of £149 million.

Net cash used in operating activities of
continuing operations was £608 million in fiscal 2001.
This resulted primarily from the changes in operating
activities, net of acquisitions, of £1,084 million, a
gain on

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the sale of investments in affiliates of
£571 million and changes in current and deferred taxes
of £193 million, partially offset by income from
continuing activities of £115 million, depreciation
and amortization of £824 million and the equity in net
loss of affiliates of £137 million.


Investing
activities

The net cash provided by investing activities of
£411 million in fiscal 2003 was primarily due to net
cash received from the disposal of businesses of
£436 million and net proceeds received from the sale
of property, plant and equipment of £30 million, partially
offset by purchases of marketable securities of
£20 million, and the purchases of property, plant and
equipment of £35 million. The net cash proceeds
received from the disposal of businesses relates primarily to
the sale of the Strategic Communications business, which
represented net proceeds of £373 million in fiscal
2003. During fiscal 2003, the majority of the capital
expenditures were in the Optical Networks and BBRS businesses.
The purchases of marketable securities of £20 million
relates to payments made in fiscal 2003 relative to our
Ultramast put option which was in litigation. The issue with
Ultramast has now been resolved through a settlement in which
our investment in Ultramast has been terminated through a
capital reduction in exchange for proceeds of
£41 million, which is recorded as a gain on sale of
investment in affiliates in fiscal 2003.

The net cash provided by investing activities of
£1,117 million for fiscal 2002 was primarily due to
cash received from the disposal of businesses of
£971 million, net proceeds received from the sale and
purchases of investment securities of £206 million and
net proceeds received from the sale of property, plant and
equipment of £171 million, partially offset by
purchases of property, plant and equipment of
£327 million. The net cash proceeds received from the
disposal of businesses related primarily to
£729 million, £283 million and
£225 million received for our medical, data and
commerce systems businesses, respectively. The net proceeds
received from the purchases and sales of securities in fiscal
2002 came principally from the sale of securities held in Alstom
and Lagardere. The purchases of property, plant and equipment
included equipment for participation in technology trials with
key customers, test equipment that supports on-going research
and development activity, software licenses purchased as part of
the implementation of a new information technology system and
expenditures related to site and facility developments. We
subsequently wrote off the software licenses as we terminated
the implementation of the information technology project in
light of our revised financial outlook.

The net cash used in investing activities of
£525 million for fiscal 2001 was primarily due to net
cash paid for acquisitions of £832 million, the
purchases of property, plant and equipment of
£519 million and the purchases of debt and investment
securities of £131 million, partially offset by
proceeds from the sale of investments in affiliates of
£646 million and net cash received from the disposal
of businesses of £185 million. The net cash paid for
acquisitions relates primarily to the MSI
(£421 million), Mariposa (£161 million) and
Splice acquisitions (£56 million). Purchases of
property, plant and equipment include additional optical
networks expenditures in the United Kingdom and Italy, the
construction of new facilities in the U.K., information
technology infrastructure and supply chain improvements, and a
program of enhancements in the customer maintenance and support
infrastructure.

Total Network Equipment and Network Services
capital expenditures were £35 million,
£168 million and £283 million in fiscal
2003, 2002 and 2001, respectively. It is not practicable to
identify the capital expenditures of the Network Equipment and
Network Services segments separately as the same assets are
generally used to generate sales in each of these segments.

The Capital segment capital expenditures were
£nil, £159 million and £236 million in
fiscal 2003, 2002 and 2001, respectively.

We currently expect the level of our capital
expenditures to rise but to remain at or below the level of
depreciation expense.

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Financing
activities

Net cash used in financing activities of
£743 million in fiscal 2003 was primarily due to cash
transferred to secured accounts of £692 million and
payments on short-term debt and term loan repayments totaling
£30 million and £45 million, respectively.

Net cash provided by financing activities of
£646 million in fiscal 2002 was primarily due to
proceeds from borrowings under term loans of
£981 million, partially offset by net repayments under
short-term borrowings of £206 million and restricted
cash transferral to secured accounts of £191 million.

Net cash provided by financing activities of
£745 million in fiscal 2001 was primarily due to
proceeds from borrowings under term loans of
£1,221 million and issuance of ordinary shares of
£303 million, partially offset by net repayments under
short-term borrowings of £599 million.

Contractual
obligations and other commercial commitments

The following tables summarize our actual
contractual obligations and commercial commitments at
March 31, 2003.

|                        |  |                                                 |       |       |  |      |    |      |  |      |    |            |  |             |    |  |  |  |    |  |  |  |    |  |  |  |       | 
|----------------------- |  | ----------------------------------------------- | ----- | ----- |  | ---- | -- | ---- |  | ---- | -- | ---------- |  | ----------- | -- |  |  |  | -- |  |  |  | -- |  |  |  | ----- | 
|                        |  |                                                 |       |      
|                        |  | Payments due in the fiscal year ended March 31, |       | Total
|                        |  | 2004                                            |       | 2005  |  | 2006 |    | 2007 |  | 2008 |    | Thereafter |  | obligations
|                        |  | £                                               |       | £     |  | £    |    | £    |  | £    |    | £          |  | £          
|Contractual obligations |  |                                                 |       |       |  |      |    |      |  |      |    |            |  |            
|                        |  |                                                
|                        |  | (in millions)                                  
|Long-term debt          |  |                                                 | 2,191 | (1)   |  |      | 9  |      |  |      | 4  |            |  |             | 4  |  |  |  | 3  |  |  |  | 10 |  |  |  | 2,221 | 
|Operating leases        |  |                                                 | 19    |       |  |      | 21 |      |  |      | 16 |            |  |             | 14 |  |  |  | 11 |  |  |  | 47 |  |  |  | 128   | 
|                        |  |                                                 |       |       |  |      |    |      |  |      |    |            |  |             |    |  |  |  |    |  |  |  |    |  |  |  |       | 
|Total                   |  |                                                 | 2,210 |       |  |      | 30 |      |  |      | 20 |            |  |             | 18 |  |  |  | 14 |  |  |  | 57 |  |  |  | 2,349 | 
|                        |  |                                                 |       |       |  |      |    |      |  |      |    |            |  |             |    |  |  |  |    |  |  |  |    |  |  |  |       | 

|                                      |  |                                                 |    |      |  |      |    |      |  |      |    |            |  |       |    |  |  |  |   |  |  |  |    |  |  |  |     | 
|------------------------------------- |  | ----------------------------------------------- | -- | ---- |  | ---- | -- | ---- |  | ---- | -- | ---------- |  | ----- | -- |  |  |  | - |  |  |  | -- |  |  |  | --- | 
|                                      |  |                                                
|                                      |  | Amounts expiring in fiscal year ended March 31,
|                                      |  | 2004                                            |    | 2005 |  | 2006 |    | 2007 |  | 2008 |    | Thereafter |  | Total
|                                      |  | £                                               |    | £    |  | £    |    | £    |  | £    |    | £          |  | £    
|Other commercial commitments          |  |                                                 |    |      |  |      |    |      |  |      |    |            |  |      
|                                      |  |                                                
|                                      |  | (in millions)                                  
|Bank bonds or surety bonds            |  |                                                 | 62 |      |  |      | 24 |      |  |      | 16 |            |  |       | 35 |  |  |  | 6 |  |  |  | 20 |  |  |  | 163 | 
|Undrawn customer financing commitment |  |                                                 | 2  |      |  |      | 2  |      |  |      |   |            |  |       |   |  |  |  |  |  |  |  |   |  |  |  | 4   | 
|                                      |  |                                                 |    |      |  |      |    |      |  |      |    |            |  |       |    |  |  |  |   |  |  |  |    |  |  |  |     | 
|Total                                 |  |                                                 | 64 |      |  |      | 26 |      |  |      | 16 |            |  |       | 35 |  |  |  | 6 |  |  |  | 20 |  |  |  | 167 | 
|                                      |  |                                                 |    |      |  |      |    |      |  |      |    |            |  |       |    |  |  |  |   |  |  |  |    |  |  |  |     | 



|    |                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------
|(1) | This represents debt that was extinguished by our
    financial restructuring and is no longer outstanding.

Contract
bonding facilities

Some customers in the telecommunications market
require that bank bonds or surety bonds (issued by insurance
companies) be provided to guarantee performance of the supplier.
We had £163 million of this type of bonds outstanding
as at March 31, 2003 with both banks and insurance
companies worldwide as compared to £500 million
outstanding at March 31, 2002. The reduction from the level
outstanding at March 31, 2002 was primarily a result of the
disposal of the Strategic Communications business. Some of our
bonds are covered by counter-indemnities from Marconi
Corporation plc and others have individual indemnities from
other members of our group. Our bonding is normally provided to
us on an uncommitted basis. As a consequence of our financial
restructuring, substantially all new bonds that we issue
currently have to be cash collateralized. Since February 2002,
we have issued approximately £135 million of
performance bonding (on a fully cash collateralized basis). Of
the £135 million of collateral at March 31, 2003,
£22 million related to collateral on bonds that had
been retired and will be rolled into collateralization of the
new Super-priority Performance Bonding Facility discussed below
and £19 million was collateral against bonds issued in
favor of companies that have now been disposed. In the latter
case, we are in the process of procuring the release of this
collateral.

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Following the financial restructuring, we have
entered into a new committed Super-priority Performance Bonding
Facility that allows us to procure a further
£50 million of performance bonding. These bonds will
be fully collateralized, with 50% of collateral being placed at
the time of issuance of the bond and 50% of collateral being
rolled over from releases of collateral on existing bonds.

A number of our performance bond arrangements
carry rights for the issuer to call for cash collateral, either
unconditionally or upon the occurrence of certain events. We
estimate that as at March 31, 2003, performance bonds with
a face value of approximately £53 million had varying
conditional or unconditional rights to call for cash collateral.
Bonds will frequently run beyond the contracted maturity dates
indicated in the table above. In addition, there are a number of
bonds with no expiry date, which may be cancelled by the
beneficiaries when the guaranteed works are completed.

Customer
financing commitments

At March 31, 2003, we had vendor finance
commitments to customers of approximately £42 million
as compared with £100 million at March 31, 2002
of which £38 million (£58 million at
March 31, 2002) had been drawn.

We, like our competitors, continue to experience
demand for financing from our customers. However, this demand
has decreased significantly due to market conditions and our
focus on our core base of incumbent carrier customers. When we
have supported customer financing requests, we have
significantly limited our own risk by leveraging funds from
third party financiers having strategic interests aligned with
us and developing innovative commercial alternatives that do not
involve long-term cash investments from us. Through these
actions, we have satisfactorily accommodated most of our
customer financing requests and we do not currently anticipate
that we will require significant cash resources to fund these
activities in the foreseeable future.

Pensions

On March 26, 2003, we signed a funding
agreement with the U.S. Pensions Benefit Guarantee Corporation
(PBGC) for the defined benefit plans of our U.S. businesses.
Under the agreement, the U.S. businesses will recommence
contributions from June 2003 for the normal cost of the plans at
U.S.$6 million (approximately £3.8 million) per
annum plus enhanced contributions of U.S.$9 million
(approximately £5.7 million) per annum. Additionally,
proceeds from any disposal of a U.S. business shall be used to
fund plan deficits, prior to the remaining proceeds being used
to pay down the junior or senior notes. At March 31, 2003,
the plan deficit was approximately U.S.$48.5 million
(approximately £31.2 million).

Current
liquidity position

At March 31, 2003, our cash and cash
equivalents totaled £1,156 million as compared to
£1,502 million at March 31, 2002, of which
£515 million (£491 million at March 31,
2002) was denominated in sterling, £282 million
(£726 million at March 31, 2002) in U.S. dollars,
£306 million (£166 million at March 31,
2002) in Euro and the balance of £53 million
(£119 million at March 31, 2002) in other
currencies. At March 31, 2003, the majority of our cash
resources were held in secured accounts, which were subject to
interim security arrangements in favor of certain of our
creditors with whom we were negotiating the terms of our
financial restructuring. The secured accounts initially were
created at the end of April 2002. The balance of the secured
cash amounted to £964 million at March 31, 2003.
The security over the lockbox accounts was released on
April 24, 2003 and as at May 19, 2003, all
restrictions upon the accounts were removed.

Our outstanding borrowings at March 31, 2003
were £4,416 million as compared with
£4,574 million at March 31, 2002. The
£158 million reduction primarily reflected the
repayment of local borrowings in Italy as a result of the
disposal of the Strategic Communications businesses, and a
substantial reduction in the sterling value of the
U.S. -dollar-denominated debt due to foreign exchange
movements. These were offset by an increase in liabilities to
Marconi plc and our fellow subsidiaries. Following the financial

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restructuring, borrowings outstanding have fallen
to approximately £786 million on a pro forma basis,
consisting primarily of the U.S.$717 million (approximately
£437 million) of Senior Notes due in April 2008, and
the U.S.$487 million (approximately £297 million)
of Junior Notes due in October 2008 that were issued in
connection with our financial restructuring.


Financial
Restructuring

On May 19, 2003, we concluded our financial
restructuring, which covered approximately
£4.8 billion of creditors claims, comprising
£4.0 billion of syndicated bank debt and our
externally held U.S. dollar and euro denominated bonds and
£800 million of related party debt. In exchange for
the cancellation of their claims against us, on May 19,
2003 we distributed to the creditors covered by our scheme of
arrangement:



| |   |                                                                                                                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | £340 million in cash;                                                                                                                                                                                                                                                                                                                
|
| |  | Senior Notes: U.S.$717,139,584 (approximately
    £437 million) in aggregate principal amount of new
    guaranteed senior secured notes due April 2008, with interest
    payable quarterly in cash at a rate of 8% per annum;                                                                                                      
|
| |  | Junior Notes: U.S.$486,881,472 (approximately
    £297 million) in aggregate principal amount of new
    guaranteed junior secured notes due October 2008, with interest
    payable quarterly in cash at a rate of 10% per annum or, at our
    option, in kind, by issuing additional junior notes, at a rate
    of 12% per annum.

As a result, we will recognize a gain of
approximately £3.2 billion in the quarter ending
June 30, 2003 of which £2.7 billion will be
recorded in our consolidated statement of operations and
£0.5 billion will be recorded directly to
shareholders equity.

Following the financial restructuring, we are
reliant on our cash balances, which were £781 million
as at March 31, 2003 on a pro forma basis, to meet our
short-and medium-term liquidity requirements. Of the
£781 million, £208 million is classified as
restricted cash and £573 million is free cash
available to us. The £208 million of restricted cash
represents £135 million that has been posted as
collateral against present and future bonding facilities,
£42 million in an escrow account to meet any claims
for collateral on existing performance bonds and guarantees,
£14 million deposited against secured loans in Italy
and £17 million in our captive insurance company. The
£573 million of free cash available comprises
£486 million of available Treasury deposits and
£87 million of global working capital balances within
the Group and cash in transit. The pro forma calculation
reflects the £340 million paid to the scheme creditors
and the £35 million paid to the ESOP derivative
providers on May 19, 2003, the effective date of the
financial restructuring.

The terms of the indentures governing our Senior
Notes and Junior Notes significantly restrict our ability to
borrow additional funds. Under the terms of these indentures, no
external borrowing facilities other than the U.S. working
capital facility referred to below, are permitted other than
under certain restricted circumstances. In addition, our U.S.
based businesses have been ring fenced from our non-U.S. based
business, and generally can no longer be funded by other members
of the group outside of the ring fence. No external borrowing
facilities are permitted for these U.S. based businesses, other
than a newly negotiated committed $22.5 million
(approximately £14 million) working capital facility.
In addition, certain forms of liquidity available to us,
including disposals and release of restricted cash, are subject
to terms whereby, under certain circumstances, the cash will be
required to be used to redeem the junior notes, or, in the event
that there are no junior notes outstanding, the senior notes, at
a cost of 110% of principal.

Cash
requirements

Our cash requirements in fiscal 2004 include
funding operations including spending on R&D, the
operational and financial restructuring, capital expenditures
and debt service costs.

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We have funded our activities through cash
generated from our operational activities, the proceeds of
disposals, bank borrowings and the sale of debt securities in
the debt capital markets.

Risk management

Financial
instruments

The Groups treasury activities are
coordinated by our treasury function, which operates in
accordance with policies and procedures approved by Marconi
Corporations Board of Directors. It does not operate as a
profit center. Treasury advises operational management on
treasury matters and undertakes all derivative transactions. All
treasury related transactions undertaken by our operating
businesses are required to be in accordance with guidelines laid
down by our central treasury function and to comply with our
risk management policies.

It has in the past been our policy to maintain at
least 50% of debt at fixed rates of interest. The term structure
of interest rates was managed in observance of this policy using
derivative financial instruments such as interest rate swaps.
However, due to the financial restructuring process described
above, this policy has been superceded by the requirement to
manage immediate liquidity including the cancellation of all
outstanding derivatives positions.

Consequently, during fiscal 2003,
out-of-the-money interest rate swap arrangements with fair value
£83 million were converted to new loan agreements and
cash proceeds of £8 million were received from
unwinding in-the-money interest rate swap arrangements. At
March 31, 2003, 50% (57% at March 31, 2002) of our
interest-bearing borrowings were at fixed rates after taking
account of interest rate swaps. Of this total, 26% (43% at
March 31, 2002) were at fixed dollar rates of interest and
24% (14% at March 31, 2002) were at fixed euro rates of
interest.

Our interest expense is exposed to interest rate
movements in our floating rate debt, cash and investments. We
are principally exposed to changes in short-term interest rates
in pounds sterling and U.S. dollars. A one percentage point
increase in market interest rates would have increased interest
income by £8 million (£8 million in fiscal
2002) and increased interest expense by £22 million
(£20 million in fiscal 2002) which, combined, would
have increased loss from continuing operations before income
taxes in fiscal 2003 by approximately £14 million
(£12 million in fiscal 2002).

Foreign
exchange risk

We are a global communications 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. Our foreign currency management policy seeks to
minimize the impact of fluctuations in exchange rates on future
cash flows and requires subsidiaries to hedge firm transaction
exposures against their local currency at the time the exposure
is identified. These exposures are hedged by the use of spot and
forward exchange contracts. Due to the financial restructuring,
we did not enter into any such contracts in fiscal 2003.

We also have overseas subsidiaries that earn
profits and whose net assets are denominated in foreign
currencies. It is our policy not to use derivatives to hedge
exposures arising from the translation of these overseas profits
and net assets into pounds sterling. However, approximately 78%
of gross borrowings were denominated in foreign currencies in
order to form a hedge for our investments in currencies other
than sterling. Of these, 55%, denominated in U.S. dollars,
formed a hedge for our investment in the U.S., and 22%,
denominated in euro, formed a hedge for our investment in the
Euro-zone.

If the pound sterling 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 1.9%, in fiscal
2003 (0.3% for fiscal 2002).

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Share price
risk

Marconi plc has, in the past, issued share
options to our employees under a number of different option
plans, collectively known as the Employee Share Option Plans
(ESOP). Under these plans, options could be
satisfied by way of a transfer of existing Marconi plc ordinary
shares acquired in the market by an employee trust or other
vehicle, or, under some of the plans only, by an issue of new
Marconi plc shares. From January 2000, in order to hedge part of
the potential cost of the plans estimated at that time, we
entered into the ESOP derivative transactions with the ESOP
derivative banks to purchase a total of 40 million shares
in the future at prices which were fixed at the date of
contract. At March 31, 2003, the purchase of
38.5 million shares under these contracts was outstanding.
Our maximum exposure under the contracts was
£337 million, plus accrued finance charges. At
March 31, 2003, we had paid £214 million of
collateral, the maximum amount of collateral payable under these
ESOP derivative transactions. The remaining principal amount of
£123 million under these contracts had been the subject of
claims brought against the Group by the ESOP derivative banks.
In connection with the financial restructuring process, we
entered into a final settlement with the ESOP derivative banks
that definitively settled the claims of the ESOP derivative
banks against us in relation to the ESOP derivative
transactions. Under the settlement, which was conditional on our
financial restructuring becoming effective, we paid a total of
£35 million to the ESOP derivative banks and we
excluded the claims of the ESOP derivative banks under the ESOP
derivative transactions from our schemes of arrangement.

Application of Critical Accounting
Policies

We have prepared the consolidated financial
statements included in this annual report in accordance with
U.S. GAAP. The preparation of these financial statements
requires management to make estimates, judgments, and
assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses and related disclosure of
contingent assets and liabilities. Management base their
estimates on historical experience and various other assumptions
that they believe are reasonable under the circumstances, the
results of which form the basis for making judgements about the
carrying value of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions. We
believe that the following are some of the more critical
judgement areas in the application of our accounting policies
that affect our financial position and results of operations.

We have discussed the application of these
critical accounting policies with our board of directors and
audit committee. See Note 2 to the consolidated financial
statements contained elsewhere herein for recently issued
accounting pronouncements that have not yet been adopted by us.



| |                    
| | -------------------
| | Revenue recognition

We recognize revenue when all of the following
conditions are met:



| |   |                                                             
| | - | ------------------------------------------------------------
| |  | there is persuasive evidence that an arrangement
    exists;
|
| |  | delivery has occurred or services have been
    rendered;   
|
| |  | the fee is fixed or determinable; and                       
|
| |  | collectibility is reasonably assured.                       

It is common for our sales agreements to cover
the delivery of several products and/or services. These range
from arrangements where a contract covers the delivery and
installation of equipment to more complex arrangements, which
also include training of customer personnel, sale of software
and other support services. We recognize revenue from contracts
with multiple element arrangements, such as those including
installation and commissioning services, as each element is
earned based on objective evidence of the relative fair values
of each element and when there are no undelivered elements that
are essential to the functionality of the delivered elements.

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We recognize revenues and estimated profits on
long-term contracts under the percentage-of-completion method of
accounting using a cost-to-cost methodology. Significant
judgement is required in determining progress toward completion
and in estimating revenues and costs. We revise profit estimates
periodically based on changes in facts in the underlying
contract. When estimates of total contract revenues and costs
indicate a loss, we recognize a provision for the entire amount
of the contract loss in the period in which the loss becomes
foreseeable. We record advance payments received from contracts
as a liability unless there is a right of set-off against the
value of work undertaken.



| |                                    
| | -----------------------------------
| | Impairment of long-lived
    assets

We review the carrying value of long-lived
assets, which includes identifiable intangible assets, goodwill
and property, plant and equipment, whenever indicators of
impairment exist. Indicators of impairment include, but are not
limited to:



| |   |                                                                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A significant adverse change in the extent or
    manner in which a long-lived asset or asset group is being used
    or in its physical condition;                                                                                                
|
| |  | A current-period operating or cash flow loss
    combined with a history of operating or cash flow losses or a
    projection or forecast that demonstrates continuing losses
    associated with the use of a long-lived asset or asset group; and
|
| |  | A current expectation that, more likely than not,
    a long-lived asset or asset group will be sold or otherwise
    disposed of significantly before the end of its previously
    estimated useful life.                                        

These tests for impairment require significant
judgements in determining estimates of future cash flows and the
resulting value in use of the relevant fixed asset. Estimations
of the present value of future cash flows contain inherent
uncertainty and include estimates of market size and market
share information, growth rates, product demand and
technological development, costs of labor and supplier
purchases, working capital requirements, and discount rates to
be applied to future cash flows.

If the carrying value of a fixed asset is
considered impaired, we record an impairment charge for the
amount by which the carrying value of the asset exceeds the
higher of its net realizable value or its value-in-use. In
fiscal 2003 and 2002, we recorded impairment charges in relation
to property, plant and equipment of £69 million and
£154 million, respectively. In fiscal 2002, we
recorded an impairment charge relative to goodwill and
intangible assets of £3,814 million. Based upon
estimates of future cash flows that management believes to be
reasonable, we determined that no further impairment charges for
goodwill and other intangibles were required to be made in
fiscal 2003.

As at March 31, 2003 the carrying value of
property, plant and equipment, goodwill and intangibles was
£263 million, £657 million and £101
million, respectively.



| |                       
| | ----------------------
| | Contingent liabilities

We are subject to legal proceedings and other
claims arising in the ordinary course of business. Various
claims and proceedings have been or may be instituted or
asserted against us relating to class shareholder actions and
the conduct of our business, including those pertaining to
patents, environmental, safety and health, employment and
contractual matters. We are required to assess the likelihood of
any adverse judgements or outcomes to these matters as well as
potential ranges of probable losses. We base a determination of
the amount of reserves required, if any, for these contingencies
on a careful analysis of each individual issue with the
assistance of outside legal counsel. Although the outcome of
litigation cannot be predicted with certainty and some lawsuits,
claims or proceedings may be disposed of unfavorably to us, we
believe that the ultimate outcome of these matters will not have
a material adverse effect on our results of operations or
financial position or cash-flows, except as discussed in
Note 21 to notes to consolidated financial statements
contained elsewhere herein.

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| |                                               
| | ----------------------------------------------
| | Pension and other post-retirement
    benefits

As at March 31, 2003 our total pension and
post-retirement projected benefit obligation was £2,718
million compared with plan assets of £2,371 million. Due to
the substantial decline in equity markets in fiscal 2003 we
recognized an additional minimum pension and post-retirement
liability of £295 million. For fiscal 2003 the pension
and post-retirement expense was £36 million. In fiscal
2004 this will be increased by the amortization of an
unrecognized actuarial loss.

Pension and other post-retirement benefits costs
and obligations are dependent on actuarial assumptions used in
calculating such amounts. These assumptions include discount
rates, health care cost trend rates, benefits earned, interest
cost, expected return on plan assets, mortality rates, and other
factors. While we believe that the assumptions that we used are
appropriate, these assumptions may differ materially from actual
results due to changing market and economic conditions, higher
or lower withdrawal rates or longer or shorter life spans of
participants. These differences may result in a significant
impact on the amount of our future pension or post retirement
benefits expense and the resulting liability. Holding all other
assumptions constant, a 0.5% increase or decrease in the
discount rate would have increased or decreased the net loss for
fiscal 2003 by approximately £8.6 million. Likewise, a
0.5% increase or decrease in the expected return on plan assets
would have increased or decreased pre-tax loss for fiscal 2003
by £12.3 million.



| |                   
| | ------------------
| | Product warranties

We make provisions for estimated expenses related
to product warranties at the time we sell our products. We
establish these estimates using historical information on the
nature, frequency, and average cost of warranty claims. We
actively study trends of warranty claims and take action to
improve equipment quality and minimize warranty claims. We
believe that the warranty reserve is appropriate; however,
actual claims incurred could differ from the original estimates,
requiring adjustments to the reserve. If we were to experience
an increase in warranty claims compared with our historical
experience, or if costs of servicing warranty claims were
greater than the expectations on which our accrual had been
based, our gross margins could be adversely affected. At
March 31, 2003, we had a product warranty liability of
£44 million.

Research and Development

We expended approximately £284 million,
or approximately 18% of revenues, on research and development,
or R&D, in our Network Equipment and Network Services
segments in fiscal 2003 and £487 million, or
approximately 15% of revenues in fiscal 2002. We funded the
entire amount.

We intend to continue to provide a competitive
product portfolio building on existing market leading
characteristics across our Network Equipment and Network
Services product areas despite this reduction in expenditure. As
revenues stabilize, we expect that R&D expenditure will
amount to approximately 10% of expected Network Equipment and
Network Services revenues.

Optical networks accounts for the our largest
product portfolio and generates the largest revenue base.
Optical networks R&D expenditure accounted for almost 40% of
our total R&D expenditure during fiscal 2003 as opposed to
approximately 34% for fiscal 2002. Current R&D projects have
been selected on the basis that they are expected to yield a
higher overall return. We are maintaining continued investment
in next generation SDH products, in particular our recently
launched Series 4 product range which has been designed to
be more cost effective and offer service providers greater
functionality than previous generations of the product. We are
also focusing on the development of our next generation optical
cross connect, the MSH range, our Metro product range, which is
designed for metropolitan applications, as well as our long-haul
DWDM products and further upgrades to our network management
software with the creation of elements to allow new product
network integration and the development of a network control
layer. Investment in network management should ensure that our
customers will retain a full optical network solution, which
evolves along with individual product developments.

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The BBRS business accounted for approximately 23%
of our total R&D expenditure in both fiscal 2003 and 2002.
Over half of this expenditure was focused on the development of
our new multi-service core switch, the BXR-48000. In November
2002, we demonstrated our ability to support the transport of
encrypted high speed data and high definition videos streams
over the BXR-48000 using our newly developed 10 Gbps
OC-192c ATM interface card. Ongoing initiatives on the BXR-48000
are focused on enhancing the products IP functionality.
Other ongoing programs include the further development of the
ASX-4000 switch to incorporate applications that will allow
customers to transport voice traffic over ATM and IP
infrastructures.

R&D expenditure across our European Access
and North American Access businesses combined, accounted for
approximately 24% of our total R&D expenditure in fiscal
2003 as opposed to approximately 31% in fiscal 2002. During the
first calendar quarter of 2002, we carried out an in-depth
review of our complete portfolio of access solutions. This
review was based on an evaluation of the forecast levels and
timing of returns on investment and the cash generation
potential of each product line. Following the review, we
streamlined our portfolio of access technologies and refocused
our R&D expenditure. In Europe, investment now only occurs
in products that meet European Technology Standard Institute, or
ETSI, requirements and that will build on current market and
customer positions. Consequently, R&D is being targeted on
three key product ranges: the Access Hub platform, the Skyband
fixed wireless access products and the Softswitch. Planned
future developments of these products include the ability to
aggregate traffic from 3G mobile base stations into the Access
Hub, the addition of further frequency bands and voice and video
functionality in the design of the fixed wireless products and
the addition of further features and functionality to the
Softswitch. R&D investment in North American Access products
is focused on leveraging their deployed position with existing
customers such as BellSouth. The current portfolio of
copper-based and fiber-based products are being evolved to
support greater deployment flexibility as well as broadband
services. Other ongoing R&D efforts are focused on reducing
the costs of these platforms.

The remaining R&D investment in fiscal 2002
related mainly to OPP products and wireless software. We are
currently focusing our R&D efforts in the OPP business
towards the completion of our next generation power platform and
web-based monitoring system. Smaller projects are also under way
to develop customer specific products as well as redesigning the
current product portfolio to reduce costs. Our wireless R&D
efforts are focused on two product streams, OSS solutions and
Wireless Network Planning solutions.

Inflation

We believe that inflation has not had a material
impact on our results of operations for the three fiscal years
ended March 31, 2003.

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Item 6: Directors, Senior
Management and Employees

DIRECTORS AND SENIOR MANAGEMENT

The current members of our board of directors are:

|                            |  |     |    |       |  |                                             
|--------------------------- |  | --- | -- | ----- |  | --------------------------------------------
|Name                        |  | Age |    | Title
|                            |  |     |    |      
|Chairman:                   |  |     |    |       |  |                                             
|John Francis Devaney        |  |     | 56 |       |  | Chairman                                    
|                            |  |     |    |       |  |                                             
|Executive Directors:        |  |     |    |       |  |                                             
|Michael William John Parton |  |     | 48 |       |  | Chief Executive Officer                     
|Michael John Donovan        |  |     | 50 |       |  | Chief Operating Officer                     
|Christopher Charles Holden  |  |     | 54 |       |  | Interim Chief Financial Officer             
|                            |  |     |    |       |  |                                             
|Non-executive Directors:    |  |     |    |       |  |                                             
|Michael Kent Atkinson       |  |     | 58 |       |  | Non-Executive Director                      
|Werner Karl Koepf           |  |     | 61 |       |  | Non-Executive Director                      
|Ian McMaster Clubb          |  |     | 62 |       |  | Non-Executive Director                      
|Kathleen Ruth Flaherty      |  |     | 52 |       |  | Non-Executive Director                      
|                            |  |     |    |       |  |                                             
|Executive Officers:         |  |     |    |       |  |                                             
|David Clive Beck            |  |     | 40 |       |  | Director of Communications                  
|Geoffrey William Doy        |  |     | 54 |       |  | Chief Executive Officer, Sales and Marketing
|Mary Angela Skelly          |  |     | 42 |       |  | Company Secretary and Head of Legal         
|Damian Hugh Reid            |  |     | 40 |       |  | Chief Strategy Officer                      
|Neil David Sutcliffe        |  |     | 41 |       |  | Chief Human Resources Officer               
|Michael Francis Surrey      |  |     | 36 |       |  | EVP Finance, Operations and Group Controller
|Patricia Dooley             |  |     | 32 |       |  | EVP Product Engineering                     

The business address of John Devaney, Michael
Donovan, Christopher Holden, Kent Atkinson and Michael Parton is
Regents Place, 338 Euston Road, London NW1 3BT,
U.K. The business address of Werner Koepf is
Cuvilliestrasse 10, D-81679 München, Germany. The
business address of Ian Clubb is First Choice House, London
Road, Crawley, West Sussex, RH10 2GX. The business address
of Kathleen Flaherty is 155 60th Street, Avalon, New
Jersey 08202, U.S.A.

Chairman

John Francis
Devaneywas appointed chairman of
our board of directors in December 2002. He is also chairman of
our nomination committee. He stepped down in September 2002 as
chairman of EXEL plc and was a non-executive director of
HSBC Bank plc from 1994 to 2000 and British Steel, now
known as Corus UK Limited, from 1998 to 1999. He was
executive chairman of Eastern Electricity Limited, now known as
Eastern Energy Management Limited, until 1998 and prior to that
executive chairman of Kelsey-Hayes Corporation. Until recently,
Mr. Devaney was chairman of Liberata plc and is
founder and chairman of BizzEnergy Limited. He is also a
director and past chairman of E-A Technology Limited and is
currently a director of Baltic Media Group Limited (in
liquidation), Genient Limited, Mainpower plc, Three Gates
Limited (in liquidation) and Unicorn Music and Dance Limited.

Executive Directors

Michael William John
Partonwas appointed to our board
of directors in November 2001. Mr. Parton was appointed
chief executive officer of our Group in September 2001. He held
a number of finance appointments in ICL plc from 1977 to
1980, GEC-Marconi Limited from 1980 to 1986 and
STC Telecommunications Limited from 1986 to 1991. He joined
GEC in 1991 as Finance Director of GPT, now known as Marconi
Communications Limited, GECs telecommunications joint
venture with

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Siemens, and was appointed managing director of
GPTs public networks group in 1995, managing director of
GECs industrial group in 1997 and chief executive officer
of Marconi Communications in July 1998.


Michael John
Donovanwas appointed to our board
of directors in November 2001. Mr. Donovan was chief
executive of Marconi Systems and Marconi Capital and in
September 2001 was appointed our Groups chief operating
officer. He previously held a number of executive management
positions in the Rover Group from 1976 to 1991, Vickers plc
from 1991 to 1994, and British Aerospace plc, now known as
BAE SYSTEMS plc, from 1994 to 1998. Mr. Donovan became
chief executive officer of GECs industrial electronics
group in 1998 and is based in the United States.

Christopher Charles
Holdenwas appointed to our board
of directors in November 2002. Mr. Holden was appointed
group financial controller in the summer of 2002 and our interim
chief financial officer in November 2002. He became a partner
with Arthur Andersens auditing practice in 1983, having
joined the firm in 1971. During his period with the firm, he
held a number of senior international roles. He holds a
BSc (Eng) in metallurgical engineering from Imperial
College of Science and Technology, University of London, and is
a Fellow of the Institute of Chartered Accountants of England
and Wales.

Non-executive Directors

Michael Kent
Atkinsonwas appointed a
non-executive director in December 2002. He is also chairman of
our audit committee. Previously, he served as group finance
director at Lloyds TSB Group plc between 1994 and June 2002
and left the board in April 2003. Mr. Atkinson spent his
early career in Latin America and the Middle East and held
various senior management roles internationally and in the
United Kingdom for 24 years before becoming Lloyds TSB
Group plcs finance director. Mr. Atkinson is
also the senior non-executive director of Coca-Cola
HBC S.A. (Athens) and chairman of its audit committee. He
joined the board of Cookson Group plc in April 2003 as a
non-executive director and chairman of its audit committee.

Werner Karl
Koepfwas appointed a
non-executive director in December 2002. He was CEO of Compaq
Computer Corporation for the EMEA region until 2002 and is a
director of PXP Software AG, formerly Pixel Park CEE
Holdings AG, as well as an adviser to venture capital
company Techno Venture Management GmbH. Mr. Koepf has
held a range of senior management positions with some of the
worlds leading technology companies, including Texas
Instruments, Siemens and European Silicon Structures S.A.

Ian McMaster
Clubbwas appointed a
non-executive director on May 19, 2003. He has over
25 years experience in a range of senior financial and
management roles. He is chairman of First Choice plc,
Shanks Group plc and Platinum Investment Trust plc and
non-executive chairman of Longville Group Limited. He is also a
non-executive director of oil industry services company, Expro
International plc as well a director of Amalgamated
Scottish Oil Limited and B Elliot Group Limited.
Mr. Clubb was group finance director at BOC Group plc
from 1991 to 1994, and deputy chief executive and group finance
director at British Satellite Broadcasting Ltd from 1989 to 1991.

Kathleen Ruth
Flahertywas appointed a
non-executive director on May 19, 2003. She is a
U.S. based global telecommunications executive with over
twenty years experience in the communications industry.
She has spent seventeen years with MCI Communications
Corporation, most recently as senior vice president, global
product architecture and engineering. Previously from 1995 to
1997, Ms. Flaherty spent two years on secondment from MCI
to BT, during which time she was BTs marketing director
for National Business Communications. Between 1998 and 2001, she
was in Brussels and New York as president and chief operating
officer of Winstar International, a fixed wireless
communications company. Ms. Flaherty is currently a
director of CMS Energy Corporation and Consumers Energy
Company.

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Executive Officers

David Clive
Beckwas appointed our director of
communications in February 2002 having previously been managing
director of Bell Pottinger Financial, part of the Chime
Communications Group, where he held a number of positions over
15 years.

Geoffrey William
Doywas appointed our chief
executive officer, sales and marketing in September 2001. He was
appointed chief executive officer of Marconi Wireless in April
2001. He held a number of positions in the IT and communications
industries with Software Sciences Limited from 1983 to 1988,
Artemis International from 1988 to 1993 and Gemini Consulting
Inc. from 1995 to 1998 before joining Metapath Software
International Inc. in August 1998.

Mary Angela
Skellywas appointed company
secretary in July 2002 and subsequently took on the additional
role of head of legal. She was formerly a director and group
company secretary of The Albert Fisher Group plc, currently
in administrative receivership.

Damian Hugh
Reidwas appointed our chief
strategy officer in September 2001 having previously served as
senior vice president, corporate finance. He joined our Group in
1998. Mr. Reid is a non-executive director of Atlantic
Telecom Group plc, currently in liquidation.

Neil David
Sutcliffewas appointed our chief
human resources officer in March 2002, in addition to his
appointment in September 2001 as chief executive officer of
Marconi Capital. He was previously chief executive officer of
Marconi Services and has held a number of senior appointments
within our Group, in Marconi Communications and GPT Limited.
Prior to his joining our Group in 1992, he was a manufacturing
consultant at Coopers and Lybrand from 1988 to 1992 and a
systems engineer with British Aerospace plc, now known as
BAE SYSTEMS plc, from 1984 to 1988.

Michael Francis
Surreywas appointed EVP
Finance  operations and group controller in November
2002, with responsibility for all aspects of our Groups
performance monitoring and management reporting systems. He
joined our Group in 1992 and has held a broad range of financial
management positions. Mr. Surrey holds a degree in
accounting and economics from the University of Manchester and
is a member of the Institute of Chartered Accountants of England
and Wales.

Patricia
Dooleywas appointed as EVP
product engineering for our European portfolio in October 2002
with responsibility for product line management, technical
product strategy and product development. The portfolio covers
Optical Networks, ETSI Access, Fixed Wireless and Voice
Switching products. She joined our Group in 1987 as an
engineering apprentice and has held a number of management and
senior management positions in our group. Ms. Dooley holds
an Ordinary National Diploma and Higher National Diploma in
telecommunications and electrical engineering and post-graduate
certificate in software engineering.

Board and Management Changes

On July 31, 2002,
Mr. E R Green resigned from his group position of
Executive Vice President, Finance. On December 6, 2002,
Ms. V Gentile Sachs resigned from her group position
as general counsel.

On July 31, 2002, Mr. N Porter
resigned as our director. On November 14, 2002,
Mr. S Hare resigned as our director. On March 14,
2003, Mr. A L Thomas resigned as our director,
having been appointed to the board on December 16, 2002.

Directors Emoluments

The names of our current directors appear in the
table at the beginning of this section. The following pages
contain disclosures for our directors compensation for the
relevant periods presented.

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##### Table of Contents



Year ended March 31,
2003

|             |  |               |       |          |  |       |     |                   |  |                       |       |            |  |              |       |                    |  |              |       |  |  |  |     |  |  |  |     |  |  |  |     |  |  |  |   | 
|------------ |  | ------------- | ----- | -------- |  | ----- | --- | ----------------- |  | --------------------- | ----- | ---------- |  | ------------ | ----- | ------------------ |  | ------------ | ----- |  |  |  | --- |  |  |  | --- |  |  |  | --- |  |  |  | - | 
|             |  |               |       |          |  |       |     |                   |  |                       |       |            |  |              |       |                   
|             |  |               |       |          |  |       |     | Excluding pension |  |                       |       |            |  | Payments to 
|             |  |               |       |          |  |       |     | contributions     |  | Pension contributions |       |            |  | meet pension
|             |  |               |       | Other    |  |       |     |                   |  |                       |       |            |  | commitments 
|             |  | Salary & fees |       | benefits |  | Bonus |     | 2003 total        |  | 2002 total            |       | 2003 total |  | 2002 total   |       | Severance payments |  | on severance
|             |  |               |       |          |  |       |     |                   |  |                       |       |            |  |              |       |                    |  |             
|             |  |              
|             |  | (£000)       
|J F Devaney  |  |               | 74    |          |  |       | 6   |                   |  |                       |      |            |  |              | 80    |                    |  |              |      |  |  |  |    |  |  |  |    |  |  |  |    |  |  |  |  | 
|M W J Parton |  |               | 525   |          |  |       | 95  |                   |  |                       | 696   |            |  |              | 1,316 |                    |  |              | 681   |  |  |  | 172 |  |  |  | 177 |  |  |  |    |  |  |  |  | 
|M J Donovan  |  |               | 416   |          |  |       | 364 |                   |  |                       | 543   |            |  |              | 1,323 |                    |  |              | 735   |  |  |  | 387 |  |  |  | 94  |  |  |  |    |  |  |  |  | 
|C C Holden   |  |               | 114   |          |  |       |    |                   |  |                       |      |            |  |              | 114   |                    |  |              |      |  |  |  |    |  |  |  |    |  |  |  |    |  |  |  |  | 
|S Hare*      |  |               | 312   |          |  |       | 95  |                   |  |                       | 394   |            |  |              | 801   |                    |  |              | 433   |  |  |  | 40  |  |  |  | 25  |  |  |  | 728 |  |  |  |  | 
|M K Atkinson |  |               | 21    |          |  |       |    |                   |  |                       |      |            |  |              | 21    |                    |  |              |      |  |  |  |    |  |  |  |    |  |  |  |    |  |  |  |  | 
|W K Koepf    |  |               | 29    |          |  |       |    |                   |  |                       |      |            |  |              | 29    |                    |  |              |      |  |  |  |    |  |  |  |    |  |  |  |    |  |  |  |  | 
|N C Porter*  |  |               | 42    |          |  |       | 3   |                   |  |                       |      |            |  |              | 45    |                    |  |              | 133   |  |  |  | 6   |  |  |  | 8   |  |  |  |    |  |  |  |  | 
|A L Thomas*  |  |               | 83    |          |  |       |    |                   |  |                       |      |            |  |              | 83    |                    |  |              |      |  |  |  |    |  |  |  |    |  |  |  |    |  |  |  |  | 
|             |  |              
|Total        |  |               | 1,616 |          |  |       | 563 |                   |  |                       | 1,633 |            |  |              | 3,812 |                    |  |              | 1,982 |  |  |  | 605 |  |  |  | 304 |  |  |  | 728 |  |  |  |  | 
|             |  |              



| |    |                       
| | -- | ----------------------
| | *  | no longer a director  
|
| | 1. | Other benefits include



| |       |                                                                                                                                                                 
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1.1) | for M J Donovan and M W J Parton the payment of
    non-pensionable earnings supplement in relation to Funded
    Unapproved Retirement Benefit Schemes (FURBS);
| | (1.2) | car allowance or cash equivalent of a car under
    the Groups car scheme;                                                                                     
| | (1.3) | life insurance cover and medical health
    insurance; and                                                                                                      
| | (1.4) | for M J Donovan, an amount payable to him
    pursuant to the termination of his GEC-USA Deferred Compensation
    Plan.                                        



| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2. | The fees of non-executive directors are
    determined by the board; the basic fee paid (based upon two
    days service per month) during the year was £30,000
    per annum with a further £15,000 per annum paid to the
    chairman of the audit committee and £10,000 to the chairman
    of the remuneration committee. The non-executive directors may
    also be paid a fee of £1,500 per day for each additional
    day devoted to our business over and above the two days per
    month threshold.
|
| | 3. | In addition, the non-executive directors are to
    be paid fees which, by agreement with the non-executive
    directors, will be specifically used to purchase our shares.
    These fees are to be paid in advance for each of the
    corresponding years of their appointment (or, in the case of the
    first years advance payment, on May 29, 2003) as
    follows:                                                                                                                                   

|             |  |        |         |        |  |        |        |  |  |   |        | 
|------------ |  | ------ | ------- | ------ |  | ------ | ------ |  |  | - | ------ | 
|             |  | Year 1 |         | Year 2 |  | Year 3
|             |  |       
|             |  |       
|M K Atkinson |  | £      | 100,000 |        |  | £      | 30,000 |  |  | £ | 30,000 | 
|I M Clubb    |  | £      | 30,000  |        |  | £      | 30,000 |  |  | £ | 30,000 | 
|K R Flaherty |  | £      | 30,000  |        |  | £      | 30,000 |  |  | £ | 30,000 | 
|W K Koepf    |  | £      | 100,000 |        |  | £      | 30,000 |  |  | £ | 30,000 | 
|             |  |       



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The non-executive directors must hold the shares
    purchased in the first year for three years from the date of
    their appointment and those purchased in the second and third
    years for one year from the respective purchase dates. Upon
    termination of an appointment any advance fee is to be repaid on
    a pro-rata basis. The chairman has discretion to waive the
    holdings periods if he believes there is a valid reason to do so.



| |    |                                                                                                                                                                                         
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 4. | Non-executive Directors do not have service
    contracts and do not participate in any of the incentive
    arrangements open to executive directors or the groups
    pension scheme.
|
| | 5. | All directors are reimbursed all necessary and
    reasonable expenses incurred in the performance of their duties.                                                                     

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| |    |                                                                              
| | -- | -----------------------------------------------------------------------------
| | 6. | Pension contributions include contributions by us
    to all pension schemes.

The following table shows emoluments paid or
payable to all directors and executive officers of Marconi
Corporation plc as a group for the period to March 31, 2003.

|                                                |  |          |       |          |  |       |       |               |  |               |       |                 |  |       |       |       |  |       |       |  |  |  |     |  |  |  |     |  |  |  |   |  |  |  |   | 
|----------------------------------------------- |  | -------- | ----- | -------- |  | ----- | ----- | ------------- |  | ------------- | ----- | --------------- |  | ----- | ----- | ----- |  | ----- | ----- |  |  |  | --- |  |  |  | --- |  |  |  | - |  |  |  | - | 
|                                                |  |          |       |          |  |       |       |               |  |               |       |                 |  |      
|                                                |  |          |       |          |  |       |       | Excluding     |  |               |       | Gains made on  
|                                                |  |          |       |          |  |       |       | pension       |  | Pension       |       | the exercise of
|                                                |  |          |       |          |  |       |       | contributions |  | contributions |       | share options  
|                                                |  | Salary   |       | Other    |  |       |       | 2003          |  | 2002          |       | 2003            |  | 2002  |       |      
|(£000)*                                         |  | and fees |       | benefits |  | Bonus |       | Total         |  | Total         |       | Total           |  | Total |       | Total |  | Total
|                                                |  |         
|                                                |  |         
|Total for all directors and executive officers* |  |          | 3,070 |          |  |       | 1,537 |               |  |               | 2,879 |                 |  |       | 7,486 |       |  |       | 1,983 |  |  |  | 876 |  |  |  | 304 |  |  |  |  |  |  |  |  | 
|                                                |  |         



| |   |                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | * | includes the remuneration of Mr. Porter who
    resigned in July 2002, Mr. Hare who resigned in November
    2002 and Mr. Thomas who was a director between December
    2002 and March 2003.

The emoluments for all our directors and
executive officers are in respect of full years or, where
appropriate, from their dates of appointment.

Short-term incentive bonus

In fiscal 2003, executive directors as well as
some of our other employees participated in an exceptional
incentive plan, known as the Retention and Emergence Plan, with
payment related to successful completion of our restructuring.
The maximum payment under this plan was 150% of salary. The
executive directors agreed to waive the final instalment payable
under this plan (37.5% of salary). Executive directors also
participated in a quarterly incentive plan with payments due for
the achievement of targets for the generation of total cash.
Payments relating to the first two quarters of fiscal 2003, were
not made under this plan and the executive directors have agreed
to waive entitlement to these payments on signing their new
employment agreements with us which came into effect
May 19, 2003.

Payments in respect of the third quarter of
fiscal 2003, and for the achievement of cash generation targets
relating to the sale of businesses were made, totaling 20% of
basic salary.

Retirement benefits

All of our executive directors are members of, or
entitled to be members of our group pension scheme, The G.E.C.
1972 Plan (the U.K. plan). Members contribute at the rate of 3%
of salary subject to limits imposed by the U.K. Inland Revenue.
Contributions made by us during the year ended March 31,
2003 amounted to 11.7% of salary similarly restricted and 6.6%
in fiscal 2002. We increased employers contributions to
14.2% of salary as of April 6, 2002 but reduced it to 8.2%
on November 1, 2002. Basic salary is the only element of
remuneration that is pensionable.

The pension benefits earned by our directors
under the plan are:

|                 |  |             |    |                 |  |                  |   |                    |  |  |   |  |  |  |    | 
|---------------- |  | ----------- | -- | --------------- |  | ---------------- | - | ------------------ |  |  | - |  |  |  | -- | 
|                 |  |             |    |                 |  | Cost of pension  |   |                   
|                 |  |             |    |                 |  | benefits accrued |   |                   
|                 |  | Length of   |    | Increase in     |  | during the year  |   | Accumulated total 
|                 |  | pensionable |    | accrued pension |  | net of members  |   | accrued pension at
|                 |  | service     |    | during the year |  | contributions    |   | March 31, 2003    
|Name of Director |  | (years)     |    | £000            |  | £000             |   | £000              
|                 |  |            
|                 |  |            
|M J Donovan      |  |             | 4  |                 |  |                  | 1 |                    |  |  |  |  |  |  | 7  | 
|M W J Parton     |  |             | 12 |                 |  |                  | 2 |                    |  |  |  |  |  |  | 26 | 
|S Hare           |  |             | 14 |                 |  |                  | 2 |                    |  |  | 3 |  |  |  | 71 | 
|                 |  |            

The pension entitlement shown above is that which
would be paid annually at normal retirement age based on service
to March 31, 2003. The increase in accrued pension during
the year excludes any increase

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for inflation. 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 pension arrangements and not a
sum paid or due to executive directors.


Members of the plan have the option to make
contributions to our selected benefits scheme, an additional
voluntary contribution scheme. Neither the contributions to, nor
the resulting benefits from, the selected benefits scheme are
included in the above table.

Funded unapproved retirement benefit schemes, or
FURBS, have been established for two of our current
directors  M J Donovan and
M W J Parton. In the case of
M W J Parton, gross contributions to the FURBS
are paid at the rate of 35% of basic salary, with 21% being paid
into the FURBS and the remaining 14% direct to
M W J Parton. The accumulated balance in the
FURBS, including investment returns, is payable to
M W J Parton on retirement.
M J Donovans FURBS is funded on a defined
benefit basis, with projected benefits, including under other
plans, of two-thirds of his final pensionable salary. The
pension will be made up from M J Donovans
benefits under the U.K. plan, the FURBS, two BAE pension
plans and any other retained benefits he may have. The current
contribution rate is 39% of his base salary, although while
M J Donovan is posted to the United States, the rate
is 46%, owing to local tax legislation. FURBS contributions for
M J Donovan are paid into the FURBS and to
M J Donovan himself in the ratio of 60:40, or as
necessary under U.S. tax law. This is because the contributions
are taxable benefits, so the payment to M J Donovan is
to offset the higher income tax charge for which he is liable.
The FURBS documents oblige us to fund an unapproved life
assurance scheme, which is to provide a lump sum on death in
service of four times basic salary and a widows pension of
four-ninths of final pensionable salary. An additional
contribution of £240,000 was paid into
M J Donovans FURBS on June 21, 2002 to make
good a deficit shown by its last actuarial valuation. The normal
retirement age is 62 for executive directors. If
M J Donovan retires on or after his fifty-fifth
birthday, there will be no actuarial reduction in the value of
his benefits. In the event of cessation of employment before
normal retirement age, or at retirement age, each of the
directors is entitled to the amount held in the FURBS
established for him.

The remuneration committee has reviewed the cost
of FURBS arrangements for the executive directors and has
decided that it is not appropriate to our changed circumstances
following our financial restructuring. Consequently, we have
sought to change the basis of the FURBS we provide for the
current Executive Directors. With effect from April 1,
2002, the FURBS for M W J Parton was changed to a
defined contribution basis as described below. For the fiscal
year ended March 31, 2003, the only current director who
had a defined benefit FURBS was M J Donovan.

The pension benefits earned by the directors of
Marconi Corporation plc under the FURBS arrangements for
the period to March 31, 2003 are as follows:

|                 |  |             |   |                   |  |                    |   |                    |  |  |    |  |  |  |    | 
|---------------- |  | ----------- | - | ----------------- |  | ------------------ | - | ------------------ |  |  | -- |  |  |  | -- | 
|                 |  |             |   | Increase in gross |  | Net cost of        |   | Accumulated total 
|                 |  | Length of   |   | unapproved        |  | unapproved pension |   | gross unapproved  
|                 |  | pensionable |   | accrued pension   |  | benefits accrued   |   | accrued pension at
|                 |  | service     |   | during the year   |  | during the year    |   | March 31, 2003    
|Name of Director |  | (years)     |   | £000              |  | £000               |   | £000              
|                 |  |            
|                 |  |            
|M J Donovan      |  |             | 4 |                   |  |                    | 6 |                    |  |  | 30 |  |  |  | 72 | 
|                 |  |            

The pension entitlement shown above is that which
would be paid annually at normal retirement based on service to
March 31, 2003. The increase in accrued pension during the
year excludes any increase for inflation. Mr. Parton has a
defined contribution FURBS arrangement. During the year we paid
the following contributions to the trustee of the FURBS in
respect of each of the executive directors:
Mr. M J Donovan £334,778 (£63,966 in
2002); Mr. M W J Parton £110,250
(£147,000 in 2002). Periodically the actuary reviews the
contribution rates.

Mr. J C Mayo resigned as an executive
director of Marconi plc on July 6, 2001. A payment of
£428,333 was paid in respect of his defined benefit FURBS
at that time in respect of pensionable service

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for the period to July 5, 2002 and in
addition, a non-pensionable allowance of £422,000 was paid
in respect of Mr. Mayo on January 24, 2003. In March
2003, a payment was made in respect of Mr. Mayos
FURBS of £898,000 in final settlement of his FURBS
entitlement.


Mr. R I Meakin resigned as an executive
director of Marconi plc on March 1, 2002. A payment of
£290,000 was paid in respect of his defined benefit FURBS
in April 2002 and a non-pensionable allowance of £93,000
was paid directly to Mr. Meakin. On January 14, 2003,
a further payment of £278,000 was paid in respect of his
FURBS and a non-pensionable allowance of £185,000 was paid
directly to Mr. Meakin in final settlement of his FURBS
entitlement.

Our ability to satisfy pension obligations for
executive directors subject to the earnings cap from our
approved pension scheme, rather than unapproved schemes, is
influenced by benefits payable from other approved pension
schemes from their previous employment. In respect of
Mr. Parton, benefits accrued under approved pension plan
from previous employment are lower than previously anticipated.
Consequently, a higher proportion of his accrued pension benefit
can be paid from the U.K. plan, as opposed to FURBS
arrangements and his accrued pension under the U.K. plan
has been increased as a result. His entitlement under the FURBS
arrangements has been reduced by a corresponding amount.

Directors and Other Interests in our
Company

Directors options for the year ended
March 31, 2003

The following table shows the interests of
directors in options over ordinary shares of 5 pence each
in Marconi plc, our former parent company:

|                                                                                                  |  |                  |           |          |  |           |     |            |  |            |   |       |  |                   |   |          |  |             |   |       |  |      |   |    |  |  |         |  |  |  |       |  |  |  |           |  |  |  |     |  |  |  |          |  |  |  |          | 
|------------------------------------------------------------------------------------------------- |  | ---------------- | --------- | -------- |  | --------- | --- | ---------- |  | ---------- | - | ----- |  | ----------------- | - | -------- |  | ----------- | - | ----- |  | ---- | - | -- |  |  | ------- |  |  |  | ----- |  |  |  | --------- |  |  |  | --- |  |  |  | -------- |  |  |  | -------- | 
|                                                                                                  |  |                  |           |          |  |           |     |            |  |            |   |       |  |                   |   |          |  |             |   |       |  |     
|                                                                                                  |  |                  |           | Granted  |  |           |     |            |  |            |   |       |  |                   |   |          |  |            
|                                                                                                  |  | At April 1, 2002 |           | during   |  |           |     |            |  |            |   |       |  | At March 31, 2003 |   |          |  |            
|                                                                                                  |  |                  |           | the year |  |           |     |            |  |            |   |       |  |                  
|                                                                                                  |  |                  |           |          |  | Exercised |     | Lapsed     |  |            |   |       |  |                  
|                                                                                                  |  |                  |           | Average  |  |           |     | during the |  | during the |   |       |  | Average           |   |         
|                                                                                                  |  |                  |           | exercise |  |           |     | Exercise   |  | Year       |   | year  |  |                   |   | exercise |  | Exercisable
|                                                                                                  |  |                  |           | price    |  |           |     | price      |  |            |   |       |  |                   |   | price    |  |            
|                                                                                                  |  | No.              |           | pence    |  | No.       |     | pence      |  | No.        |   | Pence |  | No.               |   | Pence    |  | No.         |   | pence |  | From |   | To
|                                                                                                  |  |                  |           |          |  |           |     |            |  |            |   |       |  |                   |   |          |  |             |   |       |  |      |   |   
|M J Donovan                                                                                       |  |                  | 6,299     |          |  |           | Nil |            |  |            |  |       |  |                   |  |          |  |             |  |       |  |      |  |    |  |  |        |  |  |  |      |  |  |  | 6,299     |  |  |  | Nil |  |  |  | Jun 2001 |  |  |  | Nov 2009 | 
|                                                                                                  |  |                  | 3,330,000 |          |  |           | 187 |            |  |            |  |       |  |                   |  |          |  |             |  |       |  |      |  |    |  |  |        |  |  |  |      |  |  |  | 3,300,000 |  |  |  | 187 |  |  |  | Nov 1999 |  |  |  | Nov 2003 | 
|S Hare                                                                                            |  |                  | 12,596    |          |  |           | Nil |            |  |            |  |       |  |                   |  |          |  |             |  |       |  |      |  |    |  |  |        |  |  |  |      |  |  |  | 12,596    |  |  |  | Nil |  |  |  | Jun 2001 |  |  |  | Nov 2009 | 
|                                                                                                  |  |                  | 2,484,034 |          |  |           | 142 |            |  |            |  |       |  |                   |  |          |  |             |  |       |  |      |  |    |  |  | 1,036   |  |  |  | 747.5 |  |  |  | 2,482,998 |  |  |  | 142 |  |  |  | Feb 1997 |  |  |  | Nov 2003 | 
|M W J Parton                                                                                      |  |                  | 29,405    |          |  |           | Nil |            |  |            |  |       |  |                   |  |          |  |             |  |       |  |      |  |    |  |  |        |  |  |  |      |  |  |  | 29,405    |  |  |  | Nil |  |  |  | Jun 2001 |  |  |  | Nov 2009 | 
|                                                                                                  |  |                  | 4,444,958 |          |  |           | 221 |            |  |            |  |       |  |                   |  |          |  |             |  |       |  |      |  |    |  |  |        |  |  |  |      |  |  |  | 4,444,958 |  |  |  | 221 |  |  |  | Nov 1999 |  |  |  | Nov 2003 | 
|N C Porter*                                                                                       |  |                  | 8,337     |          |  |           | Nil |            |  |            |  |       |  |                   |  |          |  |             |  |       |  |      |  |    |  |  | 8,337   |  |  |  | Nil   |  |  |  |          |  |  |  |    |  |  |  |         |  |  |  |          | 
|                                                                                                  |  |                  | 270,770   |          |  |           | 287 |            |  |            |  |       |  |                   |  |          |  |             |  |       |  |      |  |    |  |  | 270,770 |  |  |  | 287   |  |  |  |          |  |  |  |    |  |  |  |         |  |  |  |          | 
|* N C Porters options lapsed on
    July 31, 2002 being the date on which he left our employment |  |                  |           |          |  |           |     |           



---

Notes:



| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | Our directors are of the opinion that disclosure
    of the details of each grant of the options referred to in the
    above table would result in an excessively lengthy report.
    Accordingly details of all options have been aggregated. All
    options have exercise prices that exceed the market price of a
    Marconi plc share as at March 31, 2003, other than nil cost
    options granted under the Marconi Launch Share Plan and the
    Marconi Long-Term Incentive Plan. Marconi plc shares were
    de-listed from the London Stock Exchange on May 19, 2003
    and there is no listed market for those shares.
|
| | 2. | The mid-market price of a Marconi plc share as at
    March 31, 2003 was 1.75 pence with a range during the year
    of 12.55 pence to 1.27 pence.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| | 3. | The options set out above relate to those granted
    under the GEC Managers 1984 Share Option Scheme, the GEC
    1997 Executive Share Option Scheme, the Marconi 1999 Stock
    Option Plan, the GEC Phantom Option Schemes, the Marconi Launch
    Share Plan, the Marconi Long-Term Incentive Plan, the GEC
    Employee 1992 Savings-Related Share Option Scheme and the
    Marconi U.K. Sharesave Plan.                                                                                                                                                                                                                      
|
| | 4. | Options granted under GEC Managers 1984
    Share Option Scheme, the GEC 1997 Executive Share Option Scheme,
    the Marconi 1999 Stock Option Plan, the GEC Employee 1992
    Savings-                                                                                                                                                                                                                                                                                                                                                                                                                                             

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| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Related Share Option Scheme and the Marconi U.K.
    Sharesave Plan vested upon the courts sanctioning the Marconi
    plc Scheme of Arrangement and will lapse 6 months
    thereafter. Options granted under the GEC Phantom Option Schemes
    lapsed when the we ceased to be a subsidiary of Marconi plc.
    Options granted under the LTIP vested when the we ceased to be a
    subsidiary of Marconi plc. Options granted under the Marconi
    Launch Plan lapse on the tenth anniversary of the grant.

Options over our ordinary shares were granted to
the following directors under The Marconi Corporation Plc
Senior Management Share Option Plan described herein on
June 24, 2003, such options being exercisable at the price
and between the dates shown below:

|                            |  |              |            |                |  |                 |      |  |  |  |                   | 
|--------------------------- |  | ------------ | ---------- | -------------- |  | --------------- | ---- |  |  |  | ----------------- | 
|                            |  | Number of    |            |                |  |                
|                            |  | Marconi      |            |                |  |                
|                            |  | Corporation  |            | Total          |  |                
|                            |  | shares under |            | exercise price |  |                
|Name of Director            |  | option       |            | (per exercise) |  | Exercise period
|                            |  |             
|                            |  |             
|Michael William John Parton |  |              | 17,500,000 |                |  |                 | £1   |  |  |  | May 2004-May 2013 | 
|Michael John Donovan        |  |              | 10,000,000 |                |  |                 | £nil |  |  |  | May 2004-May 2013 | 
|John Francis Devaney        |  |              | 3,000,000  |                |  |                 | £1   |  |  |  | May 2004-May 2013 | 

With the exception of M J Donovan
holders are required to pay £1 per exercise of an
option or part thereof.

No director has or has had any interest in any
transactions which are or were unusual in their nature or
conditions or are or were significant to our business and which
were effected by us during the current or immediately preceding
financial year or during an earlier financial year and which
remain in any respect outstanding or unperformed.

Directors Service Agreements and
Emoluments

The chairman and the executive directors have
service agreements with us that were effective on or after
May 19, 2003 as follows:

John Francis
Devaney, as chairman, has a service
agreement with us dated March 14, 2003 and to which Marconi
plc is also a party to take the benefits of
Mr. Devaneys covenants. The agreement is effective on
and from December 16, 2002. All payments and benefits due
to Mr. Devaney are payable by us. The agreement is
terminable by either party on three months notice and
terminates automatically on Mr. Devaneys 65th
birthday. Mr. Devaneys salary is £250,000 per
annum and he is required to devote three days per week to his
duties. Mr. Devaney is entitled to participate in the
management plan described below and to membership of the U.K.
plan. His benefits comprise private medical insurance, life
insurance, company car and fifteen working days holiday
per annum.

The agreement lists the companies in respect of
which Mr. Devaney is already a director and permits him to
continue those other interests, so long as they do not affect
his obligations under the service agreement. Consent may not be
unreasonably withheld or delayed should Mr. Devaney wish to
be interested in companies substituted for, or additional to,
the agreed list of companies from time to time provided that his
duties are not adversely affected and that he does not
contravene the overriding obligation not to hold more than 5% in
any class of securities in any business.

There are no clauses relating to payments in lieu
of notice or change of control and there are no restrictive
covenants.

Michael William John
Parton, as chief executive officer,
has a service agreement which took effect on May 19, 2003.
The agreement lasts until Mr. Partons sixty-second
birthday but may be terminated earlier by us if we give twelve
months notice and by Mr. Parton if he gives six
months notice. The basic salary is £525,000 per
annum, inclusive of directors fees, which is reviewable on
July 1, 2004, and thereafter annually, and Mr. Parton
is eligible to participate in the senior management share option
plan.

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His agreement provides for participation in a
company car scheme and private medical healthcare for himself
and his family.


Mr. Parton is entitled to participate in the
G.E.C. 1972 pension plan, which we refer to as the U.K. plan,
described below, to which he contributes 3% of his basic salary,
up to a maximum of 15% of the U.K. Inland Revenue earnings cap,
which was £97,200 in the 2002/2003 tax year. As a
consequence of the earnings cap restricting the amount an
employer can contribute into an exempt approved pension plan,
Mr. Parton has a funded unapproved retirement benefits
scheme, or FURBS, to which we contribute an amount equal to 21%
of his basic salary, with a further 14% of his basic salary
being paid to Mr. Parton as a non-pensionable allowance. In
addition, and as compensation for Mr. Parton changing to a
defined benefit pension arrangement into a defined contribution
plan in fiscal 2002, we made net contributions of £88,250
to the FURBS and associated non-pensionable allowances of
£58,833.33 to Mr. Parton himself on April 15,
2003, and have agreed to make similar contributions on
July 15, 2003, October 15, 2003 and January 15,
2004. The payments are conditional on Mr. Parton remaining
in our employ and if his employment is terminated, other than
for cause, any payments which have not been made on or before
the termination date will become due immediately. FURBS
contributions for Mr. Parton are paid to the FURBS and to
Mr. Parton himself in the ratio 60:40. This is because the
contributions are taxable benefits, so the payment to
Mr. Parton is to offset the higher income tax charge for
which he is liable. The FURBS documents oblige us to fund an
unapproved life assurance scheme, which is to provide a lump sum
on death in service of four times basic salary and a
widows pension of four-ninths of final pensionable salary.

The service agreement contains a provision
entitling us to make a payment in lieu of notice, which we refer
to as a PILON payment, if we terminate the service agreement
without giving Mr. Parton 12 months notice. The
amount of the payment is at the reasonable discretion of the
remuneration committee, which is to consider the relationship
between our and Mr. Partons performances. The maximum
PILON payment may not exceed the aggregate of the following
amounts for the notice period, or the unexpired balance of it:
(1) base salary; (2) 166% of the cash equivalent
transfer value of the pension contributions, net of tax, which
would have accrued in the U.K. plan; (3) 100% of the gross
contributions which we would have paid in respect of
Mr. Partons FURBS; and (4) the cost to us of
providing benefit, other than bonus, pension and incentive
entitlements, which cost we may set at 10% of
Mr. Partons base salary. The PILON payment will be
taxable in Mr. Partons hands. If we do not make a
full PILON payment, i.e. if the remuneration committee reduces
the amount payable, Mr. Partons protective covenants
will enure for a proportionately shorter period after the
termination of his employment.

In addition, the service agreement includes a
change of control clause that provides Mr. Parton with a
right to a payment if we undergo a change of control and one of
the events described below occurs. Change of control is defined
as the acquisition of the power to control the composition of
our board or, by a variety of means, that our affairs are
conducted in a certain manner. If, immediately following an
acquisition of our shares, the shares in the acquiring company
are all held by the holders of our shares immediately prior to
the acquisition in materially the same proportion as prior to
the acquisition, then that will not constitute a change of
control. If the terms of the clause are triggered,
Mr. Parton will be entitled to a payment calculated on the
same basis as the PILON payment. The events are:



| |     |                                                                                                                               
| | --- | ------------------------------------------------------------------------------------------------------------------------------
| | (a) | We or any other group company terminate his
    employment, other than for cause;                                             
|
| | (b) | Mr. Parton ceasing to be one of our
    directors other than by reason of his voluntary resignation; or                       
|
| | (c) | if Mr. Parton terminates the service
    agreement for a good reason. The good reasons are
    one or more of the following:



| |   |                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a failure to maintain Mr. Parton in the
    role, or a substantially equivalent position, which he held
    immediately prior to the change of control;

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | an adverse change of material consequence in the
    nature or scope of the authorities, powers, functions,
    responsibilities or duties attached to the position which
    Mr. Parton held immediately prior to the change of control;                                                                                                                                                                                                                  
|
| |  | a reduction in the aggregate of
    Mr. Partons basic annual salary and share based
    incentives and other benefits received from us or any group
    company, or the termination or denial of Mr. Partons
    rights to employee benefits or a substantial reduction in the
    scope or value thereof where such reduction is not applied to
    other employees of a similar status and seniority to
    Mr. Parton;                                
|
| |  | a change in the scope of the business or other
    activities for which Mr. Parton was responsible immediately
    prior to the change of control, which has rendered
    Mr. Parton substantially unable to carry out, has
    substantially hindered Mr. Partons performance of, or
    has caused him to suffer a substantial reduction in, any of the
    authorities powers, functions, responsibilities or duties
    attached to his position held;
|
| |  | if we require Mr. Parton to have his
    principal location of work changed to any location that is in
    excess of 25 miles from its location immediately prior to the
    change of control without his prior written consent; or                                                                                                                                                                                                                       
|
| |  | any material breach of the service agreement by
    us or any successor.                                                                                                                                                                                                                                                                                                                                                                                   

In each case of a good reason,
however, Mr. Parton must first have notified us of the act
or omission and we must have failed within 10 calendar days to
gain Mr. Partons agreement to any change or must in
that period have remedied the act or omission.

There is a provision to place Mr. Parton on
garden leave if notice to terminate is served by either party
without triggering any PILON payment. Mr. Parton is subject
to post-termination protective covenants relating to
non-solicitation of clients and managerial or technical
employees, non-dealing with clients and not competing with our
business. All the covenants are stated to last for
12 months, save for that relating to non-competing, which
lasts for six months. Please see the comments relating to PILON
payments for a potential reduction in the periods of the
protective covenants.

Mr. Parton was a member of the retention and
emergence plan described below. The plan promised a bonus equal
to 150% of his base salary, paid in four equal tranches, three
of which have been paid. The fourth tranche has been waived.

Michael John
Donovan, as chief operating officer,
has a service agreement that took effect on May 19, 2003.
The agreement lasts until Mr. Donovans sixty-second
birthday but may be terminated earlier by us if we give twelve
months notice and by Mr. Donovan if he gives six
months notice. The basic salary is £400,000 per
annum, inclusive of directors fees, which is reviewable on
July 1, 2004, and thereafter annually, and Mr. Donovan
is eligible to participate in the senior management share option
plan. His agreement provides for participation in a company car
scheme and private medical healthcare for himself and his family.

Mr. Donovan is entitled to participate in
the U.K. plan, described below, to which he contributes 3% of
his basic salary, up to a maximum of 15% of the U.K. Inland
Revenue earnings cap. As a consequence of the earnings cap
restricting the amount an employer can pay into an exempt
approved pension plan, Mr. Donovan also has a funded
unapproved retirement benefits scheme, or FURBS.
Mr. Donovans FURBS is funded on a defined benefit
basis, with projected benefits of two-thirds of his final
pensionable salary. The pension will be made up from
Mr. Donovans benefits under the U.K. plan, the FURBS,
two BAE pension plans and any other retained benefits he may
have. If Mr. Donovan retires on or after his fifty-fifth
birthday, there will be no actuarial reduction in the value of
his benefits. The current contribution rate, to be reviewed in
May 2003, is 39% of his base salary, although while
Mr. Donovan is posted to the United States, the rate is
46%, owing to local tax legislation. If Mr. Donovan leaves
service on the grounds of ill-health and receives an immediate
ill-health pension from the U.K. plan, the total pension payable
to him will be two-thirds of his final pensionable salary at the
date of leaving. FURBS

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contributions for Mr. Donovan are paid into
the FURBS and to Mr. Donovan himself in the ratio of 60:40,
or as necessary under U.S. tax law. This is because the
contributions are taxable benefits, so the payment to
Mr. Donovan is to offset the higher income tax charge for
which he is liable. The FURBS documents oblige us to fund an
unapproved life assurance scheme, which is to provide a lump sum
on death in service or four times basic salary and a
widows pension of four-ninths of final pensionable salary.


The service agreement contains a provision
entitling us to make a payment in lieu of notice, or PILON
payment, if we terminate the service agreement without giving
Mr. Donovan 12 months notice. The PILON payment
comprises the following amounts for the notice period, or the
unexpired balance of it: (1) base salary; (2) 166% of
the cash equivalent transfer value of the pension contributions,
net of tax, which would have accrued in the U.K. plan;
(3) 166% of the net contributions which we would have paid
into Mr. Donovans FURBS; and (4) the cost, to
us, of providing benefits, other than bonus, pension and
incentive entitlements, which cost we may set at 10% of
Mr. Donovans base salary. The PILON payment would be
taxable in Mr. Donovans hands.

In addition, the service agreement includes a
change of control clause which provides Mr. Donovan with a
right to payment if we undergo a change of control and one of
the events described below occurs. Change of control is defined
as the acquisition of the power to control the composition of
our board or, by a variety of means, that its affairs are
conducted in a certain manner. If, immediately following an
acquisition of our shares, the shares in the acquiring company
are all held by the holders of our shares immediately prior to
the acquisition in materially the same proportion as prior to
the acquisition, then that will not constitute a change of
control. If the terms of the clause are triggered,
Mr. Donovan will be entitled to a payment calculated on the
same basis as the PILON payment. The events are:



| |     |                                                                                                                                  
| | --- | ---------------------------------------------------------------------------------------------------------------------------------
| | (a) | we or any other group company terminate his
    employment (other than for cause);                                               
|
| | (b) | Mr. Donovan ceasing to be one of our
    directors other than by reason of his voluntary resignation; or                         
|
| | (c) | if Mr. Donovan terminates the service
    agreement for a good reason. The good
    reasons are one or more of the following:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a failure to maintain Mr. Donovan in the
    role, or a substantially equivalent position, which he held
    immediately prior to the change of control;                                                                                                                                                                                                                                                                                                      
|
| |  | an adverse change of material consequence in the
    nature or scope of the authorities, powers, functions,
    responsibilities or duties attached to the position which
    Mr. Donovan held immediately prior to the change of control;                                                                                                                                                                                                                    
|
| |  | a reduction in the aggregate of
    Mr. Donovans basic annual salary and share based
    incentives and other benefits received from us or any group
    company, or the termination or denial of Mr. Donovans
    rights to employee benefits or a substantial reduction in the
    scope or value thereof where such reduction is not applied to
    other employees of a similar status and seniority to
    Mr. Donovan;                                
|
| |  | a change in the scope of the business or other
    activities for which Mr. Donovan was responsible
    immediately prior to the change of control, which has rendered
    Mr. Donovan substantially unable to carry out, has
    substantially hindered Mr. Donovans performance of,
    or has caused him to suffer a substantial reduction in, any of
    the authorities powers, functions, responsibilities or duties
    attached to his position held;
|
| |  | if we require Mr. Donovan to have his
    principal location of work changed to any location that is in
    excess of 25 miles from its location immediately prior to the
    change of control without his prior written consent; or                                                                                                                                                                                                                         
|
| |  | any material breach of the service agreement by
    us or any successor.                                                                                                                                                                                                                                                                                                                                                                                      

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In each case of a good reason,
however, Mr. Donovan must first have notified us of the act
or omission and we must have failed within 10 calendar days to
gain Mr. Donovans agreement to any change or must in
that period have remedied the act or omission.

There is a provision to place Mr. Donovan on
garden leave if notice to terminate is served by either party
without triggering the PILON payments. Mr. Donovan is
subject to post-termination protective covenants relating to
non-solicitation of clients and managerial or technical
employees, non-dealing with clients and not competing with our
business. All the covenants are stated to last for
12 months, save for that relating to non-competing, which
lasts for six months.

Mr. Donovan also has an arrangement relating
to his location in the United States, which contains expatriate
arrangements to cover relocation, housing, exchange rate
fluctuation, flights for himself and his family and matters
common to expatriate terms for senior executives.

Mr. Donovan was a member of the Retention
and Emergence Plan described below. The plan promised a bonus
equal to 150 percent of his base salary, paid in four equal
tranches, three of which have been paid. The fourth tranche has
been waived.

Christopher Charles
Holden, as interim chief financial
officer, has a service agreement with us dated December 13,
2002, as varied on January 28, 2003. His role is as our
interim chief financial officer but we can reassign him to
another position, so long as it is commensurate with his status
and seniority. The contract is for a fixed term, commencing on
November 14, 2002 and ending on June 30, 2003.
However, we expect that this term will be extended to
September 30, 2003. The basic salary is £25,000 per
month, inclusive of directors fees.

Mr. Holden is entitled to join the U.K. plan
but there are no other pension arrangements set out in his
contract. We are entitled to terminate Mr. Holdens
employment immediately by making a payment in lieu of the base
salary he would otherwise have earned in the balance of his
fixed term. Mr. Holden is subject to post termination
protective covenants, all of which are to last for six months
following the termination date. The covenants cover
non-solicitation of clients, non-dealing with clients,
non-poaching of managerial or technical employees and
non-competing with group companies.

Each of our non-executive directors has agreed
terms of appointment with us as follows:

Michael Kent
Atkinsonwas appointed a non-executive
director on December 16, 2002 for an initial term of three
years, subject to provisions outlined below.
Mr. Atkinsons duties include chairmanship of the
audit and membership of the nomination and remuneration
committees. His fee is £30,000 per annum, which includes
the fee payable as a non-executive director of Marconi plc,
based on him spending two days per month on his duties for both
companies. Although he will not normally be expected to provide
his services for more than 52 days per annum, he is
entitled to a fee of £1,500 per day for each additional day
over the two day per month threshold. His fee is reviewable
annually on July 1 and we will reimburse business expenses.
Mr. Atkinson is also entitled to an advance fee for each of
the first three years of his appointment. The fee paid was
£100,000 for the first year and will be £30,000 for
each of the next two years which will be net of any tax or
national insurance contributions. The net amount of each
years fee will be invested in our ordinary shares.
Mr. Atkinson has agreed to hold the ordinary shares
acquired with the first years advance fee for three years
from the date of his appointment and ordinary shares acquired
with each of the next two years payment for one year. If
Mr. Atkinsons appointment terminates in any year for
which an advance fee has been paid he is obliged to repay a
pro-rated amount of that years fee. Mr. Atkinson will
also be entitled to a fee of £15,000 per annum for so long
as he serves as chairman of the audit committee. There is no
other remuneration or benefits.

Werner Karl Koepfwas appointed a non-executive director on December 16, 2002
for an initial term of three years, subject to the provisions
outlined below. Mr. Koepfs duties include membership
of the audit, remuneration and nomination committees. His fee is
£30,000 per annum, which includes the fee payable as a
non-executive director of Marconi plc, based on him spending two
days per month on his duties for both companies. Although he
will not normally be expected to provide his services for more
than 52 days per annum, he is entitled to a fee of
£1,500 for each additional day worked over the two day per

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month threshold. These fees are reviewable
annually on July 1 and we will reimburse business expenses.
Mr. Koepf is also entitled to an advance fee for each of
the first three years of his appointment. The fee paid was
£100,000 for the first year and will be £30,000 for
each of the next two years which will be net of any tax or
national insurance contributions. The net amount of each
years fee will be invested in our ordinary shares acquired
with the first years advance fee for three years from the
date of his appointment and the ordinary shares acquired with
each of the next two years payment for one year. If
Mr. Koepfs appointment terminates in any year for
which an advance fee has been paid he is obliged to repay a
pro-rated amount of that years fee. Mr. Koepf also
receives a fee of
10,000 in
respect of each of two of our German subsidiary companies, in
his capacity as non executive chairman. The fees are based
on a requirement to give 4 days service per annum for each
of the companies. Additional fees of
2,500 are
payable in respect of each day worked above this threshold.
There is no other remuneration or benefits.


Kathleen Ruth
Flahertywas appointed a non-executive
director on May 19, 2003 for an initial term of three
years, subject to the provisions outlined below.
Ms. Flahertys duties include membership of the
remuneration and nomination committees. Her fee is £30,000
per annum based on her spending two days per month on her duties
for us. She is entitled to a fee of £1,500 per day for each
additional day over the two days per month threshold. Her fee is
reviewable annually on July 1 and we will reimburse
business expenses. Ms. Flaherty will also be entitled to an
advance fee of £30,000 for each of the first three years of
her appointment which will be net of any tax or national
insurance contributions. The net amount of each years fee
will be invested in our ordinary shares. Ms Flaherty has agreed
to hold our ordinary shares acquired with the first years
advance fee for three years from the date of her appointment and
our ordinary shares acquired with each of the next two
years payment for one year. If Ms. Flahertys
appointment terminates in any year for which an advance fee has
been paid she is obliged to repay a pro-rated amount of that
years fee. There is no other remuneration or benefits.

Ian McMaster Clubbwas appointed as a non-executive director on May 19, 2003
for an initial term of three years, subject to the provisions
outlined below. Mr. Clubbs duties include membership
of the audit, remuneration and nomination committees. His fee is
£30,000 per annum based on his spending two days
per month on his duties for us. Mr. Clubb will also be
entitled to a fee of £10,000 per annum for so long as
he serves as chairman of the remuneration committee. He is
entitled to a fee of £1,500 per day for each
additional day over the two day per month threshold.
His fee is reviewable annually on July 1 and we will
reimburse business expenses. Mr. Clubb will also be
entitled to an advance fee of £30,000 for each of the first
three years of his appointment which will be net of any tax
or national insurance contributions. The net amount of each
years fee will be invested in our ordinary shares.
Mr. Clubb has agreed to hold our ordinary shares acquired
with the first years advance fee for three years from the
date of his appointment and our ordinary shares acquired with
each of the next two years payment for one year.
If Mr. Clubbs appointment terminates in any year for
which an advance fee has been paid he is obliged to repay a
pro-rated amount of that years fee. There is no other
remuneration or benefits.

Our articles provide for the removal of a
director by, amongst other causes, the written requirement of at
least three-quarters of the other directors or by extraordinary
resolution or by ordinary resolution on special notice. For
fiscal 2003, the aggregate remuneration, including salaries,
fees, pension contributions, bonus payments, severance payments
and benefits in kind, granted to the directors was approximately
£5.1 million. It is estimated that for fiscal 2004,
under arrangements in force at the date of this document, the
remuneration of the directors will be approximately
£3.1 million.

Save for an agreement by Michael Parton and by
Michael Donovan to waive the first two parts of an annual
incentive bonus plan, 20% of basic salary, and the last part of
the R&E Plan, 37.5% of basic salary, there is no arrangement
under which a director has waived or agreed to waive future
emoluments nor have there been any such waivers during the
financial year immediately preceding the date of this document.
There are no outstanding loans or guarantees granted or provided
by us to, or for the benefit of, any of the directors.

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Executive Compensation

Summary of cash and certain other
compensation

The following table provides certain summary
information concerning the compensation earned for services
rendered in all capacities to the company and its subsidiaries
for the fiscal years ended March 31, 2001, 2002 and 2003 by
our chief executive officer, each of our four other most highly
compensated executive officers and two additional individuals
who would have been included as one of the four executive
officers had they remained in our employ. The listed individuals
are herein referred to as the named executive officers.

|                            |                          |      |      |                     |  |                        |         |              |  |            |         |               |  |           |         |              |  |  |   |           |  |  |         |           |  |  |   |   |  |  |           |         | 
|--------------------------- | ------------------------ | ---- | ---- | ------------------- |  | ---------------------- | ------- | ------------ |  | ---------- | ------- | ------------- |  | --------- | ------- | ------------ |  |  | - | --------- |  |  | ------- | --------- |  |  | - | - |  |  | --------- | ------- | 
|                            |                          |      |      |                     |  |                        |         |             
|                            |                          |      |      | Annual Compensation |  | Long Term Compensation |         |             
|                            |                          |      |      |                     |  |                        |         |              |  |           
|                            |                          |      |      |                     |  | Awards                 |         |              |  |           
|                            |                          |      |      |                     |  | Restricted             |         | Securities   |  | Payouts    |         |              
|                            |                          |      |      |                     |  | Other Annual           |         | Stock        |  | Underlying |         | LTIP          |  | All Other
|                            |                          |      |      | Salary              |  | Bonus                  |         | Compensation |  | Award(s)   |         | Options/SARs* |  | Payouts   |         | Compensation
|Name and Principal Position |                          | Year |      | (£)                 |  | (£)(4)                 |         | (£)(3)       |  | (£)        |         | (£)           |  | (£)       |         | (£)         
|                            |                          |     
|                            |                          |     
|M W J Parton                |                          |      | 2003 |                     |  |                        | 525,000 |              |  |            | 696,000 |               |  |           | 95,000  |              |  |  |  |           |  |  |        |           |  |  |  |   |  |  | 172,000   |        
|                            | Chief Executive Officer  |      |      | 2002                |  |                        |         | 400,000      |  |            |         |              |  |           |         | 281,000      |  |  |   |          |  |  |         | 3,028,405 |  |  |   |  |  |  |           | 177,000 | 
|                            |                          |      |      | 2001                |  |                        |         | 394,000      |  |            |         |              |  |           |         | 130,000      |  |  |   |          |  |  |         | 79,374    |  |  |   |  |  |  |           | 177,000 | 
|                           
|M J Donovan                 |                          |      | 2003 | (6)                 |  |                        | 416,000 |              |  |            | 543,000 |               |  |           | 364,000 |              |  |  |  |           |  |  |        |           |  |  |  |   |  |  | 387,000   |        
|                            | Chief Operating Officer  |      |      | 2002                |  |                        |         | 400,000      |  |            |         | 248,000       |  |           |         | 87,000       |  |  |   |          |  |  |         | 2,506,036 |  |  |   |  |  |  |           | 94,000  | 
|                            |                          |      | 2001 |                     |  |                        | 388,000 |              |  |            |        |               |  |           | 87,000  |              |  |  |  |           |  |  | 198,048 |           |  |  |  |   |  |  | 156,000   |        
|                           
|N D Sutcliffe               |                          |      | 2003 |                     |  |                        | 300,000 |              |  |            | 397,000 |               |  |           | 40,000  |              |  |  |  |           |  |  |        |           |  |  |  |   |  |  | 78,000    |        
|                            | Chief Human Resources    |      |      | 2002                |  |                        |         | 287,500      |  |            |         | nil           |  |           |         | 15,000       |  |  |   |          |  |  |         | 1,520,530 |  |  |   |  |  |  |           | 31,000  | 
|                            | Officer                  |      |      | 2001                |  |                        |         | 241,000      |  |            |         | 159,000       |  |           |         | 43,000       |  |  |   |          |  |  |         | 396,118   |  |  |   |  |  |  |           | 47,000  | 
|                           
|R J Smith                   |                          |      | 2003 |                     |  |                        | 200,000 |              |  |            | 320,000 |               |  |           | 46,000  |              |  |  |  |           |  |  |        |           |  |  |  |   |  |  | 95,000    |        
|                            | EVP Sales and Marketing  |      |      | 2002                |  |                        |         | 187,500      |  |            |         | 121,500       |  |           |         | 14,000       |  |  |   |          |  |  |         | 1,014,718 |  |  |   |  |  |  |           | 20,000  | 
|                            | Northern Europe          |      |      | 2001                |  |                        |         | 145,000      |  |            |         | 214,000       |  |           |         | 13,000       |  |  |   |          |  |  |         | 324,496   |  |  |   |  |  |  |           | 23,000  | 
|                           
|G W Doy                     |                          |      | 2003 |                     |  |                        | 272,000 |              |  |            | 423,000 |               |  |           | 111,000 |              |  |  |  |           |  |  |        |           |  |  |  |   |  |  | 19,000    |        
|                            | Chief Executive Officer  |      |      | 2002                |  |                        |         | 280,000      |  |            |         | nil           |  |           |         | 129,000      |  |  |   |          |  |  |         | 1,500,000 |  |  |   |  |  |  |           | 7,000   | 
|                            | Sales and Marketing(5)   |      |      | 2001                |  |                        |         | 122,000      |  |            |         | 156,000       |  |           |         | 48,000       |  |  |   | 1,305,053 |  |  |         | 389,845   |  |  |   |  |  |  |           | 5,000   | 
|                           
|J C Mayo                    |                          |      | 2003 | (2)                 |  |                        |        |              |  |            |        |               |  |           |        |              |  |  |  |           |  |  |        |           |  |  |  |   |  |  | 1,748,333 |        
|                            | Position Chief Financial |      |      | 2002                |  |                        |         | 162,000      |  |            |         |              |  |           |         | 644,000      |  |  |   |          |  |  |         |          |  |  |   |  |  |  |           | 443,000 | 
|                            | Officer and Deputy CEO   |      |      | 2001                |  |                        |         | 543,000      |  |            |         |              |  |           |         | 408,000      |  |  |   |          |  |  |         | 104,828   |  |  |   |  |  |  |           | 290,000 | 
|                           
|S Hare                      |                          |      | 2003 | (1)                 |  |                        | 312,000 |              |  |            | 394,000 |               |  |           | 95,000  |              |  |  |  |           |  |  |        |           |  |  |  |   |  |  | 768,000   |        
|                            | Chief Financial Officer  |      |      | 2002                |  |                        |         | 375,000      |  |            |         |              |  |           |         | 25,000       |  |  |   |          |  |  |         | 2,011,596 |  |  |   |  |  |  |           | 58,000  | 
|                            |                          |      |      | 2001                |  |                        |         | 222,000      |  |            |         |              |  |           |         | 14,500       |  |  |   |          |  |  |         | 33,582    |  |  |   |  |  |  |           | 95,000  | 
|                           



| |   |                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------
| | * | SARs refer to stock appreciation rights
    (compensation based on stock performance, regardless of the form
    in which such compensation is paid).



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | On termination of his employment in fiscal 2003,
    the following payments were made to Mr. S Hare:
    (a) a payment of £452,467 by way of basic salary and
    other benefits for the expired notice period of his service
    agreement and in respect of holiday entitlement accrued but not
    taken, and (b) a payment of £275,675 in respect of
    entitlements due to him under the bonus scheme linked to the
    successful completion of the restructuring. During fiscal 2003,
    Mr. Hare was in receipt of a taxable accommodation
    allowance of £79,145 associated with the costs of
    maintaining a London flat in addition to his family home.
|   
|(2) | Mr. J Mayo resigned as an executive
    director of Marconi plc on July 6, 2001. A payment of
    £428,333 was paid in respect of his defined benefit FURBS
    in respect of pensionable service for the period to July 5,
    2002 and, in addition, a non-pensionable allowance of
    £422,000 was paid in respect of Mr. Mayo on
    January 24, 2003. In March 2003, a payment was made in
    respect of Mr. Mayos FURBS of £898,000 in final
    settlement of his FURBS entitlement.                                                                                                                                                                          
|   
|(3) | Other annual compensation includes: the payment
    of a non-pensionable supplement in relation to a FURB car
    allowance or cash equivalent of a car under the groups car
    scheme; the insurance cover and medical health insurance; and in
    the case of M Donovan an amount payable to him pursuant to
    the termination of the GEC-USA Deferred Compensation Plan.                                                                                                                                                                                                                                                                                        

83



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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(4) | M Parton, M Donovan, N Sutcliffe,
    G Doy, and R Smith participated in an exceptional
    incentive plan during fiscal 2003, known as the Retention and
    Emergence Plan, relating to the successful completion of the
    operational and financial restructuring process. Maximum payment
    under the Plan for M Parton, M Donovan and
    N Sutcliffe was 150%, and for G Doy and R Smith
    100% of basic salary paid in four equal installments three of
    which were paid in May 2002, June 2002 and May 2003. The
    Executives agreed to waive their entitlement to the final
    installment (37.5% of basic salary for M Parton,
    M Donovan and N Sutcliffe and 25% for G Doy and
    R Smith).                                                                                                                                                               
|   
|(5) | G Doys salary for fiscal 2002 included
    a £36,213 ($56,000) payment in arrears following a salary
    increase in fiscal 2001. In April 2001 G Doy commenced a
    period of secondment to the United Kingdom and receives a
    salary adjustment to reflect the cost of living in
    London and a disturbance allowance. Payments
    associated with this secondment were £67,128 and
    £49,099 in fiscal 2002 and fiscal 2003, respectively.
    G Doy received an annual accommodation allowance of $89,385
    (£57,801) in fiscal 2002 and fiscal 2003, which was claimed
    against receipts, for renting a property in London and the
    associated costs of living away from his normal place of
    residence in the United States. A Dollar/Sterling exchange rate
    of £1=U.S.$1.5464 was used with respect to all of
    G Doys compensation presented.
|   
|(6) | An increase in M Donovans salary of
    £16,000 reported in fiscal 2003 was due entirely to
    exchange rate changes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

Option/SAR grants and
exercises

There were no grants of stock options (whether or
not in tandem with stock appreciation rights (SARS),
and freestanding SARs (including options and SARs that
subsequently have been transferred) made during the 2003 fiscal
year to any of these executive officer. None of these executive
officers exercised any stock options or SARs during the 2003
fiscal year.

Year end option/SAR values

The following table provides information, with
respect to the named executive officers, concerning the options
of Marconi plc held by them at the end of that
fiscal year.

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##### Table of Contents



2003 Fiscal Year End Option/SAR
Values

|              |  |                            |                     |                     |  |  |             | 
|------------- |  | -------------------------- | ------------------- | ------------------- |  |  | ----------- | 
|              |  |                            |                     | Value of           
|              |  | Number of securities(1)(2) |                     | unexercised        
|              |  | underlying unexercised     |                     | in-the-money       
|              |  | options/SARs at            |                     | options/SARs at    
|              |  | fiscal year-end (#)        |                     | fiscal year-end (£)
|              |  | exercisable/               |                     | exercisable/       
|Name          |  | unexercisable              |                     | unexercisable      
|              |  |                           
|              |  |                           
|M W J Parton  |  |                            | 939,022 / 3,535,341 |                     |  |  | £283 / £156 | 
|M J Donovan   |  |                            | 312,500 / 2,993,799 |                     |  |  | £19 / £75   | 
|N D Sutcliffe |  |                            | 309,257 / 2,001,857 |                     |  |  | £173 / £102 | 
|R J Smith     |  |                            | 228,537 / 1,288,131 |                     |  |  | £147 / £89  | 
|G W Doy       |  |                            | 383,901 / 1,850,068 |                     |  |  | £- / £24    | 
|J C Mayo      |  |                            | /                 |                     |  |  | /         | 
|S Hare        |  |                            | 434,159 / 2,061,435 |                     |  |  | £116 / £73  | 
|             



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | These are options over the shares of
    Marconi plc. It should be noted that as a result of the
    financial restructuring of the Marconi group, Marconi plc
    shares are now of negligible value and it is unlikely,
    therefore, that the option holders will be able to realize any
    value in relation to these options.                                                                                                                                                                                                                                       
|   
|(2) | The options set out above relate to those granted
    under the GEC Managers 1984 Share Option Scheme, the
    GEC 1997 Executive Share Option Scheme, the Marconi 1999 Stock
    Option Plan, the GEC Phantom Option Schemes, the Metapath
    Software Corporation 1995 Stock Option Plan, the Metapath
    Software International Inc 1999 Stock Option Plan, the
    Marconi Welcome Plan, the Marconi Launch Share Plan, the Marconi
    Long-Term Incentive Plan, the GEC Employee 1992 Savings-Related
    Share Option Scheme and the Marconi U.K. Sharesave Plan.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Options granted under GEC Managers 1984
    Share Option Scheme, the GEC 1997 Executive Share Option Scheme,
    the Marconi 1999 Stock Option Plan, the GEC Employee 1992
    Savings-Related Share Option Scheme and the Marconi U.K.
    Sharesave Plan vested upon the U.K. courts sanctioning the
    Marconi plc scheme of arrangement and will lapse
    6 months thereafter. Options granted under the GEC Phantom
    Option Schemes lapsed when we ceased to be a subsidiary of
    Marconi plc. Options granted under the Marconi Long-Term
    Incentive Plan vested when we ceased to be a subsidiary of
    Marconi plc. Options granted under the Metapath Software
    Corporation 1995 Stock Option Plan vest if and when a proposal
    for the solvent liquidation of Marconi plc is adopted.
    Holders of options under the Metapath Software
    International Inc 1999 Stock Option Plan may be given the
    opportunity to exercise vested and non-vested options until five
    days before a liquidation of Marconi plc. All unexercised
    options will lapse immediately before a liquidation. Options
    granted under the Marconi Launch Share Plan and the Marconi
    Welcome Plan lapse on the tenth anniversary of the date of grant.

Long term incentive plan
awards

No awards were made to any of the named executive
officers in the last completed fiscal year under any long term
incentive plan.

Information regarding all defined benefit and
actuarial plans under which benefits are determined primarily by
final compensation (or average final compensation) and years of
service are provided in the tables below. These tables provide
details of the annual benefits payable upon retirement in
certain specified compensation and years of service
classifications.

Pension Plans

We operate two defined benefit pension plans for
our employees and those of our subsidiary companies and a
defined benefit Funded Unapproved Retirement Benefit Scheme for
one of our executive

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directors. Each of the pension schemes is subject
to periodic actuarial valuations. The assets of the schemes are
held in trust and the funds are independent of us.


As at the last year-end, the amounts held by the
trustee of each of the schemes was as follows:

|                                                            |  |  |               | 
|----------------------------------------------------------- |  |  | ------------- | 
|                                                            |  |  | £             | 
|The G.E.C. 1972 Plan                                        |  |  | 2,400,000,000 | 
|The Marconi Communications Public Sector Pension
    Scheme |  |  | 17,430        | 
|The Marconi No 15 FURBS                                     |  |  | 543,790       | 

The last actuarial valuation of the G.E.C. 1972
Plan was undertaken as at April 5, 2002, the results of
which showed that it was fully funded at that date. An actuarial
valuation of the Marconi Communications Public Sector Pension
Scheme as at October 31, 2002, which is the first actuarial
valuation of the scheme, is currently being undertaken. The last
actuarial valuation of the Marconi No 15 FURBS was made as
at April 5, 2002 and revealed a deficit that has been
funded by an additional contribution during fiscal 2003.

The following tables provide estimated annual
benefits payable upon retirement, with respect to the named
executive officers, under benefit and actuarial plans under
which benefits are determined primarily by final (or average
final) compensation and years of service.

The G.E.C. 1972 Plan

|             |  |                  |        |    |  |    |         |    |  |    |         |  |  |  |         |  |  |  |         | 
|------------ |  | ---------------- | ------ | -- |  | -- | ------- | -- |  | -- | ------- |  |  |  | ------- |  |  |  | ------- | 
|             |  |                 
|             |  | Years of Service
|             |  |                 
|Remuneration |  | 15               |        | 20 |  | 25 |         | 30 |  | 35
|             |  |                 
|             |  |                 
|125,000      |  |                  | 30,237 |    |  |    | 40,316  |    |  |    | 50,395  |  |  |  | 60,474  |  |  |  | 70,553  | 
|150,000      |  |                  | 37,737 |    |  |    | 50,316  |    |  |    | 62,895  |  |  |  | 75,474  |  |  |  | 88,053  | 
|175,000      |  |                  | 45,237 |    |  |    | 60,316  |    |  |    | 75,395  |  |  |  | 90,474  |  |  |  | 105,553 | 
|200,000      |  |                  | 52,737 |    |  |    | 70,316  |    |  |    | 87,895  |  |  |  | 105,474 |  |  |  | 110,000 | 
|225,000      |  |                  | 60,327 |    |  |    | 80,316  |    |  |    | 100,395 |  |  |  | 110,000 |  |  |  | 110,000 | 
|250,000      |  |                  | 67,737 |    |  |    | 90,316  |    |  |    | 110,000 |  |  |  | 110,000 |  |  |  | 110,000 | 
|300,000      |  |                  | 82,500 |    |  |    | 110,000 |    |  |    | 110,000 |  |  |  | 110,000 |  |  |  | 110,000 | 
|400,000      |  |                  | 82,500 |    |  |    | 110,000 |    |  |    | 110,000 |  |  |  | 110,000 |  |  |  | 110,000 | 
|450,000      |  |                  | 82,500 |    |  |    | 110,000 |    |  |    | 110,000 |  |  |  | 110,000 |  |  |  | 110,000 | 
|500,000      |  |                  | 82,500 |    |  |    | 110,000 |    |  |    | 110,000 |  |  |  | 110,000 |  |  |  | 110,000 | 
|            

Benefits that are based on the service and final
salary formula in the G.E.C. 1972 Plan are calculated as n/50ths
(where n is years of service) of final pensionable
earnings, less a U.K. National Insurance offset. In addition,
the accrual of benefits can be affected by restrictions imposed
by the U.K. tax authorities. Each of the executive officers is
entitled to benefits under the G.E.C. 1972 Plan. The final
pensionable earnings for each of the executive officers is
restricted to $163,115 by the U.K. tax authorities and their
service under the G.E.C. 1972 Plan to March 31, 2003 as
follows:

|              |  |  |          | 
|------------- |  |  | -------- | 
|M J Donovan   |  |  | 4 years  | 
|M W J Parton  |  |  | 11 years | 
|N D Sutcliffe |  |  | 10 years | 
|R J Smith     |  |  | 6 years  | 

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The Marconi Communications Public Sector
Pension Scheme

|             |  |                  |        |    |  |    |         |    |  |    |         |  |  |  |         |  |  |  |         | 
|------------ |  | ---------------- | ------ | -- |  | -- | ------- | -- |  | -- | ------- |  |  |  | ------- |  |  |  | ------- | 
|             |  |                 
|             |  | Years of Service
|             |  |                 
|Remuneration |  | 15               |        | 20 |  | 25 |         | 30 |  | 35
|             |  |                 
|             |  |                 
|125,000      |  |                  | 23,438 |    |  |    | 31,250  |    |  |    | 39,063  |  |  |  | 46,875  |  |  |  | 54,688  | 
|150,000      |  |                  | 37,737 |    |  |    | 37,500  |    |  |    | 46,875  |  |  |  | 56,250  |  |  |  | 65,625  | 
|175,000      |  |                  | 32,813 |    |  |    | 43,750  |    |  |    | 54,688  |  |  |  | 65,625  |  |  |  | 76,563  | 
|200,000      |  |                  | 37,500 |    |  |    | 50,000  |    |  |    | 62,500  |  |  |  | 75,000  |  |  |  | 87,500  | 
|225,000      |  |                  | 42,188 |    |  |    | 56,250  |    |  |    | 70,313  |  |  |  | 84,375  |  |  |  | 98,438  | 
|250,000      |  |                  | 46,875 |    |  |    | 62,500  |    |  |    | 78,125  |  |  |  | 93,750  |  |  |  | 109,375 | 
|300,000      |  |                  | 56,250 |    |  |    | 75,000  |    |  |    | 93,750  |  |  |  | 110,000 |  |  |  | 110,000 | 
|400,000      |  |                  | 75,000 |    |  |    | 100,000 |    |  |    | 110,000 |  |  |  | 110,000 |  |  |  | 110,000 | 
|450,000      |  |                  | 82,500 |    |  |    | 110,000 |    |  |    | 110,000 |  |  |  | 110,000 |  |  |  | 110,000 | 
|500,000      |  |                  | 82,500 |    |  |    | 110,000 |    |  |    | 110,000 |  |  |  | 110,000 |  |  |  | 110,000 | 
|            

Benefits that are based on the service and final
salary formula in the Marconi Communications Limited Public
Sector Pension Scheme are calculated as n/80ths (where n is
years of service) of final pensionable earnings. None of the
named executive officers is entitled to benefits under the
Marconi Communications Limited Public Sector Pension Scheme.

The Marconi No 15 FURBS

|             |  |                  |         |    |  |  |         | 
|------------ |  | ---------------- | ------- | -- |  |  | ------- | 
|             |  |                 
|             |  | Years of Service
|             |  |                 
|Remuneration |  | 15               |         | 20
|             |  |                 
|             |  |                 
|400,000      |  |                  | 158,000 |    |  |  | 230,000 | 
|            

The Marconi No 15 FURBS is a single member
scheme providing benefits for Michael John Donovan. The member
accrues benefits under the FURBS based on the number of years
service and basic salary, offset by any benefits that are
payable from previous employers pension schemes and from
those payable from the G.E.C. 1972 Plan. Mr. Donovan can
only accrue benefits for a maximum of 20 years under the
FURBS and the estimated benefits are shown in the table above.

Compensation Committee Report on Executive
Compensation

Compensation of the chief executive officer will
be reviewed by our remuneration committee, usually annually.
Although payment of basic salary is not linked to performance
the committee will, when assessing the need for any increase,
take into account individual performance and skills and our
competitiveness. In assessing competitiveness, the committee
will consider comparator groups in both Europe and the United
States, but weighted towards Europe. Comparator groups include
companies in similar sectors and those with similar levels of
turnover. Performance assessment of executive directors includes
both our performance and the achievement of individual
objectives. Under arrangements put in place as part of our
restructuring, which became effective on May 19, 2003, no
executive director will receive an increase in basic salary for
a period of 12 months from May 19, 2003.

The chief executive officer also participates in
the Marconi Corporation Senior Management Share Option Plan. As
such he is ineligible to participate in any other cash bonus
plan whilst there are unvested options outstanding under that
plan. The plan therefore represents his total variable
compensation during its life. He also receives certain
retirement benefits. The aim of the remuneration committee is
that retirement benefits for their chief executive officer and
other executive directors should be competitive and appropriate.

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Performance Graph

We intend in future reports to include a line
graph comparing the yearly percentage change in our cumulative
total shareholder return on our common stock with the cumulative
total return of a broad equity market index assuming
reinvestment of dividends, that includes companies whose equity
securities are traded on the same exchange or NASDAQ market and
are of comparable market capitalization and with the cumulative
total return, assuming reinvestment of dividends, or published
industry or line-of-business index, peer issuers selected in
good faith or, if the preceding items cannot be identified,
issuers with similar market capitalizations. However, as we were
not listed during fiscal 2003, and no market price was therefore
available for our shares, it is impractical to provide a
performance graph in this report.

UK Plan

Our GEC 1972 Plan, which we refer to as the U.K.
Plan, is the only tax exempt approved plan of which we are the
principal employer. The only other tax exempt approved pension
plan in the U.K. operated by the group is the Marconi
Communications Limited Public Sector Pension Scheme, where
Marconi Communication Limited is the principal employer and is
responsible for its own contributions. Employee contributions to
the U.K. Plan are 3% of pensionable earnings with employers
paying the balance of the cost. We are the U.K. Plans
principal employer but group companies participate and are
responsible for their own contributions. The executive directors
are members of, or are entitled to be members of, the
U.K. Plan. The other U.K. pension schemes are FURBS,
described above and UURBS described below.

Unfunded unapproved pensions, or
UURBS

We are liable to pay a total annual pension
contribution of, currently, £171,197 to Lady Weinstock
under an UURBS established for the late Lord Weinstock. This
pension increases annually in line with increases to pensions in
payment under the U.K. plan.

Marconi U.S.A. Employees Retirement
Plan

The principal pension plan in the United States
is the Marconi U.S.A. Employees Retirement Plan, which is
a tax-qualified, funded defined benefit plan, which we refer to
as the Marconi U.S. Plan.

The following additional plans are also
maintained in the United States:



| |     |                                                                                                                                                                                                                                                                                                                                                                                                       
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | the RELTEC Corporation Retirement Plan, which is
    a tax-qualified, funded defined benefit plan, or the RELTEC
    Plan. The benefit accruals of participants in the RELTEC Plan
    were frozen, effective as of December 31, 1997; and                                                                                                                                                            
|
| | (b) | the RELTEC Supplemental Executive Retirement
    Plan, or the SERP, which is an unfunded, non-tax-qualified plan
    for a select group of management or highly compensated
    employees. There were approximately seven participants covered
    by the SERP as of April 1, 2003. The SERP was also frozen
    as of December 31, 1997. No benefits have accrued under the
    SERP since that date.

Death in Service Benefits

In the event of death in service, a lump sum of
four times pensionable salary, plus additional benefits for a
surviving spouse and/or children, inclusive of any death
benefits arising from the plan, will be held in trust for the
benefit of dependants of Mr. M J Donovan or Mr. M W J
Parton.

Share Incentive Plans

We have adopted an option plan known as the
Marconi Corporation Senior Management Share Option Plan, which
we refer to as the management plan, and a broadly based employee
share option plan

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known as the Marconi Corporation Employee Share
Option Plan, which we refer to as the employee plan. The plans
are summarized below. We refer to the date of the plans as the
plans start date.


Other than our existing bonus plan arrangements,
which cover fiscal 2003, and the third payment under the
Retention and Emergence plan discussed below, we will not,
without the prior approval of shareholders, establish any bonus
arrangement or scheme or any long-term inventive scheme covering
those persons, other than those persons who are eligible to
receive commission and/or bonus payments that relate to sales,
who participate in the management plan until the date on which
all the tranches in the initial grant under the management plan
have either lapsed or become capable of exercise.

The Marconi Corporation Senior Management
Share Option Plan

Administration

The management plan will be administered by our
remuneration committee in accordance with the terms set out
below.

Eligibility

Participation in the management plan is open to
our employees and executive directors selected by the
remuneration committee. The remuneration committee intends to
grant options under the management plan to up to 60 senior
executives. Employees within two years of their normal
retirement date may not participate in the management plan.

Grant
of options

Options to acquire our ordinary shares under the
management plan may be granted in the periods of 42 days
commencing on the plans start date, the day immediately
following announcement of our results for any period, or a day
on which the board resolves that exceptional circumstances exist
which justify the grant.

Options will be granted by either ourselves or
the trustee of the proposed Marconi Corporation employee benefit
trust. Options may be satisfied using newly issued or existing
ordinary shares. The initial options will be granted in five
tranches, each of which will be subject to different performance
conditions as described below. Participation in the management
plan will not form part of, or affect a participants
rights under the terms of his employment.

Option
exercise price

Options granted under the management plan will be
exercisable for a nominal payment, the amount of which will be
determined by the remuneration committee. It is currently
envisaged that the total amount payable on the exercise of an
option, whether the whole or in part, will be £1 per
exercise irrespective of the number of our ordinary shares that
are subject of an option exercise.

Individual
limit on participation

There is no limit under the management plan on
the aggregate maximum value of options which may be granted to a
participant in any year or over the life of the management plan.

Overall
limit on our ordinary shares to be made available under the
management plan

The number of our ordinary shares, issued or
unissued, that may be committed under the management plan is
limited to 9% of our issued share capital immediately following
the plans start date. Our ordinary shares over which options
have lapsed or been surrendered will not be included in
calculating this limit. This number of shares will be reduced by
the number of our ordinary shares that are committed under the
employee plan described below due to employees who would
otherwise have been expected to

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participate in the management plan participating
in the employee plan rather than the management plan because it
is beneficial, for tax or similar reasons, for them to do so.


Exercise
of Options

Options granted under the management plan will
only become exercisable, or vest, to the extent that the
performance targets set out below have been satisfied. While the
performance targets for the initial grant of options will be the
same, two vesting schedules will apply; one schedule applicable
to participants who have released their rights under the
retention and emergence plan, or the R&E plan, and the other
schedule applicable to participants who did not have any rights
under the retention and emergence plan. For subsequent grants,
for example, to new employees or as a result of promotions or
expanded roles or responsibilities the remuneration committee
will set performance targets which are appropriate in the
circumstances and at least as challenging as those for the
initial grant.

Performance
targets

|        |  |                                                                                                                                                                                                            |  |                                                                                                                           |  |                                                                                                                          
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------
|        |  |                                                                                                                                                                                                            |  |                                                                                                                          
|        |  |                                                                                                                                                                                                            |  | Percentage of shares                                                                                                     
|        |  |                                                                                                                                                                                                            |  | subject to option that vest (%)                                                                                          
|        |  |                                                                                                                                                                                                            |  | Participants                                                                                                              |  |                                                                                                                          
|        |  |                                                                                                                                                                                                            |  | who released                                                                                                              |  |                                                                                                                          
|Tranche |  | Condition                                                                                                                                                                                                  |  | R&E plan rights*                                                                                                          |  | Other participants                                                                                                       
|        |  |                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                           
|1       |  | Repayment of 30% of our Junior Notes within
    24 months of the plan start date. No vesting before
    12 months after the plan start date                                                                |  | 20                                                                                                                        |  | 10                                                                                                                       
|2       |  | Repayment of 50% of our Junior Notes within
    27 months after the plan start date. No vesting before
    15 months after the plan start date                                                             |  | 10                                                                                                                        |  | 10                                                                                                                       
|3       |  | Repayment of 100% of our Junior Notes within
    30 months after the plan start date. No vesting before
    18 months after the plan start date                                                            |  | 20                                                                                                                        |  | 20                                                                                                                       
|4       |  | We achieve a market capitalization of
    £1 billion and repayment of 100% of the Junior Notes
    within 39 months after the plan start date. No vesting
    before 27 months after the plan start date   |  | 20                                                                                                                        |  | 30                                                                                                                       
|5       |  | We achieve a market Capitalization of
    £1.5 billion and Repayment of 100% of the Junior Notes
    within 63 months after the plan start date. No vesting
    before 39 months after the plan start date |  | (within 51 months of the plan start date)
    30;
    (between 51 months and 63 months of the plan start
    date)
    20 |  | (within 51 months of the plan start date)
    30;
    (between 51 months and 63 months of the plan start
    date)
    20



|  |                                                                                                                                      
|- | -------------------------------------------------------------------------------------------------------------------------------------
|* | Participants in the R&E plan have waived the
    final payment under the R&E plan in order to participate in
    the management plan.

If any performance target is not satisfied within
the stated period the tranche of the option subject to that
performance target will lapse and cease to be capable of
becoming exercisable. If the Junior Notes

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are refinanced, rather than repaid, the
conditions set out above will apply to the aggregate debt,
representing what were the Junior Notes, following the
refinancing.


In relation to tranches 4 and 5, our
market capitalization will be measured using the daily volume
weighted average share price determined from prices quoted on
the principal exchange on which our ordinary shares are listed
and the number of our ordinary shares outstanding immediately
following the plans start date. In order to determine if the
relevant condition is satisfied, the daily volume weighted
average share price will be obtained for each day of a rolling
90 day period and the average price over that 90 day
period will be determined. If that average price when multiplied
by the number of our ordinary shares in issue on the plans start
date exceeds the relevant target market capitalization, the
applicable condition will have been satisfied.

Taxation

The exercise of an option may be made conditional
upon a participant agreeing to comply with any arrangements
specified by us for the payment of taxation, social security
contributions or any other deductions at source, including in
the U.K., as is likely to be the case, in respect of at least
part of the relevant employing companys secondary
class 1 National Insurance contributions liability arising
on exercise required or permitted in respect of an option.

Termination
of employment

If a participant ceases employment with us
voluntarily or he is dismissed for cause, his options will
normally lapse on the date of cessation.

However, where a participant ceases employment
with us due to death, injury, disability, ill-health,
redundancy, retirement or the sale of the business or subsidiary
for which the participant works, or termination of employment by
the employer without cause, his options will become vested to
the extent the financial performance conditions have been
satisfied at the date of cessation of employment, or, if
terminated without full notice, to the extent the financial
performance conditions have been satisfied on the date notice
would have expired, and will become exercisable at the time they
would otherwise have been exercisable as set out in the table
above for a period of six months, 12 months in the case of
death. The remuneration committee may decide whether a different
proportion of an option should vest on the cessation of
employment of any participant due to the sale of a business or
subsidiary that was a key business or subsidiary. Following the
expiry of the relevant period, all of a participants
unexercised options will lapse.

Lapse
of options

Options will lapse in any event on the tenth
anniversary of their grant and will lapse after a takeover or
reconstruction when the specified time periods for exercise have
passed as described below. Options will also lapse on the
cessation of employment of a participant as described above.
Options will also lapse to the extent that they cease to be
capable of becoming exercisable due to the failure to satisfy
any of the performance targets within the specified time periods.

Ordinary shares over which options have lapsed or
have been surrendered will be available, within the overall
limit referred to above, to form the subject of further option
grants to new participants in the management plan but not to
existing participants unless the participant has been promoted
or his/her role and/or responsibility has significantly expanded
and the remuneration committee determines that such a grant is
merited.

Rights
attaching to ordinary shares on the exercise of
options

Ordinary shares allotted under the management
plan will carry the same rights as all other issued ordinary
shares. Application will be made for the ordinary shares to be
admitted to trading on the London

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Stock Exchange. Participants will not qualify for
any rights attaching to ordinary shares where the record date is
before the date on which the option is exercised.


Takeover,
reconstruction or winding-up

If any person obtains control of us as a result
of making an offer to acquire the whole of our issued share
capital, or, having such control, makes a general offer to
acquire all the shares other than those already owned by that
person, the first grant of options under the management plan
will become exercisable in full to the extent that the financial
performance conditions have been satisfied immediately prior to
a change of control. A proportion of the remainder of any
ordinary shares which are the subject of outstanding options
will vest and become exercisable according to the following
formula:

|                                                                        |  |   |  |                                                                                                                                                                                                         
|----------------------------------------------------------------------- |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Remainder of ordinary shares
    the subject of outstanding
    options |  | X |  | market capitalization on change of control
    (as evidenced by the consideration paid
    by the acquirer and the number of the ordinary shares
    in issue immediately following the plan start date)
|                                                                        |  |   |  |                                                                                                                                                                                                         
|                                                                        |  |   |  | £1.5 billion                                                                                                                                                                                            

The formula above assumes that a change of
control occurs 63 months after the plans start date. If a
change of control occurs sooner, to reflect the benefit to
shareholders of the early release of funds, the
£1.5 billion figure will be reduced by £25m for
each complete quarter between the change of control and the date
which is 63 months after the plans start date.

Participants will have six months within which to
exercise their options to the extent exercisable, following the
change of control, or general offer; thereafter, the options
will lapse. The remuneration committee will determine the extent
to which any subsequent options will vest in the event of a
takeover, having regard to the performance targets to which
those options are subject. If a person becomes bound or entitled
to give notice to acquire ordinary shares under
sections 428 to 430F of the U.K. Companies Act 1985, a
participant may exercise his options to the extent exercisable
as referred to above during the period when that person remains
so bound or entitled; thereafter, they will lapse. Participants
may, in certain circumstances, be given the opportunity to
exchange their options for options over ordinary shares in an
acquiring company.

If we are reconstructed, the effect of which is
that a person obtains control of us, other than as a result of
making an offer for our issued share capital, the provisions
relating to a change of control following an offer shall apply.
These provisions shall not apply if there is a reconstruction,
the purpose and effect of which is to create a new holding
company where such holding company has substantially the same
shareholders and proportionate shareholdings as those currently
in place. On the occurrence of a reconstruction of that type,
the remuneration committee will use its best endeavors to ensure
that any outstanding options are rolled-over so that they
continue over shares in the new holding company. If there is no
roll-over, options will continue unaffected by the scheme of
arrangement in connection with our restructuring. If there is
any other reconstruction or if we are wound-up, options will
lapse on the reconstruction or winding-up taking effect.

Adjustments
of options

If there is a variation in our share capital,
including by way of a capitalization, rights issue,
consolidation, sub-division, reduction or any other variation or
our implementation of a demerger or payment of a super-dividend
which would materially affect the value of options under the
management plan, the remuneration committee may, subject to the
auditors approval and, in the case of approved options, to
the approval of the U.K. Inland Revenue, make the adjustments it
considers appropriate to the number of ordinary shares currently
in place under option and the exercise price.

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Amending
the management plan

The rules of the management plan can be amended
at any time by our board, provided that no amendment to the
management plan can be made without our prior approval in a
general meeting of shareholders if the amendment relates to the
provisions in the rules relating to eligibility, limits on the
number of ordinary shares available for issue under the employee
plan, the basis for determining a participants entitlement
to ordinary shares and any adjustment in the event of a
variation in our share capital. In addition, no amendment that
would materially prejudice the interests of existing
participants may be made without the prior consent of
participants holding three-quarters of the aggregate number of
shares subject to outstanding options.

Participants
in the United States

For participants in the United States, the
management plan is structured as a conditional award of our
shares or ADRs, rather than as an option, for tax purposes. No
price is payable on the vesting of the awards. Awards will not
vest during a prohibited period. No option may be granted more
than five years after the plans start date.

Marconi Corporation Employee Share Option
Plan

Administration

The employee plan will be administered by our
remuneration committee in accordance with the terms set out
below.

Eligibility

Participation in the employee plan is open to our
employees and executive directors selected by the remuneration
committee. Employees within two years of their normal retirement
date may not participate in the employee plan. Employees who
participate in the management plan cannot participate in the
employee plan.

Grant
of options

Options to acquire our ordinary shares under the
employee plan will be granted by either us or the trustee of the
trust. Options may be satisfied using newly issued or existing
ordinary shares. U.K. Inland Revenue approved options, or
approved options, and non-Inland Revenue approved options, or
unapproved options, may be granted under the employee plan.

Options may be granted in the periods of
42 days commencing on the plans start date, the day
immediately following announcement of our results for any period
or a day on which the board resolves that exceptional
circumstances exist which justify the grants. The exercise price
for such initial grant of options shall be the average middle
market quotation of our ordinary shares for the five business
days immediately prior to the date of grant.

The initial options will be granted in five
tranches, each of which will be subject to different performance
conditions as described below. Participation in the employee
plan will not form part of or affect a participants rights
under the terms of his employment. The following is a summary of
the provisions which apply equally to approved options and
unapproved options.

Option
exercise price

The exercise price of options will be determined
by the remuneration committee but will not be less than the
middle market quotation of our ordinary shares as derived from
the London Stock Exchange Daily Official List on a date, or
dates in the case of an average quotation, not more than
30 days prior to the date of grant of the option, or such
other period as the U.K. Inland Revenue may agree in relation to
approved options.

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Where an option is to subscribe for our ordinary
shares, the exercise price will not be less than the nominal
value of an ordinary share.

Individual
limit on participation

There is no limit under the employee plan on the
aggregate maximum value of options which may be granted to a
participant in any year or in the life of the employee plan,
subject to certain statutory limitations.

Overall
limit on our ordinary shares to be made available under the
employee plan

The number of our ordinary shares, issued or
unissued, that may be committed to be issued under the employee
plan is limited to 5% of our issued share capital immediately
following the plans start date. This number of shares may be
increased, with a corresponding reduction in the number of
ordinary shares available to be committed under the management
plan if any employee who would otherwise have been expected to
participate in the management plan participates in the employee
plan rather than the management plan because it is beneficial,
for tax or similar reasons, for them to do so. This 5% limit
will only be available for use on the following basis:
(1) 3% in the first 12 months following May 19,
2003; (2) 1% in the second 12 months following
May 19, 2003; and (3) 1% in the third 12 months
following May 19, 2003. Any unused part of this limit may
be utilized in subsequent years during the life of the employee
plan. Ordinary shares over which options have lapsed or been
surrendered will not be included in calculating this limit.

Exercise
of options

Options granted under the employee plan will only
become exercisable to the extent that the performance targets to
which they are subject have been satisfied. The performance
targets for the first grant of options are set out below. For
subsequent grants, the remuneration committee will set
performance targets which are appropriate in the circumstances
and at least as challenging as those for the initial grant.

Performance
Targets

|        |  |                                                                                                                                                                                                           |  |                                                                                                                              
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------
|        |  |                                                                                                                                                                                                           |  | Percentage of shares                                                                                                         
|        |  |                                                                                                                                                                                                           |  | subject to option                                                                                                            
|        |  |                                                                                                                                                                                                           |  | that vest                                                                                                                    
|Tranche |  | Condition                                                                                                                                                                                                 |  | (%)                                                                                                                          
|        |  |                                                                                                                                                                                                          
|        |  |                                                                                                                                                                                                          
|1.      |  | Repayment of 30% of the Junior Notes within
    24 months after the plan start date. No vesting before
    12 months after the plan start date.                                                           |  | 10                                                                                                                           
|2.      |  | Repayment of 50% of the Junior Notes within
    27 months after the plan start date. No vesting before
    15 months after the plan start date.                                                           |  | 10                                                                                                                           
|3.      |  | Repayment of 100% of the Junior Notes within
    30 months after the plan start date. No vesting before
    18 months after the plan start date.                                                          |  | 20                                                                                                                           
|4.      |  | We achieve a market capitalization of
    £1 billion and repayment of 100% of the Junior Notes
    within 39 months after the plan start date. No vesting
    before 27 months after the plan start date. |  | 30                                                                                                                           
|5.      |  | We achieve a market capitalization of
    £1.5 billion and repayment of 100% of the Junior Notes
    within 63 months the plan start date. No vesting before
    39 months after the plan start date.     |  | (within 51 months of the plan
    start date)
    30;
    (between 51 months and 63 months of the plan start
    date)
    20

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If any performance target is not satisfied within
the stated period, the tranche of the option subject to that
performance target will lapse and cease to be capable of
becoming exercisable. If the Junior Notes are refinanced (rather
than repaid), the condition, set out above, will apply to the
aggregate debt, representing what were the Junior Notes,
following the refinancing.

In relation to tranches 4 and 5, our
market capitalization will be measured using our daily volume
weighted average share price determined from prices quoted on
the principal exchange on which our ordinary shares are listed
and the number of ordinary shares outstanding immediately
following the plans start date. In order to determine if the
relevant condition is satisfied, the daily volume weighted
average share price will be obtained for each day of a rolling
90 day period and the average price over that 90 day
period will be determined. If that average price, when
multiplied by the number of ordinary shares in issue on the
plans start date, exceeds the relevant target market
capitalization, the applicable condition will have been
satisfied.

Taxation

The exercise of an option may be made conditional
upon a participant agreeing to comply with any arrangements
specified by us for the payment of taxation, social security
contributions or any other deductions at source, including in
the U.K., as is likely to be the case, in respect of at least
part of the relevant employing companys secondary
class 1 National Insurance contributions liability arising
on exercise required or permitted in respect of an option.

Termination
of employment

If a participant ceases employment with us
voluntarily or he is dismissed for cause, his options will
normally lapse on the date of cessation.

However, where a participant ceases employment
with us due to death, injury, disability, ill-health,
redundancy, retirement or the sale of the business or subsidiary
for which the participant works, or termination of employment by
the employer without cause, his options will become vested to
the extent the financial performance conditions have been
satisfied at the date of cessation of employment, or, if
terminated without full notice, to the extent the financial
performance conditions have been satisfied on the date notice
would have expired, and will become exercisable at the time they
would otherwise have been exercisable as set out in the table
above for a period of six months, 12 months in the case of
death. The remuneration committee may decide whether a different
proportion of an option should vest on the cessation of
employment of any participant due to the sale of a business or
subsidiary that was a key business or subsidiary. Following the
expiry of the relevant period, all of a participants
unexercised options will lapse.

Lapse
of options

Options will lapse in any event on the tenth
anniversary of their grant and will lapse after a takeover or
reconstruction when the specified time periods for exercise have
passed as described below. Options will also lapse on the
cessation of employment of a participant as described above.
Options will also lapse to the extent that they cease to be
capable of becoming exercisable due to the failure to satisfy
any of the performance targets within the specified time periods.

Rights
attaching to ordinary shares on the exercise of
options

Ordinary shares allotted under the employee plan
will carry the same rights as all other issued ordinary shares.
Application will be made for the ordinary shares to be admitted
to trading on the London Stock Exchange. Participants will not
qualify for any rights attaching to ordinary shares where the
record date is before the date on which the option is exercised.

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Takeover,
reconstruction or winding-up

If any person obtains control of us as a result
of making an offer to acquire the whole of our issued share
capital, or, having such control, makes a general offer to
acquire all the shares other than those already owned by that
person, the first grant of options under the employee plan will
become exercisable in full to the extent that the financial
performance conditions have been satisfied immediately prior to
a change of control. A proportion of the remainder of any
ordinary shares which are the subject of outstanding options
will vest and become exercisable according to the following
formula:

|                                                                        |  |   |  |                                                                                                                                                                                                         
|----------------------------------------------------------------------- |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Remainder of ordinary shares
    the subject of outstanding
    options |  | X |  | market capitalization on change of control
    (as evidenced by the consideration paid
    by the acquirer and the number of the ordinary shares
    in issue immediately following the plan start date)
|                                                                        |  |   |  |                                                                                                                                                                                                         
|                                                                        |  |   |  | £1.5 billion                                                                                                                                                                                            

The formula above assumes that a change of
control occurs 63 months after the plans start date. If a
change of control occurs sooner, to reflect the benefit to
shareholders of the early release of funds, the
£1.5 billion figure will be reduced by £25m for
each complete quarter between the change of control and the date
which is 63 months after the plans start date.

Participants will have six months within which to
exercise their options to the extent exercisable, following the
change of control, or general offer; thereafter, the options
will lapse. The remuneration committee will determine the extent
to which any subsequent options will vest in the event of a
takeover, having regard to the performance targets to which
those options are subject. If a person becomes bound or entitled
to give notice to acquire ordinary shares under
sections 428 to 430F of the U.K. Companies Act 1985, a
participant may exercise his options to the extent exercisable
as referred to above during the period when that person remains
so bound or entitled; thereafter, they will lapse. Participants
may, in certain circumstances, be given the opportunity to
exchange their options for options over ordinary shares in an
acquiring company.

If we are reconstructed, the effect of which is
that a person obtains control of us, other than as a result of
making an offer for our issued share capital, the provisions
relating to a change of control following an offer shall apply.
These provisions shall not apply if there is a reconstruction,
the purpose and effect of which is to create a new holding
company where such holding company has substantially the same
shareholders and proportionate shareholdings as those currently
in place. On the occurrence of a reconstruction of that type,
the remuneration committee will use its best endeavors to ensure
that any outstanding options are rolled-over so that they
continue over shares in the new holding company. If there is no
roll-over, options will continue unaffected by the scheme of
arrangement in connection with our restructuring. If there is
any other reconstruction or if we are wound-up, options will
lapse on the reconstruction or winding-up taking effect.

Adjustments
of options

If there is a variation in our share capital,
including by way of a capitalization, rights issue,
consolidation, sub-division, reduction or any other variation or
our implementation of a demerger or payment of a super-dividend
which would materially affect the value of options under the
employee plan, the remuneration committee may, subject to the
auditors approval and, in the case of approved options, to
the approval of the U.K. Inland Revenue, make the adjustments it
considers appropriate to the number of ordinary shares currently
in place under option and the exercise price.



| |                           
| | --------------------------
| | Amending the employee plan

The rules of the employee plan can be amended at
any time by our board, provided that no amendment to the
employee plan can be made without prior approval in a general
meeting of shareholders

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if the amendment relates to the provisions in the
rules relating to eligibility, limits on the number of ordinary
shares available for issue under the employee plan, the basis
for determining a participants entitlement to ordinary
shares and any adjustment in the event of a variation in our
share capital. In addition, no amendment that would materially
prejudice the interests of existing participants may be made
without the prior consent of participants holding three-quarters
of the aggregate number of shares subject to outstanding
options. For these purposes, the interests of the holders of
approved options and unapproved options are separate.




| |                                  
| | ---------------------------------
| | Participants in the United States

For participants in the United States, the
employee plan will be structured as a qualifying incentive stock
option plan and a non-qualifying stock option plan over ordinary
shares or ADRs. Options will be granted on the same terms and
will be subject to the same performance conditions as described
above, save any changes necessary to take account of the
relevant U.S. legislation.



| |        
| | -------
| | General

Additional schedules to the rules of the employee
plan can be established to operate the employee plan in overseas
countries. These schedules can vary the rules of the employee
plan to take account of any securities, exchange control, or
taxation laws or regulations for any participants or any company
in our group. Any ordinary shares issued under those schedules
will count towards overall limits under the employee plan.

No options can be granted under the employee plan
more than five years after the plans start date.

The Retention and Emergence
Plan

In order to retain key employees during our
recently completed restructuring, a retention and emergence plan
was implemented in May 2002 for sixty-three employees. We were
not a party to any of the documents. Of the sixty-three
individuals, Marconi Communications Limited was the responsible
group company for thirty-seven of the individuals, Marconi
Communications Inc. for seventeen, Marconi plc for two,
including one in Australia and one in Hong Kong, Marconi
Communications GmbH for four and Marconi Communications SpA for
three. The obligations of Marconi plc were transferred to
Marconi Communications Limited in relation to the two employees
whose promise refers to Marconi plc.

The retention and emergence plan promises four
equal payments to the employees if they are still employed and
not working their notices on each payment date. Three of the
payment dates have passed and the remaining date is
August 19, 2003. The aggregate of the payments in each case
is based on a percentage of the employees salary, with the
range of percentages varying from 30% to 150%, depending on the
employees seniority.

Those employees who are signing new service
agreements in consideration of options under the management
plan, are to waive the last payment due under the retention and
emergence plan.

Board Practices

General

Our board comprises a chairman, three executive
directors, including the chief executive, and four non-executive
directors. We regard all non-executive directors as independent
and free from any business or other relationship which could
materially interfere with the exercise of their independent
judgement.

The board meets at least ten times a year and
holds additional meetings when circumstances require. All
directors have access to the information as they require to
enable them to consider matters to be decided by the board and
its committees. Directors also receive appropriate training on
appointment and then as necessary. Directors attend an induction
program which aims to provide an understanding of our group, our
strategy, structure, geographical spread of operations,
financial position, the industries in which

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we operate, its products and technologies, people
and, where appropriate, legal responsibilities of directors. The
directors have access to the advice and services of the company
secretary and there is an approved procedure by which all
directors can obtain independent professional advice in
furtherance of their duties. The board reviews this procedure
periodically.


The board has delegated certain powers and duties
to committees constituted by it, and receives regular reports of
their proceedings. Our 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 and remuneration committees
are comprised only of non-executive directors and the quorum for
meeting is two members. The executive committee is comprised of
both executive directors as well as certain other executive
officers. The quorum for meetings is three members, at least two
of which must be executive directors.

The audit committee comprises a chairman and at
least two other members appointed by the board and who are
non-executive directors. Michael Kent Atkinson chairs our audit
committee with Ian McMaster Clubb and Werner Karl Koepf. The
audit committee meets formally at least four times a year. Its
duties include reviewing the scope, plan and results of any
audit. It meets regularly with management, as well as with
internal and external auditors to review the effectiveness of
internal controls, as well as matters raised in regular reports
to the committee. The audit committee will review financial
announcements and annual reports prior to their submission to
our board. Our auditors will be able to attend meetings and have
the opportunity to raise matters or concerns in the absence of
executive directors and management.

The remuneration committee comprises at least
three non-executive directors. Ian McMaster Clubb chairs the
remuneration committee with Michael Kent Atkinson, Kathleen Ruth
Flaherty and Werner Karl Koepf. The remuneration committee meets
formally at least twice a year. The remuneration committee makes
recommendations to our board on the broad policy to be adopted
for executive remuneration, including the remuneration of
executive directors and the chairman. It determines the total
individual remuneration package for individual executive
directors and certain other senior executives including, where
appropriate, bonuses, pensions and incentive scheme entitlements
and the terms of individual executive directors service
agreements.

The remuneration committee usually will annually
review the compensation of our chief executive officer. Although
payment of basic salary is not linked to performance the
committee will, when assessing the need for an increase, take
into account individual performance and skills and our
competitiveness. In assessing competitiveness, the committee
will consider comparator groups in both Europe and the United
States, but weighted towards Europe. Comparator groups include
companies in similar sectors and those with similar levels of
turnover. Performance assessment of executive directors includes
both our performance and the achievement of individual
objectives. Under arrangements put in place as part of our
restructuring, no executive director will receive an increase in
basic salary for a period of 12 months from May 19,
2003.

The chief executive officer also participates in
the Marconi Corporation plc Senior Management Share
Option Plan. As such he is ineligible to participate in any
other cash bonus whilst there are unvested options outstanding
under the Marconi Corporation plc Share Option Plan.
The Marconi Corporation plc Share Option Plan therefore
represents his total variable compensation during its life. He
also receives certain retirement benefits. The aim of the
remuneration committee is that retirement benefits for the chief
executive officer and other executive directors should be
competitive and appropriate.

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 nomination committee comprises
the chairman and each of our non-executive directors. John
Francis Devaney chairs our nomination committee with Michael
Kent Atkinson, Ian McMaster Clubb, Kathleen Ruth Flaherty and
Werner Karl Koepf. The nomination committee recommends the
appointment of directors to the board who, in accordance with
the provisions of our articles of association, appoint
directors, subject to elections at the next annual general
meeting. Directors may also be appointed by

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ordinary resolution. At every annual general
meeting of shareholders, any directors who have held office for
more than three years since they were appointed, or last
re-elected at a general meeting, are required to retire from
office, although a director who is willing may be re-appointed
as a director. Directors are required to retire from office at
the annual general meeting after which he or she reaches
70 years of age, although such a director may be
re-appointed 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 a mental disorder, is
absent from board meetings 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.


We believe that we should move to a position
where the majority of our board are independent non-executive
directors and we will continue to look for suitable candidates
to join the board as independent non-executive directors, where
they can bring appropriate experience or industry knowledge. A
process is already in place to identify further suitable
candidates. Following a further appointment, which the directors
expect will be made shortly, the directors will at all times
strive to ensure that we maintain a majority of independent,
non-executive directors on our board within three months of
ceasing to have such a majority by appointing additional
independent non-executive directors or reducing the size of our
board.

Our chief executive officer recommends executive
directors and senior executives for board approval to man our
executive committee. The executive committee normally meets
monthly. Michael William John Parton chairs the executive
committee. Its other members are Michael John Donovan, Patricia
Dooley, Christopher Charles Holden, David Clive Beck, Geoffrey
William Doy, Mary Angela Skelly, Damian Hugh Reid, Michael
Francis Surrey and Neil David Sutcliffe. The committee approves
our business plan, 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.

The business risk sub-committee of the executive
committee comprises the members of the executive committee and
meets at least two times a year. It establishes and monitors
risk management goals and objectives, embeds a risk monitoring
and assessment process throughout our business and regularly
reports on the same to the board.

The disclosure committee which works for our
chief executive officer and chief financial officer on a
day-to-day basis has responsibility for ensuring accurate and
complete disclosure of our information that requires public
disclosure and that we have a robust disclosure process in place.

Directors statement on internal
control

The Directors have overall responsibility for
Marconis system of internal control and for reviewing its
effectiveness. Any system of internal control can only manage
and not eliminate the risk of failing to achieve business
objectives and can only provide reasonable and not absolute
assurance against material misstatement or loss.

The Group has applied a business risk management
process. This continuing process is designed to identify,
evaluate and manage the major risks faced by the Group. These
risks include strategic, operational, commercial and financial
matters. As part of this process, the Board, Audit Committee and
key members of the executive management team have received and
assessed reports and notifications of any identified weaknesses
with the system of internal control.

Business planning and financial
reporting

During fiscal 2003 an additional focus of the
Board has been on the completion of the financial restructuring
of the Group. Business planning and financial reporting have
therefore concentrated on key performance indicators and
processes in support of the financial restructuring. These
include cash

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management, reduction in working capital, gross
margin improvement, cost reduction and delivering on the program
of disposals.


As a consequence of financial restructuring,
additional audits and reviews have taken place during the year
in support of the preparation of documents for the
Companys scheme of arrangement with certain of its
creditors and a prospectus for the Companys listing. These
documents have been subject to a Board review and approval.

A detailed business plan has also been prepared
during the period to support the working capital statements
required by the financial restructuring.

Financial results are monitored and reported in
accordance with Group policies and procedures. Actual results
and forecasts are reviewed each month by the Executive Committee
and reported to the Board.

Corporate process controls

Corporate review and approval procedures have
been in place to cover major risk areas such as disposals,
capital expenditure, contract tenders, research and development,
litigation, industrial relations, treasury management,
insurance, taxation, outsourcing and environmental issues.

The Group has also centralized the purchase of
insurance in relation to major insurable risks in order to
improve control and reduce overall cost. The specialist function
assesses exposures and risk tolerance and selects the optimum
means of mitigating losses.

Risk management process

During fiscal 2003, there has been a particular
risk that the Company would fail to renegotiate a satisfactory
financial restructuring agreement with creditors. The Board met
48 times in fiscal 2003 to review the status of the negotiations
and to ensure that an agreement was reached with the
Groups financial creditors. External legal and accounting
advisors carried out extensive due diligence on internal
controls and risk management, following which plans to address
identified weaknesses were actioned by Group management. In
addition, the Directors have formally re-evaluated the risks
disclosed in the document posted to creditors in connection with
the Companys scheme of arrangement and in the
Companys prospectus as part of the financial restructuring
process.

The Board have put in place an organizational
structure with clearly defined lines of responsibility and
delegation of authority. Responsibilities and delegated
authorities have been reviewed and revised during the year to
reflect the reduced number of Group employees and changing scope
and scale of the Groups activities.

A Business Risk Committee operates as a
sub-committee of the Board and its members are the same as for
the Executive Committee. The sub-committee has responsibility
for reviewing the risk assessments of functional management and
for identifying the key risks facing the Group. The Business
Risk Committee formally met twice during the period. However, as
noted previously, given the inherent need to manage key risks
during the restructuring they have been regularly discussed in
the Executive Committee and the Board throughout the period.

Review of internal controls

The Audit Committee regularly reports the
findings of its review of the effectiveness of the Groups
systems of internal control for consideration by the Board. To
review the effectiveness of internal control, the Audit
Committee meets with management and the internal and external
auditors to discuss:



| |   |                                                                                             
| | - | --------------------------------------------------------------------------------------------
| |  | The key risks facing the Group and initiatives in
    place to mitigate against those risks.
|
| |  | The internal and external audit plans and related
    reports                               

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| |   |                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Letters of assurance by executive management.
    These letters certify compliance with Group policies and
    procedures covering areas such as delegation of authority,
    ethical code of conduct, risk management and financial controls.
|
| |  | The operations of the Group Treasury function.                                                                                                                                                                                                

The Audit Committee met seven times during
the year.

Where any weaknesses have been identified in the
system of internal control as a result of any reviews, new
procedures are put in place to strengthen them. This is a
process of continuous improvement and refinement.

The Audit Committee has considered the adequacy
of internal controls and the Directors confirm that the
effectiveness of the system of internal control for fiscal 2003.

In fiscal 2004, the Directors are committed to
developing further the internal control framework. In
particular, additional controls will be implemented to ensure
compliance with the covenants in the indentures governing our
Notes.

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EMPLOYEES

The table below sets out the average number of
people (full time equivalents) we employed in the previous three
financial years:

|                                 |                              |                     |    |      |  |      |    |    |  |  |    |    | 
|-------------------------------- | ---------------------------- | ------------------- | -- | ---- |  | ---- | -- | -- |  |  | -- | -- | 
|                                 |                              |                    
|                                 |                              | For the year ended,
|                                 |                              | March 31,          
|(in thousands)                   |                              | 2003                |    | 2002 |  | 2001
|                                 |                              |                    
|                                 |                              |                    
|Employees by business:           |                              |                     |    |      |  |      |    |    |  |  |    |   
|Core:                            |                              |                     |    |      |  |      |    |    |  |  |    |   
|                                 | Network Equipment            |                     |    | 13   |  |      |    | 19 |  |  |    | 24 | 
|                                 | Network Services             |                     |    | 6    |  |      |    | 8  |  |  |    | 9  | 
|                                 | Other                        |                     |    |     |  |      |    |   |  |  |    | 1  | 
|                                 |                              |                    
|                                 |                              |                     | 19 |      |  |      | 27 |    |  |  | 34 |   
|Capital                          |                              |                     | 1  |      |  |      | 3  |    |  |  | 3  |   
|                                 |                              |                    
|Continuing operations            |                              |                     | 20 |      |  |      | 30 |    |  |  | 37 |   
|Discontinued operations          |                              |                     | 1  |      |  |      | 15 |    |  |  | 15 |   
|                                 |                              |                    
|Group employees                  |                              |                     | 21 |      |  |      | 45 |    |  |  | 52 |   
|Share of joint venture employees |                              |                     |   |      |  |      | 3  |    |  |  | 4  |   
|                                 |                              |                    
|                                 |                              |                     | 21 |      |  |      | 48 |    |  |  | 56 |   
|                                 |                              |                    
|Employees by location:           |                              |                     |    |      |  |      |    |    |  |  |    |   
|                                 | United Kingdom               |                     |    | 7    |  |      |    | 17 |  |  |    | 22 | 
|                                 | The Americas                 |                     |    | 5    |  |      |    | 12 |  |  |    | 17 | 
|                                 | Rest of Europe               |                     |    | 7    |  |      |    | 15 |  |  |    | 13 | 
|                                 | Africa, Asia and Australasia |                     |    | 2    |  |      |    | 4  |  |  |    | 4  | 
|                                 |                              |                    
|                                 |                              |                     | 21 |      |  |      | 48 |    |  |  | 56 |   
|                                 |                              |                    

During fiscal 2003, we took a number of steps to
reduce our workforce as we restructured our cost base in
response to the deterioration in trading conditions we
experienced.

A number of our employees are collectively
represented by and are members of trade unions and work
councils. Membership and representation 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 expiration 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. Although trade unions, from time to
time, have publicly expressed dissatisfaction with our plans to
reduce our workforce, we believe that relations with our
employees are generally good.

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SHARE OWNERSHIP

The table below sets forth as of June 24,
2003 the security ownership in Marconi Corporation plc of each
of our directors, and all of our directors and executive
officers. These shares do not have different voting rights.

|                                                                               |  |              |            |               |  |              |        |               |  |  |         |  |  |  |         | 
|------------------------------------------------------------------------------ |  | ------------ | ---------- | ------------- |  | ------------ | ------ | ------------- |  |  | ------- |  |  |  | ------- | 
|                                                                               |  | Number of    |            | Number of     |  | Number of    |        | Percentage of
|Name of beneficial owner                                                       |  | options held |            | warrants held |  | shares owned |        | shares owned 
|                                                                               |  |              |            |               |  |              |        |              
|John Francis Devaney                                                           |  |              | 3,000,000  |               |  |              |       |               |  |  |        |  |  |  |        | 
|Michael William John Parton                                                    |  |              | 17,500,000 |               |  |              | 2,287  |               |  |  | 228     |  |  |  | 0.00002 | 
|Michael John Donovan                                                           |  |              | 10,000,000 |               |  |              | 2,992  |               |  |  | 299     |  |  |  | 0.00002 | 
|Christopher Charles Holden                                                     |  |              |           |               |  |              |       |               |  |  |        |  |  |  |        | 
|Michael Kent Atkinson                                                          |  |              |           |               |  |              |       |               |  |  | 88,348  |  |  |  | 0.0088  | 
|Werner Karl Koepf                                                              |  |              |           |               |  |              |       |               |  |  | 89,845  |  |  |  | 0.0089  | 
|Ian McMaster Clubb                                                             |  |              |           |               |  |              |       |               |  |  | 26,503  |  |  |  | 0.0026  | 
|Kathleen Ruth Flaherty                                                         |  |              |           |               |  |              |       |               |  |  | 26,952  |  |  |  | 0.0027  | 
|All directors and executive officers of Marconi
    Corporation plc as a group |  |              | 50,050,000 |               |  |              | 11,255 |               |  |  | 232,782 |  |  |  | 0.02304 | 

All of the executive directors, as possible
beneficiaries, are also deemed to be interested in the
2,161 shares and the 21,563 warrants that are held by
the trustee of the Marconi Employee Trust. Mr. Parton and
Mr. Donovan are also deemed to be interested in the
2,031 shares and the 20,279 warrants that are held by
the trustee of the GEC Employee Share Trust.

The interests, as described above, of the
directors, excluding their deemed interests described above,
together represent approximately 0.02% of our issued ordinary
share capital.

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Item 7: Major Shareholders and
Related Party Transactions






MAJOR SHAREHOLDERS


As at June 23, 2003, we had 181,057
registered holders of ordinary shares with addresses in the
United Kingdom. These U.K. ordinary shareholders
collectively held 999,458,178 ordinary shares, or
approximately 99.95% of our total issued share capital as at
June 23, 2003.

As at June 23, 2003, there were
56 registered holders of our American depositary receipts.
Each ADR issued represents ten ordinary shares. Of these
registered ADR holders, 38 have addresses in the United States.
One of the registered ADR holders is The Depository Trust
Company, which represents the total number of ADRs held in
book-entry form. The ADR holders collectively held
9,880,004 ADRs, or approximately 10% of our total issued
share capital as at June 23, 2003.

The table below sets out as of June 26, 2003
the number of shares and percentage of our share capital held by
each person known to us to own, of record or beneficially, 3% or
more of our ordinary shares:

Holders of 3% or more of ordinary shares in
Marconi Corporation plc

As at June 26, 2003


|                                             |  |               |             |            |  |  |      | 
|-------------------------------------------- |  | ------------- | ----------- | ---------- |  |  | ---- | 
|Name                                         |  | No. of Shares |             | Percentage
|                                             |  |               |             |           
|The Goldman Sachs Group, Inc                 |  |               | 112,243,587 |            |  |  | 11.2 | 
|FMR Corp. and Fidelity International Limited |  |               | 83,833,459  |            |  |  | 8.3  | 
|Appaloosa Investment Ltd Partnership         |  |               | 57,166,332  |            |  |  | 5.7  | 
|Palomino Fund Limited                        |  |               | 50,083,668  |            |  |  | 5.0  | 
|JP Morgan Securities Limited                 |  |               | 45,741,241  |            |  |  | 4.5  | 
|Cerberus Partners, LP                        |  |               | 39,832,449  |            |  |  | 3.9  | 
|Deutsche Bank AG                             |  |               | 36,191,019  |            |  |  | 3.6  | 

To our knowledge, we are not owned or controlled,
directly or indirectly, by another corporation, by any foreign
government or by any other natural or legal person or persons,
severally or jointly.

To our knowledge, other than our recent
restructuring described herein, there are no arrangements the
operation of which may at a subsequent date result in us
undergoing a change in control.

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RELATED PARTY TRANSACTIONS

The following is a summary of certain
transactions with related parties, which were entered into or
were in effect from April 1, 2002 up to the date of this
annual report.

All the contracts and other arrangements with
Atlantic Telecommunications/GaMMa, Alstom, CosmoCom and
Media.Net and the joint ventures described below have been on
arms-length terms.

Atlantic Telecommunications
Limited/GaMMa

We owned 19.7% of Atlantic Telecommunications
Limited or Atlantic. Atlantic went into bankruptcy on
October 5, 2001. GaMMa acquired certain assets from
Atlantic Telecommunications Ltd, in bankruptcy. We received a
14.3% beneficial holding in GaMMa in December 2001, in
consideration of the waiver of retention of title claims against
certain assets of Atlantic, the grant of software licenses and
procurement of the assignment of the indefeasible right of use
granted by Easynet. Under the terms of the agreement with GaMMa,
we will receive warrants equating to 1.7% of the authorized
share capital of GaMMa.

Alstom

We owned approximately 24% of Alstom until
February 2001, when we disposed of 18% through a public offering
of shares. Upon the initial public offering of Alstom in 1998,
prior to which we had a 50% stake in GEC Alstom, 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, and as a
result, among others, we no longer provide insurance services to
Alstom. We do, however, have an ongoing maintenance contract and
provide some supply works on Alstoms Northern Line. 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. In June 2001, we disposed of our remaining
interest in Alstom.

CosmoCom

As of June 18, 2003, Marconi Capital Limited
owned 5.7% of CosmoCom, Inc. CosmoCom, Inc. develops and deploys
call center products and services. Marconi Communications
International Limited, or MCIL, entered into a Value Added
Reseller Agreement with CosmoCom, Inc. on March 3, 2000, as
amended by Amendment No. 1, dated September 8, 2000,
the VAR, whereby would act as a reseller of certain CosmoCom,
Inc. products. Subject to other terms of the VAR, including the
termination provisions contained therein, MCIL was required to
purchase products and/or services of $12,000,000 over
approximately a three year period. On or about October 29,
2001, MCIL advised CosmoCom, Inc. that it was terminating the
VAR, and is making no further purchases at this time. During the
term of the VAR, purchased approximately $1.5 million of
products and/or services. MCIL and CosmoCom are currently
involved in litigation wherein each party asserts that the other
party has breached the VAR.

Media.Net

We had a 10% ownership interest in Media.Net
Communications, Inc (Media.Net), a business which supplies high
speed fiber-optic networks and related products and services to
the media and entertainment industry. Our Network Equipment and
Network Services businesses supplied Media.Net with equipment
and services totaling about $0.5 million over the
15 months leading up to an October 2002 settlement whereby
the interest was returned to Media.Net in return for a one time
$0.3 million payment to us. With the settlement, we were
also granted 3 million warrants exercisable for Media.Net
preferred stock, exercisable in the event Media.Nets
monthly revenues are $1.5 million or more in any given
month prior to November 2003.

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Marconi (Malaysia) SDN BHD

Marconi Communications S.p.A. owns a 30%
shareholding in Marconi (Malaysia) SDN BHD, a business that
sells and installs telecommunications equipment. During fiscal
2003, we supplied Network Equipment products totaling
£23.1 million to this company at arms-length
terms.

Ultramast

We formed a joint venture company with Railtrack
Telecom Services Limited, or RTSL, on April 26, 2001 to
support the deployment of next generation broadband wireless
networks. Marconi and RTSL each had a 50% interest in the joint
venture company until February 2003 when we settled our
litigation with RTSL and RTSL assumed full control of Ultramast.
Albany Partnership Ltd., or APT, our wholly owned subsidiary,
has a consultancy agreement with Ultramast to provide it with
telecommunications consultancy services to design, construct and
maintain masts for the next generation networks. Ultramast also
has an agreement with ipsaris Limited under which ipsaris is
nominated as the preferred supplier for connectivity for the
telecommunications network.

Confirmant

Confirmant is a 50-50 joint venture between
Marconi Corporation plc and Oxford Glyco Sciences (U.K.)
Limited, a wholly owned subsidiary of Oxford Glyco Sciences plc.
Confirmant was formed in June 2001 for the purpose of completing
and then offering for subscription a proteomic database and for
providing managed hosting services to the biotech sector.
Although our outstanding contracts with Confirmant have not been
formally cancelled, all members of the Confirmant board of
directors have acknowledged that they are de facto cancelled
and, therefore, we have no remaining liability under those
contracts.

Easynet Group plc

We have an investment of 72.7% of the equity
share capital of Easynet Group Plc (Easynet). However, we hold
49.9% of the voting share capital of Easynet, have 22% of board
representation, no unilateral rights or vetoes, and no
involvement in day-to-day operations of Easynet. We have
supplied ipsaris Limited, a subsidiary of Easynet, with
equipment and services on arms length terms in the past.

Financial Restructuring Arrangements

Until the completion of our financial
restructuring on May 19, 2003, Marconi plc was the
parent company of our group. We had the following transactions
with Marconi plc which are reflected in the accompanying
financial statements.

Stock-based
compensation

As discussed in note 16 of our consolidated
financial statements contained elsewhere herein, our employees
participated in a number of stock option plans whereby they
received rights over shares in Marconi plc. The financial
statements reflect an expense of £14 million,
£26 million and £7 million in fiscal 2003,
2002 and 2001, respectively, in relation to these plans.

Equity
forward contracts

As discussed in note 2 of our consolidated
financial statements contained elsewhere herein,
Marconi plc charged us for movements in the fair value of
various equity forward contracts that were taken out to
economically hedge the stock based compensation plans. The
financial statements reflect an expense of £nil,
£335 million (of which £240 million was
reported as the cumulative effect of accounting change) and
£nil in fiscal 2003, 2002 and 2001, respectively, in
relation to these contracts.

In connection with and to facilitate our
financial restructuring, we entered into a number of intra-group
restructuring arrangements with other group companies and our
former parent. The two

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primary agreements were the scheme implementation
deed and the statement and waiver of intercompany balances
agreement.




| |                           
| | --------------------------
| | Scheme Implementation Deed

Marconi Corporation, Marconi plc, E-A
Continental Limited, Ancrane Limited, Marconi Nominees Limited,
British Sealed Beams Limited and various other group companies
entered into the scheme implementation deed on March 27,
2003. The primary purpose of the scheme implementation deed was
to ensure that legally binding arrangements were in place to
govern the rights and obligations between Marconi Corporation
and Marconi plc in implementing our restructuring.

      Non-voting
undertakings



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Ancrane Limited, a subsidiary of
    Marconi plc, had various claims against Marconi Corporation
    and Marconi plc. Ancrane Limited undertook not to attend or
    vote or to use any other rights or powers available to it as a
    creditor at any of the scheme of arrangement meetings at which
    it was entitled to attend and vote. Ancrane Limited also
    undertook not to take any steps to canvass, solicit or entice
    any other person, firm or company to attend and/or vote on its
    behalf at any of those meetings. These arrangements did not
    however prevent Ancrane Limited from submitting a claim under
    either or both of the Marconi Corporation scheme of arrangement
    and the Marconi plc scheme of arrangement.
|
| | Marconi Corporation had a claim against
    Marconi plc and undertook not to attend or vote at the
    Marconi plc scheme of arrangement meeting nor submit a form
    of proxy with respect to its claim. This did not, however,
    prevent Marconi Corporation from submitting a claim under the
    Marconi plc scheme of arrangement.                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| | Certain other group companies and British Sealed
    Beams Limited had various claims against Marconi Corporation and
    Marconi plc and therefore also undertook not to attend or
    vote at the scheme of arrangement meetings or use any other
    rights or powers available to them as a scheme of arrangement
    creditor to attend or vote at any of the scheme of arrangement
    meetings at which they were entitled to attend and vote.                                                                                                                                                                                                                                                                                                        

      Ancrane
Limited/E-A Continental arrangements



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | E-A Continental Limited, a subsidiary of Marconi
    Corporation, owed Marconi plc approximately
    £219 million and had a receivable of approximately
    £363 million due from Marconi Corporation. Pursuant to
    a deed of assignment entered into on March 27, 2003 between
    Marconi Corporation, Marconi plc and E-A Continental
    Limited, Marconi Corporation agreed to the assignment by
    E-A Continental Limited to Marconi plc of its
    £363 million receivable. The assignment of the
    £363 million receivable was in consideration for the
    release by Marconi plc of the £219 million owed
    to Marconi plc by E-A Continental Limited and the
    transfer by E-A Continental Limited to Marconi plc of
    the balance of approximately £2,000,000 held on account
    with HSBC. On March 27, 2003, a deed of assignment was
    entered into between Marconi Corporation, Marconi plc and
    Ancrane under which Marconi plc agreed to the assignment of
    the £363 million receivable to Ancrane in
    consideration for the issue to Marconi plc by Ancrane of a
    share at a premium equal to the market value of the
    £363 million receivable.
|
| | Ancrane Limited re-registered as an unlimited
    company pursuant to section 49 of the U.K. Companies Act
    1985 on March 25, 2003. Ancrane reduced its share capital,
    including for this purpose its share premium account, to
    £100 to enable it to make a repayment of capital in specie
    to Marconi plc of its interest in all of its assets, save
    for £100 and the benefit of a specific covenant by Marconi
    Corporation, and made a repayment of such capital in specie to
    Marconi plc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

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      Approvals



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Marconi Corporations shareholders,
    Marconi plc and Marconi Nominees Limited, agreed to vote in
    favor of all shareholder resolutions which were in the
    reasonable opinion of the Marconi Corporation Board, necessary
    or desirable to give effect to the Marconi Corporation scheme of
    arrangement, and to consent in writing to each and every
    variation of the rights attached to their respective
    shareholdings in Marconi Corporation as may be involved in the
    passing and implementation of such shareholder resolutions and
    to take such actions as necessary to implement the restructuring
    and so as not to frustrate, delay or interfere with the
    performance, approval or implementation of the restructuring.

      BAE
Deed of Novation



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In 1999, Marconi Corporation, which was, at the
    time, named The General Electric Company, p.l.c., separated its
    international aerospace, naval shipbuilding, defence electronics
    and defence systems business and sold it to BAE. The original
    transaction agreement and payment deed were entered into between
    Marconi Corporation and BAE and subsequently novated from
    Marconi Corporation to Marconi plc. All other transaction
    documentation in relation to the sale was entered into by
    Marconi plc.
|
| | Marconi Corporation and Marconi plc agreed
    to novate the transaction agreement, payment deed and various
    other agreements from Marconi plc back to Marconi
    Corporation with effect from the date of the effectiveness of
    Marconi Corporations scheme of arrangement. Both Marconi
    Corporation and Marconi plc agreed to use all reasonable
    endeavours to procure that BAE entered into the novation.                                                                                                             
|
| | In addition, Marconi plc, Marconi
    Corporation and BAE agreed that no amount should be paid by
    Marconi plc or Marconi Corporation to BAE in relation to
    certain claims made by the parties under the BAE merger
    agreements and that Marconi Corporation would reduce any amounts
    which may be payable to it in the future by BAE under the BAE
    merger agreements by U.S.$18,600,000.                                                                                                                               

      Service
Contracts



| |                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Marconi Corporation agreed to procure that nine
    specified employees of Marconi Corporation would enter into new
    service agreements in a specified form so that the new terms and
    conditions will take effect on the date of the effectiveness of
    Marconi Corporations scheme of arrangement.

      Finmeccanica
Guarantee



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under a share purchase agreement dated
    August 2, 2002, Marconi (Bruton Street) Limited sold all of
    the shares in Marconi Mobile Holdings SpA, the Italian holding
    company for the strategic communications business, to
    Finmeccanica SpA. A parent company guarantee in favour of
    Finmeccanica SpA was required to be given as part of the share
    sale, the Finmeccanica guarantee. Marconi plc was therefore
    party to the share purchase agreement, as guarantor, pursuant to
    which, among other things, it guaranteed the performance by
    Marconi (Bruton Street) Limited of its obligations under the
    share purchase agreement and the related transaction documents,
    including a tax covenant, a transitional services agreement, a
    custody deed and a disclosure letter.         
|
| | Finmeccanica SpA, Marconi Corporation and
    Marconi plc entered into a deed of novation and amendment,
    the Finmeccanica guarantee deed of novation, under which, with
    effect from May 19, 2003, the Finmeccanica guarantee and
    all other remaining obligations of Marconi plc under the
    share purchase agreement would be novated from Marconi plc
    to Marconi Corporation. As a result of that novation, Marconi
    Corporation became the guarantor of Marconi (Bruton Street)
    Limiteds obligations under the share purchase agreement
    and related transaction documentation, and assumed all other
    obligations of Marconi plc under the share purchase
    agreement, and Marconi plc was released from all of its
    obligations under the Finmeccanica guarantee and the share
    purchase

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| |                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | agreement. Marconi Corporations obligations
    under the share purchase agreement, including the Finmeccanica
    guarantee, were excluded obligations for the purposes of the
    Marconi Corporation scheme of arrangement.

      Lemelson
Licence



| |                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under an agreement between Marconi plc and
    Lemelson Medical, Education and Research Foundation, Limited
    Partnership, the Lemelson Foundation Partnership, dated
    December 1, 1999, Lemelson Foundation Partnership granted
    to Marconi plc for itself and the benefit of its
    subsidiaries a non-exclusive licence for certain licensed
    patents relating principally to bar coding, the Lemelson
    agreement.
|
| | Marconi Corporation and Marconi plc agreed
    to novate the existing Lemelson agreement to Marconi Corporation
    and agreed to use all reasonable endeavours to procure that
    Lemelson Foundation Partnership entered into the novation.                                                                                                                                                                                      

Litigation



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In the event that either Marconi Corporation or
    Marconi plc becomes aware of anything which is likely to
    give rise to a claim or threat of litigation to it or the other
    entity, it shall inform the other of the relevant information as
    soon as possible and shall assist, so far as reasonably
    practicable, in investigating and defending the claim. In
    addition, Marconi Corporation is entitled to require
    Marconi plc to take such steps and proceedings as Marconi
    Corporation believes is necessary to defend such proceedings and
    Marconi plc shall not admit any liability or agree any
    compromise of such actions without Marconi Corporations
    prior written consent.

Marconi
Name



| |                                                                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Marconi Corporation agreed with effect from
    May 19, 2003 to license the Marconi name to
    Marconi plc for an initial period of twelve months. The
    licence is non-exclusive, non-transferable and royalty free.
    Marconi plc has covenanted to use the Marconi name solely
    as its corporate name and not for any other purpose.
|
| | Marconi plc agreed that it will propose a
    resolution to its shareholders to change its company name at
    each and every general meeting convened for the transaction of
    business until such resolution is passed.                                                                                                                    
|
| | The licence terminates immediately upon the
    occurrence of certain events, for example any breach of the
    licence or an order for Marconi plcs winding-up,
    administration or dissolution being made or a liquidator,
    trustee in bankruptcy or receiver being appointed for
    Marconi plc.                                     

Tax



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Marconi Corporation agreed to surrender up to a
    maximum of £200 million of group relief to Ancrane
    Limited and Marconi plc.                                                                                                                                                                                                                                                                                                                                                        
|
| | Marconi plc also undertook to enter into an
    election with Marconi Corporation and companies in our group,
    the effect of which was the surrender of capital losses of
    approximately £15 billion to companies in our group by
    Marconi plc. Marconi Corporation agreed to make payments to
    Marconi plc as and when it or a subsidiary chooses to use
    these losses or one of the transferees of the losses is sold out
    of the group with unutilised capital losses.
|
| | Marconi Corporation agreed to pay corporation tax
    on behalf of Marconi plc and Ancrane Limited to the extent
    that it arises in their accounting periods commencing
    April 1, 2003 in respect of foreign exchange movements in
    relation to the Notes and an inter-company loan to Highrose
    Limited.                                                                                                                                                                      

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Highrose
Debt



| |                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Ancrane Limited and Marconi plc have agreed,
    with effect from May 19, 2003, to release Highrose Limited,
    a subsidiary of Marconi Corporation, from its obligation to
    repay an inter-company loan of approximately
    £24 million to Ancrane Limited.

Intercompany
Trade Balances



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | At the date of the scheme implementation deed,
    Marconi plc was owed intra-group trade receivables from
    five Marconi Corporation subsidiaries in an aggregate amount of
    £5,540,623. Marconi plc assigned the benefit of these
    intra-group trade receivables to Marconi Corporation in
    consideration for Marconi Corporation reducing the balance of
    £165,748,102 due to it from Marconi plc by an amount
    of £19,160,663.

Counter
Indemnities and Waivers



| |                                                                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Marconi Corporation agreed to indemnify
    Marconi plc for any claims, including related costs,
    against Marconi plc from Marconi Communications Limited
    arising as a result of any payment made by Marconi
    Communications Limited in settling Marconi plcs
    obligations under the contracts and termination of employment of
    Robert Meakin and Stephen Hare.   
|
| | Marconi Corporation also agreed to meet certain
    costs and expenses of various professional advisers in relation
    to our restructuring, and irrevocably and unconditionally waived
    any right of counter indemnity or right of reimbursement or
    other claim against Marconi plc in relation thereto,
    whether arising under contract, operation of law or otherwise.

ESOP
Escrow Agreement Release



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Following payment by Marconi Corporation of all
    payments pursuant to the ESOP settlement agreement,
    Marconi plc agreed to unconditionally and irrevocably
    release all of its claims against its subsidiaries to the extent
    that they relate to the ESOP derivative transactions. Upon such
    release by Marconi plc, Marconi Corporation unconditionally
    and irrevocably released any claims that it had against
    Marconi plc arising from Marconi Corporations funding
    of Bedell Cristin Trustees in respect of cash collateral calls
    from the ESOP derivatives banks.

      Marconi plc
Waivers



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Each company within the new
    Marconi Corporation group irrevocably and unconditionally
    agreed to waive and release each company within our group from
    any claim it may have against our group companies which arises
    out of any matter or circumstance existing on or before
    May 19, 2003 other than any claim set out in the statement
    and waiver agreement that is expressed to continue,
    notwithstanding the terms of that agreement, and any other claim
    intended to be excluded by the terms of either scheme of
    arrangement or contemplated by the scheme implementation deed or
    the transactions contemplated by the scheme implementation deed.
|
| | Marconi plc agreed that the distribution of
    consideration to its creditors in respect of any guarantee or
    indemnity given by Marconi plc of any other group company
    in connection with the schemes of arrangement, including
    Marconi plcs guarantee of Marconi Corporation Bonds
    that were outstanding prior to being compromised pursuant to the
    restructuring, will not give rise to any counter indemnity or
    right of reimbursement or other claim by Marconi plc
    against the relevant group company.                                                                                                                                                     

Statement
and Waiver



| |                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Each of Marconi Corporation and Marconi plc
    and certain other group companies agreed to enter into the
    statement and waiver of inter-company balances agreement
    disclosed below.

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Marconi
plc Scheme Expenses



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Marconi Corporation agreed to procure the issue
    of a letter of credit, under its performance bonding facility,
    in an amount of £2 million in favor of the supervisors
    of the Marconi plc scheme of arrangement from time to time
    for them to draw on in relation to any ongoing costs. Marconi
    Corporation has agreed to waive any right to reimbursement
    against Marconi plc arising as a result of any payment made
    by Marconi Corporation as a result of any drawings by the
    supervisors under such letter of credit. In the event that
    Marconi Corporation is unable to procure the issue of the letter
    of credit, it has undertaken to provide the sum of
    £2 million for the supervisors for drawing in relation
    to any ongoing costs on similar terms to those set out in the
    scheme implementation deed and the performance bonding facility
    agreement in relation to the letter of credit.



| |                                   
| | ----------------------------------
| | Statement and Waiver
    Agreement

To effect a clean up of existing inter-company
claims owed to or by Marconi Corporation and Marconi plc,
Marconi Corporation and Marconi plc entered into a
statement and waiver of intercompany balances agreement with
some other group companies.

The effect of the statement and waiver agreement
was to preserve all known and stated claims existing between
(a) Marconi Corporation or Marconi plc and
(b) the participating group companies, and to waive all
other claims which arose by reference to circumstances existing
prior to our restructuring.

Under the statement and waiver agreement the
following intra-group claims were preserved as between
(a) Marconi Corporation and Marconi plc and
(b) the participating group companies:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | disclosed intra-group loan balances in existence
    as at December 31, 2002 plus interest accrued at such
    applicable commercial rate of interest as agreed between the
    parties to the respective loan;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | any intra-group loan made on or after
    January 1, 2003 in the ordinary and usual course of
    business or with certain previously agreed creditor consent,
    including interest accrued at such applicable commercial rate of
    interest as agreed between the parties to the respective loan;                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | any trading and current account liabilities in
    existence as at March 31, 2002, in the case of any
    participating group company which is a trading or an active
    non-trading company, or September 30, 2002, in the case of
    any dormant participating group company. These liabilities are
    determined by reference to the management accounts upon which
    the audited consolidated financial accounts of Marconi plc,
    as at March 31, 2002 or September 30, 2002, as
    applicable, were prepared;                                                                                                                                                                                                        
|
| |  | any trading and current account liabilities
    incurred in the ordinary and usual course of business after
    March 31, 2002 between (a) Marconi Corporation and/or
    Marconi plc and (b) any participating group company
    which is a trading or an active non-trading company;                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | any counter indemnity or equivalent reimbursement
    obligation, which is written or is implied by law and whether or
    not contingent, arising under any financial guarantee or
    indemnity, which is written or is implied by law, and is:
    (a) in favour of any third party which is not a member of
    the group, including the issuer of any performance bond, bank
    guarantee or similar instrument, and (b) in respect of any
    contractual obligations of the provider of the counter indemnity
    or equivalent; provided that where any payment has been made
    under such a guarantee or indemnity on or before March 31,
    2002, the resultant counter indemnity shall not be preserved;            
|
| |  | any counter indemnity or equivalent reimbursement
    obligation, which is written or is implied by law and whether or
    not contingent, arising under any written non-financial
    guarantee or indemnity, which is written or implied by law, and
    is: (a) in favour of any person which is not a member of
    the group, and (b) in respect of any contractual or implied
    by law obligations of the provider of the counter indemnity or
    equivalent and (c) disclosed in a schedule to the statement
    and waiver agreement; provided that where any payment has been
    made under such a guarantee or indemnity on or before March 31,
    2002, the resultant counter indemnity shall not be preserved; and

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| |   |                                             
| | - | --------------------------------------------
| |  | any other claims specified in the agreement.

All other claims of Marconi Corporation or
Marconi plc against each participating group company and
all other claims of each participating group companies against
Marconi Corporation or Marconi plc were released after our
restructuring. The statement and waiver agreement does not
affect claims which arise out of or in relation to any matter or
circumstance arising after the financial restructuring.

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Item 8: Financial
Information






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 annual
report, a significant effect on our financial position as a
whole, except as set out below. Where a liquidated sum is
claimed, a de minimis figure of £5 million has been
applied in determining which claims may have a significant
effect. The figures given are the full amounts claimed by the
claimants in each case, which may be much greater than the
amounts the claimants realistically believe they can recover. We
and our other group companies intend to defend claims
vigorously. While we believe that we have meritorious defenses,
the duration and outcome of the litigation are not predictable
at this point.

Claims against us or group
companies

The following represents the largest outstanding
claims made against the group:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Marconi Corporation, FORE Systems Inc., or FORE
    Systems, and 13 persons who were then directors and/or senior
    executives of FORE Systems are defendants in a consolidated
    class action lawsuit filed in the United States District Court
    for the Western District of Pennsylvania on behalf of the public
    shareholders of FORE Systems, other than defendants and their
    respective affiliates. The action alleges that Marconi
    Corporation violated federal securities law in relation to
    Marconi Corporations tender offer for FORE Systems
    shares, FORE Systems grant of share options to certain of
    the individual defendants and the treatment afforded the
    individual defendants share options in that tender offer
    and in the merger agreement between Marconi Corporation and FORE
    Systems. Millionerrors Investment Club is the representative of
    the named plaintiff class. The Complaint seeks unspecified
    damages, counsel and expert fees, other costs of the claim and
    other unspecified relief. Plaintiffs lawyers have stated that
    their damage claims would total $450 million. On
    August 21, 2002 the District Court granted summary judgment
    in favor of defendants on all claims. On September 23,
    2002, the plaintiffs filed a notice of appeal. The appeal has
    been stayed and the case remanded to the district court to
    consider a settlement agreement reached among the parties. The
    settlement is subject to court approval which will be sought
    within the next 30 days, but may not be granted for several
    months, after notice and hearing.                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | 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 class of
    persons, other than defendants and their respective affiliates,
    who purchased FORE Systems securities during the period
    July 19, 1996 to April 1, 1997, inclusive. Robert K.
    Bell is the first named plaintiff class representative. The
    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 April 1, 1997
    preliminary release of FORE Systems projected results of
    operations for fiscal 1997. The plaintiffs also allege that FORE
    Systems financial statements for the quarters ended
    June 30, September 30 and December 31, 1996
    improperly recognized revenues on sales to certain customers.
    These alleged misrepresentations are said to constitute
    violations of the anti-fraud provisions of Section 10(b) of
    the U.S. Securities Exchange Act of 1934 and, as to the
    individual defendants, of Section 20(a) of the U.S.
    Securities Exchange Act of 1934. The plaintiffs
    consolidated complaint seeks unspecified damages, counsel and
    expert fees and other costs of suit and other unspecified
    relief. The defendants have denied all allegations of
    wrongdoing. Discovery has concluded, and both plaintiffs and
    defendants have filed their respective pre-trial statements. The
    plaintiffs damages expert had initially estimated damages
    at $792 million, then $865 million and then
    $724 million. By order dated August 2, 2002, the court
    granted the defendants motion in limine to exclude
    testimony from the plaintiffs damages expert. At the same
    time, the court denied a motion to

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | exclude testimony from the plaintiffs
    liability expert and discussed a proofs of claim procedure
    which, if liability were found, would follow a liability trial.
    The court also certified the damages issue for an interlocutory
    appeal to the U.S. Court of Appeals for the Third Circuit. The
    plaintiffs did not appeal the courts decision. The parties
    have agreed to a settlement in principle, which, if concluded,
    will result in the group not making a payment to the plaintiff
    class. The settlement is currently being documented and then
    will be subject to court approval, which will take several
    months.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | FORE Systems is a defendant in a lawsuit filed by
    Bell Communications Research, Inc., now known as Telcordia
    Technologies Inc., or Telcordia, on October 14, 1998 in the
    United States District Court for the District of Delaware. Upon
    filing the case, Telcordia, a patent holder, alleged that FORE
    Systems infringed four patents owned by Telcordia, and sought
    unspecified damages for past infringement and an injunction
    against future infringement. FORE Systems denied infringement
    and asserted the affirmative defenses of invalidity,
    unenforceability, laches, equitable estoppel, implied license,
    misuse and unclean hands. In addition, FORE Systems
    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, negligent misrepresentation and common law unfair
    business practices and competition. Prior to trial, Telcordia
    dismissed with prejudice its claims for infringement of two of
    the four asserted patents, and FORE Systems dismissed with
    prejudice its counterclaims for reformation of contract based on
    fraud, breach of the covenant of good faith and fair dealing,
    negligent misrepresentation and common law unfair business
    practices and competition. Discovery in this case has closed.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Telcordia maintained its claims for infringement
    on the remaining two patents. The district court conducted a
    claim construction hearing in late August 2000 and subsequently
    entered an order construing the claims of the two remaining
    patents in suit. Telcordia, taking the position that it could
    not, given the courts patent claim construction, prevail
    on its claims of infringement at trial, moved the district court
    to enter an order finding that FORE Systems had not infringed
    the two remaining patents in suit so that the case would be
    procedurally postured for appeal. FORE Systems subsequently
    moved the district court to require that Telcordia identify
    which of the construed patent claim elements it contended were
    in error and precluded Telcordia from proving infringement.
    Telcordia identified some claim elements, and, on
    September 21, 2001, the district court entered a final
    judgment of non-infringement on the two remaining patents.
|
| | Telcordia filed notice of appeal on
    October 19, 2001, and filed its opening brief on
    March 18, 2002. FORE Systems opening brief was filed
    on May 28, 2002. Telcordia filed its reply on July 23,
    2002, and FORE filed its reply on August 9, 2002. Oral
    argument in the appeal took place on February 3, 2003. In
    its decision, announced on March 27, 2003, the
    U.S. Court of Appeals for the Federal Circuit unanimously
    affirmed the district courts judgment on one of the two
    patents, and on the other patent, by a majority decision,
    remanded the case back to district court for further proceedings.                                                                                                                                                                                                                                                                                                                                                                                       



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | FORE Systems is a defendant in a second lawsuit
    filed by Telcordia, a patent holder, on June 8, 1999 in the
    United States District Court for the District of Delaware.
    Telcordias second lawsuit alleges that FORE Systems has
    infringed two additional Telcordia 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.
    FORE Systems has also asserted a counterclaim seeking damages
    for Telcordias infringement of a FORE Systems patent. The
    case was scheduled for trial in November 2000. However, all
    proceedings have been stayed pending the outcome of the
    proceedings in the first lawsuit described above, and discovery
    in this second case has not yet been completed.

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Systems Management Specialists, Inc., or SMS, is
    a defendant in an arbitration brought by Esprit de Corp, or
    Esprit, in April 2002. This action relates to two outsourcing
    agreements entered into by Esprit and SMS in 1995 and 1999;
    Esprit alleges that SMS breached its obligations under the
    agreement and is seeking at least $8 million. The pleadings
    portion and discovery phase between SMS and Esprit had commenced
    and the arbitration hearing will be conducted in Los Angeles,
    California, U.S.A. Initially, the parties had agreed to conduct
    the arbitration hearing during a two week period in May, 2003,
    with discovery and briefing to take place before that time.
    However, this has been delayed and the hearing is now scheduled
    to commence on September 15, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | Marconi Corporation plc and Marconi Commerce
    Systems Inc., or MCSI, are defendants in an action brought by a
    former employee, Larry Anthony Gillus, or Gillus. The complaint
    is that Gillus suffered racial discrimination and subsequent
    retaliatory action whilst employed by Gilbarco, subsequently
    known as MCSI, which has now been sold to subsidiaries of
    Danaher Corporation plc. A second claim has been brought against
    Marconi plc and MCSI for retaliation and intentional infliction
    of emotional distress alleged to have occurred after he brought
    the original action. In the second action filed in 2000, there
    is a motion pending to add a breach of employment contract claim
    and injunctive relief. Counsel for both parties have agreed that
    if Marconi plc is the correct defendant and not Marconi
    Corporations the change can be made. Gillus counsel has in
    the past stated that he is seeking a total of $19 million
    in respect of both claims. Potential liabilities in respect of
    the claim against Marconi Corporation were compromised pursuant
    to our restructuring.                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Marconi Corporation, Marconi plc, Marconi Inc.
    and Marconi Data Systems Inc. are defendants in an action
    brought by a former employee, Thomas Edeus, or Edeus. The
    complaint asserts three causes of action; firstly that Edeus was
    unlawfully deprived of benefits to which he was entitled under
    Marconi Data Systems Incs United States severance plan;
    secondly for failure to provide Edeus with a summary plan
    description relating to the severance plan; and thirdly for age
    discrimination in employment. The plaintiff has purported to
    have made out claims in various specified amounts totaling over
    $901,000, some of which may be in the alternative, and also
    unspecified punitive damages, liquidated damages and front and
    back pay, making the impact of this claim on the group difficult
    to assess. An answer and affirmative defenses have been filed on
    behalf of all defendants. On June 5, 2003, the court
    entered an order providing as follows: Plaintiff
    having advised the court that one or more defendants [sic]
    are in Bankruptcy, this action is placed on the courts
    suspense calendar pending disposition of the bankruptcy case.
    Plaintiff is directed to file and notice for hearing a motion to
    reinstate upon disposition of the bankruptcy proceedings.
    Potential liabilities in respect of the claim against Marconi
    Corporation and Marconi plc were compromised pursuant to our
    restructuring.
|
| |  | On October 4, 2000, Alcatel SA and Alcatel
    CIT, or Alcatel, both French companies, filed a claim against
    Marconi plc, Marconi Communications Limited and Marconi
    Communications SpA alleging infringement of two patents held by
    Alcatel group companies. Alcatel and Marconi Corporation entered
    into a mutual patent cross license agreement effective
    April 1, 2002 in respect of both companies patent
    portfolios which calls for a series of payments by Marconi plc.
    The amount of these payments has no significant effect on the
    financial position or profitability of the group. This settled
    all claims brought by Alcatel. The cross license applies to
    patents and patent applications of Marconi plc and Alcatel filed
    prior to April 1, 2002. The cross license expires on
    March 31, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | Stringfellow and Plessey Precision Metals are
    defendants in an action brought in the Superior Court of
    California in May 1998. A toxic tort claim was filed by several
    thousand residents of Riverside County who live adjacent to the
    Stringfellow Acid Pits Waste Disposal Site. There are currently
    several hundred plaintiffs. The claim is still in its early
    stages and therefore, no estimate of Plesseys potential
    liability is currently available. Plessey was a minor generator
    of hazardous materials on the site compared to others involved,
    however. A case management order was entered                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | into in early 2001 and the case is still in the
    early discovery stage. The defendants are seeking dismissal on
    grounds of statutes of limitation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Inglis Limited and English Electric Company
    Limited, or English Electric are defendants in an action brought
    by Manitoba Hydro. In the early 1960s, Manitoba Hydro contracted
    with Inglis Limited to design and manufacture, amongst other
    equipment, three turbines for the hydro electric plant at Grand
    Rapids in the United States. Inglis Limited worked closely with
    English Electric, who prepared certain aspects of the turbine
    design. One of the turbines exploded in March 1992. Manitoba
    Hydro is suing Inglis Limited for negligence and breach of
    contract in the design and manufacture of the turbines, and
    English Electric for negligence in relation to the design. In
    June 1998 Manitoba Hydro were granted leave to commence an
    action against English Electric and Inglis Limited and
    proceedings are progressing, the documentary disclosure phase
    having been largely completed and examination for discovery of
    witnesses being partly undertaken. Manitoba Hydro has pleaded,
    in broad terms, around 35 million Canadian dollars,
    approximately £14 million. This sum is exclusive of
    interest which could approximately double this figure as the
    explosion took place 10 years ago. This amount assumes 100%
    liability on the part of English Electric, which is denied.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Datang Telecom Technology Co. Ltd, Optical
    Communication Branch, or Datang, has indicated that it may bring
    a claim against Chengdu Marconi Communications Ltd, or Chengdu.
    On August 24, 2000 Chengdu Marconi Communications Ltd
    entered into an Original Equipment Manufacture agreement with
    Datang. Datang has approximately U.S.$5.2 million on
    account payable to Chengdu Marconi Communications Ltd but has
    not paid as it claims that it has been unable to sell U.S.$7 to
    9 million of products purchased from Chengdu Marconi
    Communications Ltd due to their quality. Datang has indicated
    that it will not pay the outstanding sums and may bring court
    proceedings against Chengdu Marconi Communications Ltd in China.
    The value of such a claim might be in the region of U.S.$7 to
    9 million, the value of the products that Datang claims it
    has been unable to sell, but could potentially be for
    U.S.$18 million, the value of the entire contract.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | On March 26, 2002 Railtrack Telecom Services
    Limited, or RTSL, now known as RT Group Telecom Services
    Limited, a joint venture partner, served a claim against Marconi
    Corporation in respect of our failure to pay in February 2002 an
    amount of £20 million plus daily interest in an amount
    of £3,287 in respect of the purported exercise by RTSL of a
    contractual option to put 1,324,054 ordinary shares in
    Easynet Group plc on to Marconi Corporation. Marconi Corporation
    had, prior to receipt of the claim, indicated its intention to
    claim or counterclaim against RTSL in respect of its acts,
    omissions, misrepresentations and breaches of its obligations to
    Marconi Corporation arising out of or in respect of certain
    agreements and transactions relating to ipsaris Limited and
    Ultramast Limited, a joint venture company in which RTSL and
    Marconi Corporation each held 50% of the shares. Marconi
    Corporation then raised its counterclaims as a complete defense
    and advised RTSL that the amount of Marconi Corporations
    claims against RTSL was greater than the claim that RTSL had
    brought against Marconi Corporation. RTSL applied for a summary
    judgment hearing which took place on July 15, 2002, on the
    grounds that Marconi Corporations claims had no real
    prospect of success. The court did not grant summary judgment in
    favor of RTSL, recognizing that Marconi Corporation might have a
    valid counterclaim which could be set off against amounts due
    under the option. However, the court did order that Marconi
    Corporation pay the disputed £20 million plus interest
    into court, reflecting the courts concerns about whether
    the counterclaim by Marconi Corporation would ultimately succeed
    and also the fact that RTSL was entitled to put the Easynet
    Group Plc shares on Marconi Corporation, and that it would be
    unfair for Marconi Corporation to acquire the shares without
    making any payment. Marconi Corporation paid the required sum
    into court. A settlement of all outstanding litigation was
    reached with RTSL, subject to court approval of a capital
    reduction in Ultramast Limited. The court approved the capital
    reduction on February 21, 2003.

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Marconi Communications Limited, or MCL has
    settled claims which were brought by Alstom Transport Limited,
    or Alstom, a sub-contractor, in an arbitration brought under
    International Chamber of Commerce rules in respect of a
    sub-contract that Alstom entered into with MCL on May 26,
    1995 for the supply of certain communications equipment and
    systems for installation on the Northern Line of Londons
    underground system. Alstom requested the arbitration on
    May 25, 2001. MCL submitted a full defense. Certain
    preliminary matters were heard and an initial hearing into the
    substance of the claim took place. In a related action, Alstom
    Transport Ltd and three other Alstom subsidiaries issued
    proceedings in the English courts in September 2001 in relation
    to alleged misrepresentations or breach of warranties made by
    MCL as to the costs of operating the communications equipment
    and systems to be installed pursuant to this sub-contract.
    Settlement was reached in relation to both these claims on
    December 20, 2002. MCL will provide further products and
    services to Alstom pursuant to a revised supply contract and a
    new maintenance contract was entered into as of January 6,
    2003. Marconi Corporations obligations pursuant to these
    new contracts are guaranteed by Marconi Communications Holdings
    Limited and are the subject of collateralized performance bonds
    to a value of £2.5 million and £1 million
    respectively for the supply and maintenance contracts. The
    arbitration has also been discontinued.                                                                                                                                               
|
| |  | Marconi Corporation was the defendant in an
    action brought by DrKW Finance Ltd, or DrKW which has now been
    settled. The claim was for £12,289,860.15 plus interest due
    or scheduled to become due under a payment plan agreement
    between Oracle Corporation U.K. Ltd, or Oracle, and Marconi
    Corporation. Oracle assigned the relevant agreement, a software
    licensing agreement, to DrKW. On October 11, 2002 DrKW
    obtained summary judgment for the full amount claimed plus
    interest. On the same day Marconi Corporation agreed a
    settlement of the claim with DrKW and DrKW agreed not to enforce
    the judgment. Marconi Corporation has complied with its
    settlement obligations and has no further liability in respect
    of this claim.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | There is an outstanding tax dispute between the
    Indian tax authorities and Marconi Corporation, English Electric
    and Associated Electrical Industries Limited, or AEI. In
    1989/90, as part of the reorganization of the groups
    European operations, Marconi Corporation, English Electric and
    AEI transferred their shareholdings in The General Electric
    Company of India Limited, or GEC India, The English Electric
    Company of India Limited, or EE India, and GEC Power Engineering
    Services of India Limited, or GEP India, to a Dutch company, GEC
    Alsthom NV, or Alsthom. The Indian tax authorities claim that
    this transfer gives rise to an Indian capital gains tax charge
    for each of Marconi Corporation, English Electric and AEI,
    although this is one of the issues in dispute. An advance Indian
    capital gains tax payment had to be made before the Indian
    authorities would issue a no-objection certificate, which was
    required before the transfer could proceed. This advance payment
    was based on the value of GEC India, EE India and GEP India at
    the date of the no-objection certificate. The Indian tax
    authorities have, however, assessed Marconi Corporation, English
    Electric and AEI to tax on the basis of the value of GEC India,
    EE India and GEP India at the date of the actual transfer,
    which could give rise to a tax liability of up to
    £11 million, of which £3 million relates to
    Marconi Corporation. Marconi Corporation, English Electric and
    AEI are disputing this liability and the basis of valuation in
    the Indian courts and in pursuance of interim orders of the
    Indian Court have deposited £2.686 million with the
    Indian tax authorities.
|
| |  | Marconi plc and four of its former officers are
    defendants in a consolidated class action lawsuit pending in the
    United States District Court for the Western District of
    Pennsylvania brought on behalf of a putative class of all
    persons, other than defendants and their respective affiliates,
    who purchased American depository receipts or are United States
    residents and purchased common stock of Marconi plc between
    April 10, 2001 and July 5, 2001, inclusive. Plaintiffs
    allege that, during this period, Marconi plc and the individual
    defendants falsely reassured investors that Marconis
    revenues would rise during the year and that its geographic and
    business mix left it relatively immune to the economic downturn
    affecting its competitors. Plaintiffs further allege that on
    July 4, 2001 defendants belatedly disclosed that tougher
    trading conditions in the quarter ended                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | June 30, 2001 indicated that Marconi
    plcs sales and operating profits for fiscal 2002 would
    fall significantly from the levels previously estimated.
    Defendants alleged misrepresentations are said to violate
    the anti-fraud provisions of Section 10(b) of the
    U.S. Securities Exchange Act of 1934 and, as to the
    individual defendants, Section 20(a) of the
    U.S. Securities Exchange Act of 1934. Plaintiffs seek class
    certification, an award of unspecified damages, counsel and
    expert fees and other costs of suit and other unspecified
    relief. All defendants filed a motion to dismiss the lawsuit,
    which by opinion and order dated September 18, 2002, was
    granted in part and denied in part. The Court ruled that it had
    no jurisdiction over claims of holders of Marconi ordinary
    shares not residents of the United States, but does have
    jurisdiction over claims of American resident owners of ordinary
    shares and owners of ADRs. The parties have agreed to a
    settlement in principle, which, if concluded, would result in
    the group not making a payment to the claimants. The settlement
    is currently being documented and then will be subject to court
    approval, which will take several months.
|
| |  | Marconi plc was the defendant in an action
    commenced by Salomon Brothers International Limited, or SBIL,
    for £15.9 million, plus interest and costs. The claim
    was related to a guarantee granted by Marconi plc to SBIL in
    respect of certain equity swap transactions entered into between
    SBIL and Bedell Cristin Trustees Limited, or Bedell Cristin, as
    trustees of the Marconi Employee Trust. The intention of the
    equity swap transactions was to hedge the exposure of the
    Marconi group to the Marconi plc share price inherent in Marconi
    employee share options. The equity swap transactions were
    governed by an ISDA master agreement between SBIL and Bedell
    Cristin.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On March 26, 2002, SBIL served notice on
    Bedell Cristin purporting to terminate the equity swap
    transactions on the grounds of an alleged event of default in
    relation to Marconi plc. On April 8, 2002, SBIL served a
    demand on Marconi plc under its guarantee for payment of an
    early termination amount that it had calculated to represent its
    loss in relation to the equity swap transactions. Marconi plc
    declined to recognize the validity of the early termination of
    the equity swap transactions or the demand under its guarantee.
    On April 19, 2002 SBIL filed a claim form on Marconi plc.
    Marconi plc served a defence to this claim form.
|
| | This litigation was discontinued in accordance
    with a settlement entered into in connection with our financial
    restructuring. For more information, please see
    Item 4: Information on the Company 
    History and Development of the Company 
    History  Financial Restructuring and
    Item 7: Major Shareholders and Related Party
    Transactions  Related Party Transactions 
    Restructuring Agreements  Scheme Implementation
    Deed  ESOP Escrow Agreement Release.                                                                                                                                                                                         

Claims brought by our group
companies

The following represent the largest outstanding
claims made on behalf of the group:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Marconi Communications Inc., or MCI, is the
    claimant in two actions against Vidar SMS Co., Ltd, or Vidar, a
    company with its principal place of business in Taiwan. In May
    2000, MCI brought an International Chamber of Commerce
    arbitration proceeding against Vidar in connection with
    Vidars breaches of an Engineering Services Agreement
    between Vidar and a Marconi-acquired company, RELTEC
    Corporation. In August 2002, the arbitration tribunal awarded
    MCI $25,879,544 under its breach of warranty claims,
    $5,604,270.12 for prejudgment interest, and $156,702.56 for
    costs, for a total award of $31,640,516.68. Vidar may claim that
    it has no assets to satisfy this judgment.
|
| |  | A second action was brought by MCI against Vidar
    in May 2000 in the United States Court for the Northern District
    of Texas for fraud, negligent misrepresentation, Texas common
    law indemnity and California equitable indemnity, all relating
    to Vidars wrongful acts in connection with various
    business relationships between the parties. On October 30,
    2002, the U.S. District Court entered default judgment against
    Vidar on all claims and assessed MCIs actual damages at                                                                                                                                                                                                                          

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| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $72,402,065 plus prejudgment interest on this
    amount at the rate of 10% per annum. Vidar filed a petition for
    reorganization in the Taipei (Taiwan) District Court in 2001 and
    may claim that it has no assets to satisfy the judgments
    referred to above. However, the Taipei District Court dismissed
    Vidars petition on January 28, 2002 based on its lack
    of viability for reorganization and the Taiwan High Court
    dismissed Vidars appeal of the lower courts ruling
    on March 25, 2002 based on the same reason.

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DIVIDEND POLICY

We are subject to legal restrictions in the
United Kingdom on the amount of dividends that we can pay our
shareholders. In particular, the U.K. Companies Act 1985
provides that a U.K. public company may pay dividends only if:



| |   |                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the amount of its net assets is not less than the
    aggregate of its called-up share capital and undistributable
    reserves; and                                  
|
| |  | the payment does not reduce the amount of net
    assets to an amount that is less than the aggregate of its
    called-up share capital and undistributable reserves.

In addition, we may only declare a dividend if
sufficient distributable profits are available for this purpose.
Distributable profits are accumulated realized profits not
previously distributed or capitalized less accumulated realized
losses not previously written off. However, in connection with
the capital reduction that we affected in connection with our
restructuring, we were required to create a special reserve out
of the excess reserve over the deficit on our profit and loss
account as at the date of the capital reduction that we may not
distribute to our shareholders until certain of our creditors
have been paid off.

Regardless of the foregoing legal restrictions,
the indentures governing our outstanding Notes contain
significant restrictions on our ability to pay dividends on our
shares. Accordingly, we do not expect to pay a dividend in the
foreseeable future.

SIGNIFICANT CHANGES

Except as otherwise disclosed in this report,
there has been no significant change in the financial position
of Marconi Corporation plc since March 31, 2003.

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Item 9: The Offer and
Listing

STOCK PRICE HISTORY

Marconi Corporation plc

The following table sets forth monthly market
prices for our ordinary shares on the London Stock Exchange.

|                             |  |           |       |     |  |  |       | 
|---------------------------- |  | --------- | ----- | --- |  |  | ----- | 
|Month                        |  | High      |       | Low
|                             |  |          
|                             |  |          
|                             |  |          
|                             |  | (Sterling
|                             |  | pence)   
|May 2003 (from May 19, 2003) |  |           | 65.00 |     |  |  | 54.00 | 
|June 2003 (to June 25, 2003) |  |           | 68.50 |     |  |  | 58.75 | 

Marconi plc

From November 30, 1999, the ordinary shares
of Marconi plc were listed on the London Stock Exchange. On
May 19, 2003, the ordinary shares of Marconi plc were
delisted from the London Stock Exchange. On October 17,
2000, the ADRs of Marconi plc were added to quotation on the
NASDAQ National Market, and on July 3, 2002, they were
removed from quotation on the NASDAQ National Market and began
trading on the over-the-counter bulletin board in the United
States. The following table summarizes information regarding
prices and trading of the Marconi plc ordinary shares on the
London Stock Exchange and the ADRs on the NASDAQ National Market
and the over-the-counter bulletin board for the periods
indicated:

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|                                     |  |                  |         |              |  |      |        |     |  |  |       |   |  |  |       |  
|------------------------------------ |  | ---------------- | ------- | ------------ |  | ---- | ------ | --- |  |  | ----- | - |  |  | ----- | -
|                                     |  |                  |         |              |  |     
|                                     |  | London Stock     |         |             
|                                     |  | Exchange         |         | ADRs        
|                                     |  | (Sterling pence) |         | (US dollars)
|                                     |  | High             |         | Low          |  | High |        | Low
|                                     |  |                 
|                                     |  |                 
|Fiscal Year                          |  |                  |         |              |  |      |        |     |  |  |       |   |  |  |       |  
|April 1, 2000 to March 31, 2001      |  |                  | 1250.00 |              |  |      | 340.00 |     |  |  |      |   |  |  |      |  
|April 1, 2001 to March 31, 2002      |  |                  | 424.00  |              |  |      | 6.25   |     |  |  | 12.85 |   |  |  | 0.18  |  
|April 1, 2002 to March 31, 2003      |  |                  | 12.55   |              |  |      | 1.27   |     |  |  | 0.44  |   |  |  | 0.04  |  
|Fiscal Quarter                       |  |                  |         |              |  |      |        |     |  |  |       |   |  |  |       |  
|April 1, 2000 to June 30, 2000       |  |                  | 975.00  |              |  |      | 669.00 |     |  |  |      |   |  |  |      |  
|July 1, 2000 to September 30, 2000   |  |                  | 1250.00 |              |  |      | 875.00 |     |  |  |      |   |  |  |      |  
|October 1, 2000 to December 31, 2000 |  |                  | 950.00  |              |  |      | 646.00 |     |  |  | 30.00 | * |  |  | 18.00 | *
|January 1, 2001 to March 31, 2001    |  |                  | 785.00  |              |  |      | 340.00 |     |  |  | 23.50 |   |  |  | 9.53  |  
|April 1, 2001 to June 30, 2001       |  |                  | 424.00  |              |  |      | 237.00 |     |  |  | 12.85 |   |  |  | 6.75  |  
|July 1, 2001 to September 30, 2001   |  |                  | 263.00  |              |  |      | 17.00  |     |  |  | 7.75  |   |  |  | 0.50  |  
|October 1, 2001 to December 31, 2001 |  |                  | 48.90   |              |  |      | 13.00  |     |  |  | 1.48  |   |  |  | 0.40  |  
|January 1, 2002 to March 31, 2002    |  |                  | 44.00   |              |  |      | 6.25   |     |  |  | 1.33  |   |  |  | 0.18  |  
|April 1, 2002 to June 30, 2002       |  |                  | 12.55   |              |  |      | 3.95   |     |  |  | 0.44  |   |  |  | 0.12  |  
|July 1, 2002 to September 30, 2002   |  |                  | 4.10    |              |  |      | 1.27   |     |  |  | 0.14  |   |  |  | 0.05  |  
|October 1, 2002 to December 31, 2002 |  |                  | 2.54    |              |  |      | 1.43   |     |  |  | 0.09  |   |  |  | 0.04  |  
|January 1, 2003 to March 31, 2003    |  |                  | 2.44    |              |  |      | 1.56   |     |  |  | 0.09  |   |  |  | 0.05  |  
|Month                                |  |                  |         |              |  |      |        |     |  |  |       |   |  |  |       |  
|December 2002                        |  |                  | 2.05    |              |  |      | 1.73   |     |  |  | 0.08  |   |  |  | 0.05  |  
|January 2003                         |  |                  | 1.81    |              |  |      | 1.56   |     |  |  | 0.06  |   |  |  | 0.05  |  
|February 2003                        |  |                  | 2.44    |              |  |      | 1.72   |     |  |  | 0.09  |   |  |  | 0.05  |  
|March 2003                           |  |                  | 2.30    |              |  |      | 1.75   |     |  |  | 0.07  |   |  |  | 0.06  |  
|April 2003                           |  |                  | 1.80    |              |  |      | 1.59   |     |  |  | 0.06  |   |  |  | 0.05  |  
|May 2003                             |  |                  | 1.56    | **           |  |      | 0.60   | **  |  |  | 0.09  |   |  |  | 0.03  |  



|   |                                                                                                                           
|-- | --------------------------------------------------------------------------------------------------------------------------
|*  | Represents the period October 17, 2000 to
    December 31, 2000 following the quotation of
    Marconi plc ADRs on NASDAQ.
|  
|** | To May 16, 2003, which was the last day of
    dealings in Marconi plc shares                                             

On April 11, 2003, the U.K. Financial
Services Authority released a public statement concerning a
contravention of the U.K. Listing Rules by Marconi plc in
July 2001. That public statement concluded that Marconi plc
had breached paragraph 9.2(c) of the U.K. Listing Rules
when it failed to notify the Company Announcement Office
without delay of a change in its expected
performance for the half year ending September 2001 and full
year ending March 2002.

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MARKETS

Our ordinary shares have been listed on the
London Stock Exchange since May 19, 2003. Since that time,
the highest closing market price has been 68.50 pence and the
lowest closing market price has been 54.00 pence. ADRs
representing our ordinary shares are scheduled to be quoted on
the NASDAQ National Market under the symbol MRCIY and trading is
expected to begin during the third quarter of this year.

Each ordinary share entitles the holder to
dividends if, as and when declared by our board of directors, to
one vote at all meetings of holders of ordinary shares, and to
participate ratably in any distribution of the our assets upon
liquidation, dissolution or winding up, subject to the prior
rights of holders of securities ranking senior in priority to
the ordinary shares.




Item 10: Additional
Information

MEMORANDUM AND ARTICLES OF
ASSOCIATION

Rights attaching to our ordinary
shares

Dividends

Subject to the provisions of the statutes, we may
by ordinary resolution declare a dividend in accordance with the
respective rights of our members, and may fix the time for
payment of such dividend provided that no dividend shall exceed
the amount recommended by our board.

Except as otherwise provided by the rights
attached to ordinary shares, all dividends shall be declared and
paid according to the amounts paid up on the ordinary shares on
which the dividend is paid. Except as otherwise provided by the
rights attached to ordinary shares, all dividends shall be
apportioned and paid proportionately to the amounts paid up on
the ordinary shares during any portion of the period in respect
of which the dividend is paid.

Subject to the provisions of the statutes, we may
pay interim dividends, if it appears to our board that they are
justified by our financial position. We may also pay any
dividend payable at a fixed rate at intervals settled by our
board whenever our financial position, in the opinion of our
board, justifies its payment. If our board acts in good faith,
none of the directors shall incur any liability to the holders
of ordinary shares conferring preferred rights for any loss such
holders may suffer in consequence of the payment of an interim
dividend on any ordinary shares having deferred or non-preferred
rights. No dividend or other money payable by us on or in
respect of an ordinary share shall bear interest against us
unless otherwise provided by the rights attached to the ordinary
share. There are no fixed dates on which entitlement to
dividends arise.

Our board may make payment of any interim
dividend wholly or partly by the distribution of specific assets
and, in particular, including without limitation, of property
interests, intellectual property rights or the benefit of
contractual or other rights, paid up ordinary shares, debentures
or debenture stock of any other company or in any one or more of
those ways. Where any difficulty arises in regard to a
distribution, our board may settle it as it thinks expedient.

A general meeting declaring a dividend may, on
the boards recommendation, by ordinary resolution, direct
that payment of any dividend may be satisfied in whole or in
part by the distribution of specific assets, including, without
limitation, paid up ordinary shares or debentures of another
body corporate. Our board may make any arrangements it thinks
fit to settle any difficulty arising in connection with such
distribution. Our board may, if authorized by our ordinary
resolution, offer any holders of ordinary shares the right to
elect to receive further ordinary shares, whether or not of that
class, credited as fully paid instead of cash in respect of any
dividend or part thereof. The offer shall be on the terms and be
made in the manner specified in our articles.

All unclaimed dividends, interest or other sums
payable may be invested or otherwise made use of by the board
for our benefit until claimed. Any dividend which has remained
unclaimed for twelve years from

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the date when it became due for payment shall, if
the board so resolves, be forfeited and shall cease to remain
owing by us.


We may cease sending dividend warrants and checks
by post or otherwise to a member if such instruments have been
returned undelivered to, or left uncashed by, that member on at
least two consecutive occasions, or, following one such
occasion, reasonable inquiries have failed to establish any new
address of the member. We must resume sending warrants and
checks if the member claims a dividend or cashes a dividend
warrant or check.

Voting
rights

Subject to our articles and to any rights or
restrictions as to voting for the time being attached to any
class of ordinary shares, on a show of hands, every member who
is present in person or by proxy or, being a corporation, is
present by a duly authorized corporate representative, not being
himself a member, at a general meeting, shall have one vote. On
a poll, every member present in person or by proxy, or being a
corporation, is present by a duly authorized corporate
representative, shall have one vote for every ordinary share of
which he is the holder. Unless a member appoints more than one
proxy to attend on the same occasion with respect to different
ordinary shares, the proxies so appointed shall not be entitled
to vote on a show of hands in the case of a special or
extraordinary resolution.

Unless the board otherwise decides, no member
shall be entitled to vote at a general meeting or at a separate
meeting of the holders of any class of ordinary shares in our
capital, either in person or by proxy, in respect of any
ordinary share held by him unless all money presently payable by
him in respect of that ordinary share have been paid.

Rights
attaching to ordinary shares on a distribution of
assets

If we are wound-up, the liquidator may, with the
sanction of an extraordinary resolution and any other sanction
required by the U.K. Insolvency Act 1986, divide among the
members, in specie, the whole or any part of our assets in the
manner as he may determine or vest the whole or any part of the
assets in trustees upon those trusts for the benefit of the
members as he, with like sanction, determines. No member shall
be compelled to accept any assets on which there is a liability.

Transfer
of ordinary shares

All transfers of ordinary shares held in
certificated form may be effected by an instrument of transfer
in any usual form or in any other form approved by the board.
The instrument of transfer of an ordinary share shall be signed,
by or on behalf of the transferor and, unless the ordinary share
is fully paid, or is a forfeited or surrendered ordinary share
by or on behalf of the transferee. The board may, in its
absolute discretion and without giving, any reason for its
decision, refuse to register any instrument of transfer of a
certificated ordinary share which is not fully paid up in the
case of a class of ordinary shares which has been admitted to
the Official List of the London Stock Exchange. The board may
not refuse to register those ordinary shares if it would prevent
dealings in the ordinary shares from taking place on an open and
proper basis or on which we have a lien. Subject to the
requirements of the U.K. Listing Authority, the board may also
refuse to register any instrument of transfer unless:



| |   |                                                                                                                                                                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | it is lodged, duly stamped, if stampable, at the
    registered office or at another place the board may appoint
    accompanied by the ordinary share certificate for the ordinary
    shares to which it relates and any other evidence, if any, the
    board may reasonably require to show the right of the transferor
    to make the transfer;
|
| |  | it is in respect of only one class of ordinary
    shares; and                                                                                                                                                                                                                                                                                       
|
| |  | it is in favor of not more than four transferees
    as joint holders.                                                                                                                                                                                                                                                                               

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We shall register the transfer of any ordinary
shares held in uncertificated form in accordance with the
statutes. The board may, in its absolute discretion and without
giving any reason for its decision, refuse to register any
transfer of an uncertificated ordinary share where permitted by
the statutes.

If the board refuses to register a transfer of an
ordinary share, it shall give the transferee notice of its
refusal within two months after the date on which the instrument
of transfer was lodged with us or the operator-instruction was
received, as the case may be. The board may suspend the
registration of transfers of any ordinary shares or any class of
ordinary shares at such times and for such periods, not
exceeding 30 days in any year, as it may determine, the
registration of transfers of any ordinary shares or any class of
ordinary shares which are for the time being participating
securities, however, may only be suspended as permitted by the
statutes.

Disclosure of interests in ordinary
shares

If the holder of or other person appearing to be
interested in any of our ordinary shares has been given a notice
under section 212 of the U.K. Companies Act 1985 and, in
respect of that ordinary share, has been in default for a period
of fourteen days after notice has been given in supplying to us
the information thereby required, then certain restrictions
shall apply. The restrictions available are the suspension of
voting or other rights conferred by membership in relation to
our meetings in respect of the relevant ordinary shares. In
addition, in the case of a shareholding representing at least
0.25% of the class of ordinary shares concerned, restrictions
include the withholding of payment of dividends on, and the
restriction of transfers of, the relevant ordinary shares. The
restrictions on transfer shall not prejudice the right of either
the member holding the ordinary shares or, if different, any
person having a power of sale over those ordinary shares to sell
or agree to sell those ordinary shares under an exempt transfer.

Changes in ordinary share capital

Subject to the statutes and without prejudice to
any rights attached to any existing ordinary shares or class of
shares, we may issue any ordinary share with rights or
restrictions as we may by ordinary resolution determine or,
subject to and in default of such determination, as the board
shall determine. Subject to the provisions of the statutes and
without prejudice to any rights attached to any existing
ordinary shares, we may issue ordinary shares which are, or at
our option or the holder are liable, to be redeemed. Subject to
the provisions of the statutes and the articles, unissued
shares, including ordinary shares, are at the disposal of the
board.

We may by ordinary resolution:



| |   |                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | increase our share capital;                                                                                                                                                                               
|
| |  | consolidate and divide all or any of our share
    capital into ordinary shares of larger amounts than our existing
    ordinary shares;                                                                  
|
| |  | subject to the statutes, subdivide our ordinary
    shares, or any of them, into ordinary shares of a smaller amount
    than is fixed by our memorandum or articles; and                                 
|
| |  | cancel any ordinary shares which have not been
    taken or agreed to be taken by any person and diminish the
    amount of our ordinary share capital by the amount of the
    ordinary shares cancelled.

Whenever any members are entitled to fractions of
an ordinary share as a result of a consolidation and division or
sub-division of ordinary shares, our board may deal with the
fractions as it thinks fit.

Subject to the statutes and to any relevant
rights attached to any class of ordinary shares, we may by
special resolution reduce our ordinary share capital, any
capital redemption reserve and any ordinary share premium
account. We may also, subject to the statutes, the requirements
of the U.K. Listing Authority, and the rights attached to any
class of ordinary shares, purchase our own ordinary shares.

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Variation of rights

If at any time our capital is divided into
different classes of shares, all or any of the rights for the
time being attached to any class of shares, including ordinary
shares in issue may from time to time, whether or not we are
being wound up, be varied in the manner as those rights may
provide or, if no such provision is made, either with the
consent in writing of the holders of three-fourths in nominal
value of the issued shares of that class or with the authority
of an extraordinary resolution passed at a separate general
meeting of the holders of those ordinary shares.

Unless otherwise expressly provided by the rights
attached to any class of shares, including ordinary shares,
those rights shall not be deemed to be varied by the creation or
issue of further shares, including ordinary shares, ranking
pari passu with them or by the purchase or redemption by
us of any of our own shares, including ordinary shares.

Lien and forfeiture

We will have a first and paramount lien on every
partly paid share, not being a fully paid share, including
ordinary shares, for all amounts payable to us, whether
presently or not in respect of that ordinary share. Subject to
our articles, the board may call any money unpaid on ordinary
shares and may forfeit shares, including ordinary, shares on
which calls payable are not duly paid. The forfeiture shall
include all dividends declared and other money payable in
respect of the forfeited ordinary share which have not been paid
before the forfeiture.

Directors interests

A director shall not vote, or be counted in the
quorum at a meeting, in relation to any resolution relating to
any contract or arrangement or other proposal in which he has an
interest which, together with any interest of any person
connected to him, is, to his knowledge, a material interest. If
he purports to do so, his vote shall not be counted, but the
prohibition shall not apply and a director may vote and be
counted in the quorum in respect of any resolution concerning
any one or more of the following matters:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | any contract in which he is interested by virtue
    of an interest in shares, including ordinary shares, debentures
    or other of our securities or otherwise in or through us;                                                                                                                                                                                                                                                                                        
|
| |  | the giving of any guarantee, security or
    indemnity in respect of money lent or obligations incurred by
    him or by any other person at the request of, or for the benefit
    of, us or any of our subsidiaries or any of our debt, or
    obligation, or any of our subsidiaries for which he himself has
    assumed responsibility in whole or in part, either alone or
    jointly with others, under a guarantee or indemnity or by the
    giving of security;
|
| |  | any issue or offer of our shares, including
    ordinary shares, debentures or other securities or any of our
    subsidiaries in respect of which he is or may be entitled to
    participate in his capacity as a holder of any of these
    securities or as an underwriter or sub-underwriter;                                                                                                                                                                        
|
| |  | any contract concerning any other company in
    which he and any connected persons do not, to his knowledge,
    hold an interest in ordinary shares, within the meaning of
    sections 198 to 211 of the U.K. Companies Act 1985,
    representing 1% or more of any class of the equity share capital
    of that company or of the voting rights available to members of
    that company;                                                                           
|
| |  | any arrangement for the benefit of our employees
    or any of its subsidiaries which does not accord to him any
    privilege or benefit not generally accorded to the employees to
    whom the arrangement relates; and                                                                                                                                                                                                                                                
|
| |  | the purchase or maintenance of insurance for the
    benefit of directors or for the benefit of persons including
    directors.                                                                                                                                                                                                                                                                                                                                          

A director shall not vote, or be counted in the
quorum at a meeting, in respect of any resolution concerning his
own appointment, including fixing or varying its terms, or the
termination of his own

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appointment, as the holder of any office or place
of profit with us or any other company in which we are
interested.


Remuneration of directors

The fees of the non-executive directors for their
services, excluding amounts payable under any other provision of
our articles described below, shall not exceed in aggregate
£1.5 million per annum or such higher amount as we may
from time to time by ordinary resolution determine. Each
non-executive director shall be paid a fee, which shall be
deemed to accrue from day to day, at such rate as may from time
to time be determined by the board. Any director who is
appointed to any executive office shall be entitled to receive
such remuneration as the board may determine.

Any director who does not hold executive office
and who serves on any committee of the board, who by the request
of the board goes or resides abroad for any purpose of ours or
otherwise performs special services which in the opinion of the
board are outside the scope of the ordinary duties of a
non-executive director, may, without prejudice to the preceding
paragraph, be paid extra remuneration by way of salary,
commission or otherwise as determined by the board.

The board may exercise all of our powers to pay,
provide or procure the grant of benefits, whether by the payment
of gratuities, pensions or by insurance or otherwise, for:



| |   |                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | any past or present director or employee of ours
    or any company which is or was our holding company, subsidiary
    or associated company;                              
|
| |  | for any member of his family, including a spouse
    and a former spouse, or any person who is or was dependent on
    him; and                                             
|
| |  | may, as well before as after he ceases to hold
    such office or employment, contribute to any fund and pay
    premiums for the purchase or provision of any such benefit.

Without the prior approval by ordinary resolution
of our shareholders in general meeting, no bonus arrangement or
scheme or any long-term incentive scheme for persons who are
participants in the management plan, described herein, other
than participants who are eligible to receive commission and/or
bonus payments that relate to sales, shall be introduced within
the period commencing with the date on which our articles come
into force and ending on the date on which all the tranches of
options granted in the initial grant under the management plan
have either lapsed or become capable of exercise.

We may pay the directors all travelling, hotel
and other expenses properly incurred by them in attending
meetings of the board or committees of the board or general
meetings or otherwise in connection with the discharge of their
duties.

Appointment and retirement of
directors

We may appoint directors by ordinary resolution
or the board may appoint them. Unless otherwise determined by
ordinary resolution, the number of directors other than
alternate directors shall not be less than three nor more than
twenty-four in number. At each annual general meeting any
director then in office who has been appointed by the board
since the previous annual general meeting or at the date of the
annual general meeting would have held office for more than
three years since we appointed or last re-appointed him in
general meeting shall retire from office but shall be eligible
for re-appointment.

A director shall retire at the first annual
general meeting following the birthday at which he attains
70 years of age. A director may be re-appointed after
attaining 70 years of age provided that we appoint him in
general meeting, special notice is given of the resolution
appointing the director and the notice states the age of the
prospective director. A director who is re-appointed after
attaining 70 years of age must retire at every annual
general meeting thereafter but may be re-appointed in accordance
with the procedure set out above.

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Borrowing powers

The board may exercise all our powers to borrow
money, to guarantee, to indemnify, to mortgage or charge all or
any part of its undertaking, property, assets, both present and
future, and uncalled capital, and to issue debentures and other
securities whether outright or as collateral security for any
debt, liability or obligation of ours or of any third party. The
board shall restrict our borrowings and exercise all voting and
other rights or powers of control exercisable by us in relation
to our subsidiaries, if any. In so doing the board must ensure
that the aggregate principal amount outstanding at any time in
respect of all borrowings by our group, exclusive of any
intergroup borrowings, after deducting the amount of cash at the
bank and in hand will not, without the previous authority of us
in general meeting, exceed the higher of two times adjusted
capital and reserves, as defined in our articles, or
£1.5 billion, or any higher limit fixed by ordinary
resolution which is applicable at the relevant time.

The limits set out above shall be deemed not to
have been breached until the amount of borrowings has exceeded
that limit for 30 consecutive days. This provision overrides all
other provisions of the relevant article.

Indemnity of officers

Subject to the statutes but without prejudice to
any indemnity to which a director may otherwise be entitled,
every one of our directors or other officers, excluding an
auditor, shall be indemnified out of our assets against any
liability incurred by him in defending any proceedings whether
criminal or civil if:



| |   |                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | judgement is given in his favor;                                                                                                                                                                                      
|
| |  | proceedings are otherwise disposed of without any
    finding or admission of any material breach of duty on his part;
    or                                                                                         
|
| |  | 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 our affairs.

Untraced shareholders

We shall be entitled to sell, at the best price
reasonably obtainable, the ordinary shares of a member or the
ordinary shares to which a person is entitled by transmission
provided that:



| |   |                                                                                                                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | during a period of twelve years prior to the date
    of advertising our intention to sell those ordinary shares at
    least three dividends in respect of those ordinary shares have
    been declared and all dividend warrants and checks sent have
    remained uncashed;                                   
|
| |  | as soon as practicable after the expiration of
    the period referred to above we insert advertisements in a
    national daily newspaper and in a newspaper circulating in the
    area of the last known address of the member or other person
    giving notice of our intention to sell the ordinary shares;
|
| |  | during the period referred to above and the
    period of three months following the publication of the
    advertisements referred to above, we receive no indication of
    the whereabouts or existence of the member or other person; and                                                                    
|
| |  | if the ordinary shares are traded on the London
    Stock Exchanges market for listed securities, we give
    notice to the London Stock Exchange of our intention to sell the
    ordinary shares prior to publication of the advertisements
    referred to above.                                            

The net proceeds of the sale shall belong to us.
We shall be obliged to account to the former member or other
person previously entitled to the ordinary shares for an amount
equal to the proceeds as our creditor.

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Notices to members

Except where otherwise expressly provided within
the articles, any notice to be given to or by any person under
our articles shall be in writing or, to the extent permitted by
the statutes and subject to the articles, contained in an
electronic communication. The board may from time to time
specify the form and manner in which a notice may be given to
the members by electronic means. A notice may be given to the
members by electronic means only if it is given in accordance
with the requirements specified by the board.

We may give or serve a notice in writing,
document or other communication to any member either personally
or by sending it through the mail addressed to the member at his
registered address or by leaving it at that address. A member
whose registered address is not within the United Kingdom shall
be entitled to have notices given to him at the date of that
address if, at the time of giving that notice, he is the
registered holder of 1% or more of our issued capital. Any other
member whose registered address is not within the United Kingdom
and who gives us an address within the United Kingdom at which
notices may be given to him shall be entitled to have notices
given to him at that address but, unless he does so, shall not
be entitled to receive any notice from us.

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MATERIAL CONTRACTS

The following is a summary of material contracts
to which we or any member of our group is a party and which were
entered into in the past two years. The exhibit list in
Item 19.  Exhibits indicates which
of these contracts are filed with this annual report and which
of these contracts have already been filed with the SEC.
Directions on how to obtain copies of these contracts are
provided under  Documents on Display.

Equity

Settlement Deed dated December 19,
2002 between RT Group Telecom Services Limited (RTSL), RT Group
plc, Marconi Corporation, Ultramast Limited, James Smith and
Nicholas Dargan.

The shares in Ultramast Limited held by Marconi
Corporation have been cancelled through a capital reduction and
a repayment of capital has been made to Marconi Corporation. The
Settlement Deed contains several indemnities: (1) Marconi
Corporation agreed to indemnify Ultramast Limited in respect of
two employees seconded from the group; this indemnity is capped
at £300,000; (2) Marconi Corporation agreed to
indemnify RT Group Telecom Services Limited in relation to a
contract between Ente Sardo e Fognature and Ultramast Limited;
this indemnity is capped at £1.68 million; and
(3) Marconi Corporation agreed to indemnify RT Group
Telecom Services Limited and Ultramast Limited in respect of a
side letter between Marconi plc and British Waterways Board
(BWB), now known as British Waterways; this indemnity is capped
at £10 million.

Acquisitions

Merger Agreement dated June 26, 2001
between Marconi Corporation and Easynet Group plc (Easynet)
relating to the merger of ipsaris Limited with
Easynet.

Immediately following the completion of this
transaction, Marconi Corporation was the registered holder of
approximately 30.9 million ordinary shares and
approximately 48.6 million convertible ordinary shares in
Easynet. The merger was completed on July 26, 2001 at which
time the Easynet consideration shares issued to Marconi
Corporation in consideration for the disposal of Marconi
Corporations shares in ipsaris Limited were admitted to
the Official List of the U.K.LA. In February 2002, RTSL
exercised the remaining part of its put option in respect of
1,324,054 ordinary shares in Easynet for an exercise price of
approximately £20 million, although Marconi
Corporation disputed its obligation to pay this exercise price
and claimed against RTSL in relation to alleged breaches by RTSL
in respect of the performance of its obligations to Ultramast
Limited (a joint venture company owned 50:50 by Marconi
Corporation and RTSL). This litigation has now been settled and
the settlement provided for Marconi Corporation to acquire the
1,324,054 ordinary shares in Easynet.

Relationship Agreement dated June 26,
2001 between Marconi Corporation and Easynet Group plc
(Easynet).

The Relationship Agreement provides that Marconi
Corporation will exercise its powers of control to ensure
Easynet is capable of carrying on its business independently of
Marconi Corporation and that all transactions and future
relationships between the companies are at arms length and
on a normal commercial basis. The Relationship Agreement also
includes provisions regarding the composition of the Easynet
board of directors, restrictions on the acquisition of Easynet
shares by Marconi Corporation, the conversion of Easynet
convertible ordinary shares into ordinary shares,
non-competition between Marconi Corporation and Easynet and
confidentiality.

Subscription Agreement dated
October 6, 2000 between Marconi Communications
International Holdings Limited and Splice do Brasil
Telecommunicacoes e Electronica S.A. (Splice).

The agreement relates to the purchase of the
business and certain assets of the transmission division of
Splice in Brazil for a total consideration of up to
U.S.$169 million. The total consideration includes up

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to U.S.$90 million subject to certain
performance targets being met over a three year period. During
the first year a performance-related payment of
U.S.$6.5 million was paid and no performance related
payments are expected in respect of the second year. The maximum
performance related payments outstanding are
U.S.$83.5 million.


Disposals Pre-Financial
Restructuring

Share Purchase Agreement dated
August 2, 2002 between Marconi (Bruton Street) Limited,
Marconi plc and Finmeccanica S.p.A.

On August 2, 2002 Marconi (Bruton Street)
Limited entered into a Share Purchase Agreement to sell its
interest in Marconi Mobile Holdings SpA to Finmeccanica SpA for
a purchase price of
571.1 million
in cash with
42.9 million
in assumed debt (net of cash on the disposed business
balance sheet). Of the
571.1 million
cash proceeds,
20 million
was withheld as security in escrow for purchaser warranty
claims. As part of the subsequent sale of OTE SpA to
Finmeccanica SpA on March 4, 2003,
4 million
of the funds held in escrow was released to our group.
4 million
was also put into a new escrow account in respect of trade
payables from our group to OTE. Marconi Mobile Holdings SpA and
its subsidiaries conducted Marconi plcs strategic
communications business. The strategic communications business
designs, manufactures and supplies communications and
information systems, primarily for defense and security
applications, including ground, naval, avionic, communications/
command and control systems. The proceeds were received in the
form of cash and in debt assumed by Finmeccanica SpA. The
transaction closed on August 2, 2002. Marconi plc provided
a guarantee for the performance of the obligations of Marconi
(Bruton Street) Limited under the Share Purchase Agreement.
Finmeccanica SpA has notified Marconi (Bruton Street) Limited
and Marconi plc that it believes it has various claims under
this Agreement. The above guarantee was novated from Marconi plc
to Marconi Corporation in connection with our financial
restructuring.

Stock Purchase Agreement dated
January 10, 2002 in respect of the sale of Marconi
plcs data systems subsidiaries by Marconi Systems Holdings
Inc., Marconi Corporation and AB Dick Holdings Limited to
DH Holdings Corp., Launchchange Limited and Kollmorgen
S.A.S. and a guarantee dated January 10, 2002 from Marconi
plc in favor of DH Holdings Corp., Launchchange Limited and
Kollmorgen S.A.S.

On January 10, 2002, subsidiaries of Marconi
plc entered into a Stock Purchase Agreement to sell their
interests in Marconi Data Systems Inc. and certain affiliated
entities to subsidiaries of Danaher Corporation plc for a
purchase price of approximately U.S.$400 million. The
companies sold conducted Marconi plcs ink jet printing
business. The transaction closed on February 5, 2002.
Marconi plc provided a guarantee for the performance of the
obligations of Marconi Corporation, Marconi Systems Holdings,
Inc. and AB Dick Holdings Limited under the Stock Purchase
Agreement. DH Holdings Corp. has notified Marconi Corporation
and Marconi plc that it believes it has various claims under
this agreement. Marconi plc will no longer be liable under the
guarantee due to the financial restructuring.

Sale and Purchase Agreement dated
December 20, 2001, as restated, for the sale of Marconi
Corporations 50 percent shareholding in General
Domestic Appliances Holdings Limited (GDA) between Merloni
Elettrodomestici S.p.A and Marconi Corporation, for a cash
consideration of
195.5 million.

The transaction, which was subject to regulatory
approval and other closing conditions, closed on March 8,
2002. Prior to completion of the transaction, Marconi plc
received a dividend of £23 million from GDA. This
comprised the annual cash dividend associated with Marconi
plcs stake in GDA, together with a special dividend
relating to the proceeds from the sale by GDA of its subsidiary,
GDA Applied Energy Limited.

Stock Purchase Agreement dated
December 20, 2001 between Marconi Corporation, Marconi
Systems Holdings Inc., DH Holdings Corp. and Launchchange
Limited.

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On December 20, 2001 subsidiaries of Marconi
plc entered into a Stock Purchase Agreement to sell their
interests in Marconi Commerce Systems Inc. and Marconi Commerce
Systems Limited to subsidiaries of Danaher Corporation plc for a
purchase price of U.S.$325 million. The companies being
sold conducted our groups fuel dispensing equipment and
retail automation businesses. The transaction closed on
February 1, 2002. Marconi plc provided a guarantee for the
performance of the obligations of its subsidiaries under the
Stock Purchase Agreement. DH Holdings Corp has notified Marconi
Corporation and Marconi plc that it believes it has various
claims under this agreement. Marconi plc will no longer be
liable under this agreement due to the financial restructuring.

Asset Purchase Agreement dated
December 17, 2001, as amended, between Marconi Corporation,
Marconi Optical Components Limited and Bookham Technology plc
(Bookham).

On December 17, 2001 Marconi Optical
Components Limited agreed to sell the assets and liabilities of
its optical components business based at Caswell,
Northamptonshire and Chelmsford, Essex, to Bookham in exchange
for 12,891,000 ordinary shares in Bookham, equivalent to 9% of
the issued ordinary share capital of Bookham. Based on the
mid-market closing share price of Bookham on December 14,
2001, Marconi Optical Components Limited received shares then
worth £19,723,230. The transaction closed on
February 1, 2002. Pursuant to a subsequent agreement
between Bookham and Nortel Technologies Inc., Marconi
Corporation now owns approximately 6% of Bookham.

Global Procurement Agreement dated
December 17, 2001 between Marconi Communications Inc. and
Bookham.

On December 17, 2001 Marconi Communications,
Inc. entered into a supply agreement with Bookham pursuant to
which Marconi Communications, Inc. agreed to purchase
£30 million of Bookhams optical components with
the benefit of a guarantee from Marconi Corporation given under
the asset purchase agreement described above. The purchase
commitment is split on a quarter-by-quarter basis and will end
on December 30, 2003.

Block Trade Agreement dated
November 28, 2001 between Marconi Mobile SpA and Salomon
Brothers International Limited under which Marconi Mobile SpA
disposed of 6,163,641 of its 11,083,625 shares in
Lottomatica S.p.A., an Italian registered company, for a total
consideration of approximately
40 million.

These sales formed part of our groups
program of disposing of certain investments in its non-Core
asset portfolio. Pursuant to the agreement, Marconi Mobile SpA
sold to Salomon Brothers International Limited an aggregate of
6,163,641 ordinary shares in the share capital of
Lottomatica SpA, a company organized under the laws of Italy.
The purchase price was a net price of
6.52 per share
making a total consideration of
40,186,939.32.
The completion of the sale and purchase of the shares took place
on December 3, 2001. The shares were purchased by Salomon
Brothers International Limited as a block trade subject to the
rules of Consob and the Mercato Telematico
Azionario and additional matters set out in the agreement.
The remaining 4,919,984 shares were sold pursuant to De
Agostinis public offer for Lottomatica shares for a total
cash consideration of approximately
32 million
received on February 4, 2002.

Sale Agreement relating to the sale by
Marconi Corporation of its remaining shareholding of 1.49% in
Lagardère SCA, a listed French company, to Salomon Brothers
International Limited on September 26, 2001 for
approximately
69 million.

This sale formed part of our groups program
of disposing of certain investments in our non-Core asset
portfolio.

Asset Sale and Leaseback Agreement dated
September 26, 2001 between Marconi Fleet Management
Limited, Inchcape Vehicle Contracts Limited and IVC Contract
Hire Limited.

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On September 26, 2001 Marconi Fleet
Management Limited, one of our wholly-owned subsidiaries,
entered into a sale agreement for a substantial part of its
fleet of motor vehicles with Inchcape Vehicle Contracts Limited.
Gross sale proceeds of £28.5 million, were received by
Marconi Fleet Management Limited, which on the same date entered
into a lease agreement in respect of the said vehicles with IVC
Contract Hire Limited, an associated company of Inchcape Vehicle
Contracts Limited. As part of this transaction a deed of
continuing indemnity was entered into dated September 26,
2001 between Marconi Corporation and IVC Contract Hire Limited
under which Marconi Corporation agreed to indemnify IVC Contract
Hire Limited against certain losses payable by Marconi Fleet
Management Limited resulting from or arising out of the
agreements entered into with Marconi Fleet Management on or
after September 26, 2001. This includes amounts due on
termination of all or any of the agreements or acceptance by IVC
Contract Hire Limited of repudiation by Marconi Fleet Management
Limited.

Sale and Purchase Agreement dated
July 12, 2002 between Marconi Corporation and Redwood 2002
Limited in respect of the sale of Marconi Applied Technologies
Limited, Marconi Applied Technologies Inc. and the assets of
Marconi Applied Technologies S.A. to Redwood 2002 Limited for
£57 million.

The consideration for the sale to Redwood 2002
Limited, a company owned by 3i and funds associated with 3i,
comprised £50 million in cash and a
£7 million vendor loan note. The sale of Marconi
Applied Technologies Limited and Marconi Applied Technologies
Inc completed on July 12, 2002; the sale of the assets of
Marconi Applied Technologies S.A., which was subject to French
regulatory consent, completed on August 23, 2002.

Stock Purchase Agreement dated July 3,
2001, as amended, between Marconi Corporation, Marconi Systems
Holdings Inc. and Koninklijke Philips Electronics N.V. (Philips
Electronics).

On July 3, 2001 subsidiaries of Marconi plc
entered into a Stock Purchase Agreement with Koninklijke Philips
Electronics N.V. pursuant to which such subsidiaries sold to
Philips Electronics their interests in Marconi Medical Systems
Holdings, Inc. and certain affiliates for a purchase price of
U.S.$1.1 billion. The subsidiaries being sold conducted
Marconi plcs medical imaging equipment business and its
radiological supplies distribution business. The transaction
closed on October 19, 2001. By an amendment agreement dated
July 15, 2002 the consideration was reduced to
U.S.$837 million. Marconi plc provided a guarantee for the
performance of the obligations of its subsidiaries under the
Stock Purchase Agreement. In connection with the post-closing
adjustments provided for in the Stock Purchase Agreement,
certain of our groups obligations under the Stock Purchase
Agreement have been terminated and a communications solutions
agreement, under which Philips Electronics was obligated to make
certain purchases from our group, has been terminated. The
liabilities of Marconi plc under the guarantee were compromised
under the financial restructuring.

Financings

Agreement dated August 6, 2002 between
Barclays Bank plc and Marconi Corporation related to the
termination of certain interest rate swap
transactions.

On August 6, 2002, Marconi Corporation and
Barclays Bank plc agreed to terminate certain interest rate swap
transactions with effect from August 7, 2002. As part of
that termination, Barclays Bank plc agreed to lend to Marconi
Corporation approximately U.S.$24.8 million in payment of
the settlement amount related to the termination. The loan bears
interest at LIBOR plus 2.25%. With effect from March 25,
2003, the loan is repayable on demand. Under the terms of the
financial restructuring, the liabilities of Marconi Corporation
were compromised.

Agreement dated August 6, 2002 between
JPMorgan Chase Bank and Marconi Corporation related to the
termination of certain interest rate swap and foreign exchange
transactions.

On August 6, 2002, Marconi Corporation and
JPMorgan Chase Bank agreed to terminate certain interest rate
swap and foreign exchange transactions with effect from
August 7, 2002. As part of that

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termination, JPMorgan Chase Bank agreed to lend
to Marconi Corporation approximately U.S.$56.1 million in
payment of the settlement amount related to the termination. The
loan bears interest at LIBOR plus 2.25%. With effect from
March 25, 2003 the loan is repayable on demand. Under the
terms of the financial restructuring, the liabilities of Marconi
Corporation were compromised.


Agreement dated November 4, 2002
between UBS AG (UBS) and Marconi Corporation related to the
payment of interest on certain interest rate swap
transactions.

Pursuant to this agreement Marconi Corporation
paid an amount of U.S.$4,388,542 to UBS, a true-up payment,
being a pro-rata portion, by reference to the period from
May 3, 2002 to October 15, 2002, of the contractual
payment due from Marconi Corporation to UBS under an interest
rate swap in respect of the period from May 3, 2002 to
November 4, 2002. This pro-rata payment was consistent with
the heads of terms.

Following the making of the true-up payment, UBS
unilaterally terminated the interest rate swap, as a result of
which a termination sum of U.S.$30,950,000, became payable by
Marconi Corporation to UBS. With effect from March 25,
2003, each of the unpaid portion of the contractual payment
(U.S.$531,944.11), the unpaid portion, and the termination sum
is payable on demand. The termination sum has accrued interest
from November 4, 2002 at a rate of 2.6525% per annum.

The liabilities of Marconi Corporation in respect
of the unpaid portion and the termination sum were compromised
pursuant to our financial restructuring.

Interim Performance Bond Facility dated
May 10, 2002 between HSBC Bank plc (HSBC), Barclays Bank
PLC (Barclays) and Marconi Bonding Limited (MBL) (as amended by
an Amendment Letter dated October 24, 2002, under which
JPMorgan Chase Bank (JPMorgan) acceded as a new bank pursuant to
the interim bonding facility and as further amended by an
Amendment Letter dated March 28, 2003), Counter Indemnity
Agreement between MBL and each of HSBC and Barclays dated
May 10, 2002, Security Over Cash Agreement between MBL and
each of HSBC and Barclays dated May 10, 2002, Counter
Indemnity Agreement given by MBL in favor of JPMorgan dated
October 29, 2002 and Security Over Cash Agreement given by
MBL in favor of JPMorgan dated October 29,
2002.

In May 2002 an interim bonding facility of
£60 million was provided by HSBC and Barclays under
which MBL can request bonds to be issued by those banks on
behalf of members of our group. The bonds are required to be
fully cash collateralized and security is required to be given
over all cash deposits under separate agreements between MBL and
each bank. In October 2002 the interim bonding facility was
amended to increase the facility limit to £150 million
and to introduce JPMorgan as a party to the interim bonding
facility. The availability period under this facility terminates
on notice from the banks.

Temporary Bonding Facility Agreement dated
February 8, 2002 between HSBC Bank plc (HSBC), Barclays
Bank PLC (Barclays) and Marconi Bonding Limited (MBL) (as
amended), Counter Indemnity Agreements between MBL and each of
HSBC and Barclays dated February 8, 2002, and Cash
Collateral Agreements between MBL and each of HSBC and Barclays
dated February 8, 2002.

In February 2002 a temporary bonding facility was
provided by HSBC and Barclays under which MBL could request
bonds to be issued by those banks on behalf of members of our
group. The bonds were required to be fully cash collateralized,
although security was not given over those deposits. If any bond
issued under the facility is extended, security must be given
over the relevant deposit. The availability period under the
temporary bonding facility expired on March 29, 2002.

Purchase Agreements dated December 17,
2001 as extended on January 14, 2002 between Ancrane, a
subsidiary of Marconi plc, Morgan Stanley & Co. Incorporated
and Morgan Stanley and Co. International

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Limited for the purchase on behalf of
Ancrane from various private vendors of
500,000,000
5.625% bonds due 2005,
1,000,000,000
6.375% bonds due 2010, U.S.$900,000,000 7 3/4 percent bonds
due 2010 and U.S.$900,000,000 8 3/8% bonds due 2030 issued
by Marconi Corporation.


Pursuant to these transactions during December
2001 and January 2002, Ancrane purchased in privately negotiated
transactions
67.9 million
in principal amount (13.6%) of the
500,000,000
5.625% bonds due 2005, approximately
256.7 million
in principal amount (25.7%) of the
1,000,000,000
6.375% bonds due 2010, approximately U.S.$131.0 million in
principal amount (14.6%) of the U.S.$900,000,000 7 3/4%
bonds due 2010 and approximately U.S.$130.1 million in
principal amount (14.5%) of the U.S.$900,000,000 8 3/8%
bonds due 2030 issued by Marconi Corporation. Under the terms of
the financial restructuring, the liabilities of Marconi
Corporation were compromised.

Financial Restructuring Related
Agreements

Scheme Implementation Deed dated
March 27, 2003, (SID) between Marconi plc, Marconi
Corporation, Ancrane, E-A Continental Limited, Marconi Nominees
Limited, British Sealed Beams Limited and various other group
companies.

The purpose of the SID was to put in place the
legally binding arrangements which govern the rights and
obligations between inter alia, Marconi plc and Marconi
Corporation in implementing the restructuring. Pursuant to the
SID, Marconi Corporation, Marconi plc, E-A Continental
Limited, Ancrane, Marconi Nominees Limited, British Sealed Beams
Limited and various other group companies agreed to perform
certain obligations and undertook not to do certain acts
including, but not limited to, approving all shareholder
resolutions necessary or desirable to give effect to our
restructuring, assigning or novating certain guarantee
obligations and/or license agreements, providing all reasonable
assistance and information and undertaking all reasonable acts
and deeds to give effect to the assignment of certain
intellectual property, making certain intra-group tax loss and
group relief surrenders and providing certain tax indemnities.
Ancrane also agreed to make a repayment of capital in specie to
Marconi plc of its assets, other than £100. Marconi
Corporation also agreed to procure the issue of a letter of
credit, under our performance bonding facility, in an amount of
£2 million in favor of the Marconi plc scheme
supervisors from time to time for them to draw on in relation to
Marconi plcs ongoing costs. In the event that Marconi
Corporation is unable to procure the issue of such letter of
credit, it has undertaken to provide the sum of
£2 million for the Marconi plc scheme supervisors to
draw on in relation to Marconi plcs ongoing costs on
similar terms to those set out in the scheme implementation deed
and the performance bonding facility agreement in relation to
the letter of credit. Under the terms of the restructuring, the
liabilities of Marconi Corporation were compromised. Please see
Item 7: Major Shareholders and Related Party
Transactions  Related Party Transactions 
Restructuring Arrangements  Scheme Implementation
Deed for further information.

Escrow and Distribution Agreement dated
March 27, 2003 between Marconi plc, Marconi Corporation
plc, Regent Escrow Limited, The Bank of New York, The Law
Debenture Trust Corporation plc, Ancrane, Bondholder
Communications Group and the Supervisors.

The purpose of the Escrow and Distribution
Agreement was to put in place the legally binding arrangements
which govern the holding of the financial restructuring proceeds
by the escrow trustee after it is issued or delivered on the
effective date of each restructuring and the distribution of the
restructuring proceeds to scheme creditors and designated
recipients by the distribution agent. The scheme consideration
was held by the escrow trustee on bare trust and distributed at
the direction of the supervisors and, in the case of designated
recipients, the trustees for the respective bond issues.

Statement and waiver of intercompany
balances agreement dated on or about March 27, 2003 between
Marconi plc, Marconi Corporation and certain other group
companies.

In order to facilitate the effective
implementation of the financial restructuring, and in particular
to effect a clean up of existing inter-company claims owed to or
by Marconi Corporation and Marconi plc

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and certain other group companies, Marconi
Corporation and Marconi plc entered into a statement and waiver
of intercompany balances agreement with certain other group
companies, listed below.


The following group companies agreed to
participate in the statement and waiver agreement:

|                                                                                                |  |                                                  |  |                                                            |  |                                           
|----------------------------------------------------------------------------------------------- |  | ------------------------------------------------ |  | ---------------------------------------------------------- |  | ------------------------------------------
|A.B. Dick Holdings Ltd                                                                          |  | AEI Furnaces Pty Ltd                             |  | Albany Partnership Limited                                 |  | Ancrane                                   
|APT Nederlands BV                                                                               |  | APT Telecommuniciones SL                         |  | Arrow Ltd                                                  |  | Associated Automation Ltd                 
|Associated Electrical Industries (Manchester) Ltd                                               |  | Associated Electrical Industries Holdings Ltd    |  | Associated Electrical Industries International
    Limited |  | Associated Electrical Industries Limited  
|Associated Electrical Industries Ltd (Now known
    as Marconi Australia Holdings Pty. Limited) |  | Beijing Marconi Communications Technology Co Ltd |  | Bruton Street Investments Limited                          |  | Bruton Street Overseas Investments Limited
|Bruton Street Partnership                                                                       |  | Clanville Limited                                |  | Combined Electrical Manufacturers Ltd                      |  | Coppenhall Nominees Limited               
|Daymo Ltd                                                                                       |  | EA Continental Limited                           |  | Elliot Automation Continental SA                           |  | Elliott-Automation Holdings Limited       
|FF Chrestian & Co Ltd                                                                           |  | Fore Systems Limitada                            |  | Fore Systems Limited                                       |  | FS Finance Corp                           
|FS Holding Corp                                                                                 |  | GEC (Hong Kong) Limited                          |  | GEC of Pakistan Limited                                    |  | GEC Zambia Limited                        
|GPT (Nederland) BV                                                                              |  | GPT Consumer Products Ltd                        |  | GPT Middle East Limited                                    |  | GPT Payphone Systems Ltd                  
|GPT Reliance Ltd                                                                                |  | GPT Special Project Management Limited           |  | Harman Information Technology Pty Ltd                      |  | Highrose Limited                          
|Krayford Ltd                                                                                    |  | Larnerway Ltd                                    |  | Layana Limited                                             |  | Marconi (Bruton Street) Limited           
|Marconi (DGP1) Limited                                                                          |  | Marconi (DGP2) Limited                           |  | Marconi (Elliott Automation) Limited                       |  | Marconi (Fifteen) Limited                 
|Marconi (Fifty-Nine) Ltd                                                                        |  | Marconi (Fifty-Three) Ltd                        |  | Marconi (Forty-Five) Limited                               |  | Marconi (Forty-Four) Ltd                  
|Marconi (Forty-Three) Limited                                                                   |  | Marconi (Holdings) Limited                       |  | Marconi (NCP) Limited                                      |  | Marconi (Nine) Limited                    
|Marconi (Sixteen) Limited                                                                       |  | Marconi (Sixty-Nine) Limited                     |  | Marconi (Sixty-Two) Ltd                                    |  | Marconi (Thirteen) Limited                
|Marconi (Thirty-One) Limited                                                                    |  | Marconi (Thirty-Two) Limited                     |  | Marconi (TLC) Ltd                                          |  | Marconi (Twenty-Seven) Limited            
|Marconi (WCGL) Unlimited                                                                        |  | Marconi Acquisition Corp                         |  | Marconi Aerospace Unlimited                                |  | Marconi Ansty Limited                     
|Marconi Applied Tecnologies SA                                                                  |  | Marconi Australia Pty Limited                    |  | Marconi Bonding Limited                                    |  | Marconi Capital Limited                   
|Marconi Caswell Developments Limited                                                            |  | Marconi Channel Markets GmbH                     |  | Marconi Columbia SA                                        |  | Marconi Communications (CIS) Limited      
|Marconi Communications AB                                                                       |  | Marconi Communications Africa (Pty) Limited      |  | Marconi Communications Argentina SA                        |  | Marconi Communications Asia Limited       
|Marconi Communications B.V. (Netherlands)                                                       |  | Marconi Communications BVBA                      |  | Marconi Communications Canada Holdings Inc.                |  | Marconi Communications Canada Inc         
|Marconi Communications China Limited                                                            |  | Marconi de Mexico SA de CV                       |  | Marconi Communications do Brasil Ltda                      |  | Federal Inc Marconi Communications        
|Marconi Communications                                                                          |  | Marconi Communications                           |  | Marconi Communications                                     |  | Marconi Communications                    

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|                                                             |  |                                                         |  |                                                               |  |                                                          
|------------------------------------------------------------ |  | ------------------------------------------------------- |  | ------------------------------------------------------------- |  | ---------------------------------------------------------
|Global Networks Limited                                      |  | GmbH (Germany)                                          |  | GmbH (Switzerland)                                            |  | Holdings GmbH (Germany)                                  
|Marconi Communications Holdings Inc.                         |  | Marconi Communications Holdings Limited                 |  | Marconi Communications Inc                                    |  | Marconi Communications International Holdings
    Limited
|Marconi Communications International Investments
    Limited |  | Marconi Communications International Limited            |  | Marconi Communications Investments Limited                    |  | Marconi International Limited                            
|Marconi Communications Limited (Canada)                      |  | Marconi Communications Limited (Ireland)                |  | Marconi Communications Limited (U.K.)                         |  | Marconi Communications North America Inc.                
|Marconi Communications Optical Fibres Limited                |  | Marconi Communications Optical Networks Corp            |  | Marconi Communications Optical Networks Limited
    (Ireland) |  | Marconi Communications Overseas Services Limited         
|Marconi Communications Real Estate GmbH                      |  | Marconi Communications SA (France)                      |  | Marconi Communications SARL                                   |  | Marconi Communications Software Systems GmbH
    & Co KG 
|Marconi Communications Software Systems Ver. GmbH            |  | Marconi Communications South Africa Pty Limited         |  | Marconi Communications South East Asia Pte Ltd                |  | Marconi Communications Technology Inc                    
|Marconi Communications Telemulti Limitada                    |  | Marconi Communications SpA                              |  | Marconi Corporation plc                                       |  | Marconi Defense Overseas Limited                         
|Marconi Finance Inc.                                         |  | Marconi Finance plc                                     |  | Marconi Fleet Management Limited                              |  | Marconi G.M. Limited                                     
|Marconi Holdings SpA                                         |  | Marconi Iberia SA                                       |  | Marconi Inc                                                   |  | Marconi India Limited                                    
|Marconi Information Systems Limited                          |  | Marconi Insurance Limited                               |  | Marconi International SpA                                     |  | Marconi Middle East (Saudi Arabia)                       
|Marconi Middle East LLC (Dubai)                              |  | Marconi Mobile Access SpA                               |  | Marconi Mobile Systems Limited                                |  | Marconi New Zealand Limited                              
|Marconi Nominees Limited                                     |  | Marconi Optical Components Limited                      |  | Marconi Photonica Limited                                     |  | Marconi plc                                              
|Marconi Projects Hong Kong Ltd                               |  | Marconi Property Ltd                                    |  | Marconi Software International Inc                            |  | Marconi Software Solutions Limited                       
|Marconi Sud SpA                                              |  | Marconi Telecommunications India Private Ltd            |  | Marconi Venezuela CA                                          |  | MarconiCom Limited                                       
|McMichael Limited                                            |  | Metapath Software International (Australia) Pty
    Ltd |  | Metapath Software International (France) SA                   |  | Metapath Software International (Hong Kong)
    Limited  
|Metapath Software International (India)                      |  | Metapath Software International (U.S) Inc               |  | Metapath Software International AB                            |  | Metapath Software International Brasil Ltda              
|Private Limited Metapath Software International
    Inc.     |  | Metapath Software International Limited                 |  | Metapath Software International Nominees Limited              |  | Metropolitan-Vickers Electrical Co Ltd                   
|Micro Scope Limited                                          |  | MNI Tecnologiase e Sistemas de Communicacao SA          |  | Mobile Systems (Holdings) Ltd                                 |  | Mobile Systems (U.K.) Ltd                                
|Mobile Systems Group Ltd                                     |  | Mobile Systems International Holdings Limited           |  | Mobile Systems Services Ltd                                   |  | MSI Cellular Investments (One) Ltd                       
|Netscient Limited                                            |  | Northwood Technologies Inc.                             |  | Northwood Technologies Limited                                |  | Palmaz Ltd                                               

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|                                  |  |                                        |  |                                                                                                        |  |                                            
|--------------------------------- |  | -------------------------------------- |  | ------------------------------------------------------------------------------------------------------ |  | -------------------------------------------
|Photonica Limited                 |  | Photoniqa Limited                      |  | Pyford Limited                                                                                         |  | Rainford Group Trustees Ltd                
|Rainford Racks Ltd                |  | RELTEC (Coventry) Ltd                  |  | RELTEC Mexico SA de CV (now known as Marconi
    Communications, S.A. de C.V.)                         |  | RELTEC Services (U.K.) Limited             
|Robert Stephenson & Hawthorns Ltd |  | Ronaldi Ltd                            |  | Salplex Ltd                                                                                            |  | SNC Composants & Cie                       
|Styles & Mealing Limited          |  | Systems Management Specialists Inc     |  | TCL Projects Limited                                                                                   |  | Telephone Cables Limited                   
|Tetrel Limited                    |  | The English Electric Company, Limited  |  | The General Electric Company of Singapore Private
    Limited (Now known as Marconi Singapore Pte Ltd) |  | The Kingsway Housing Association Ltd       
|The M-O Valve Co Ltd              |  | The Rotary Engineering Company Limited |  | The Vulcan Foundry Ltd                                                                                 |  | Woods of Colchester Housing Society Limited
|Yeslink Unlimited                 |  | Zipbond Ltd                            |  |                                                                                                        |  |                                            

Please see Item 7: Major Shareholders
and Related Party Transactions  Related Party
Transactions  Restructuring
Arrangement Statement and Waiver Agreement for
further information.

Deed of Novation dated March 26, 2003
between Marconi Corporation, Marconi plc and BAE SYSTEMS plc
(BAE).

Under this deed, all obligations under the MES
transaction were novated from Marconi plc to Marconi Corporation
with effect from May 19, 2003. In addition, Marconi plc,
Marconi Corporation and BAE have agreed that no amount should be
paid by Marconi plc or Marconi Corporation to BAE in relation to
certain claims made by the parties under the MES transaction and
that Marconi Corporation will reduce any amounts which may be
payable to it in the future by BAE under the MES transaction by
U.S.$18,600,000.

Assumption Agreement and Consent dated
March 26, 2003 between Marconi Corporation, Marconi plc and
Lemelson Medical Education and Research Foundation, Limited
Partnership (the Lemelson agreement).

Under this agreement, the Lemelson agreement was
novated from Marconi plc to Marconi Corporation.

Deed of Novation and Amendment dated
March 26, 2003 between Marconi Corporation, Marconi plc and
Finmeccanica SpA (Finmeccanica).

Pursuant to this deed, all obligations of Marconi
plc under the share purchase agreement dated August 2, 2002
between Marconi plc, as guarantor, Marconi (Bruton Street)
Limited, as vendor, and Finmeccanica, as purchaser, were novated
to Marconi Corporation with effect from May 19, 2003.

Sponsors Agreement dated
March 31, 2003 between the Company, Marconi plc, Lazard
Brothers & Co. and Morgan Stanley & Co.
Limited.

Under the sponsors agreement, Lazard and
Morgan Stanley agreed to act as joint sponsors for us in
connection with admission of our ordinary shares to the London
Stock Exchange. We and Marconi plc have given Lazard and Morgan
Stanley certain representations and warranties regarding,
inter alia, the accuracy of information contained in the
restructuring disclosure documentation. We and Marconi plc also
gave certain indemnities in relation to the financial
restructuring and other indemnities on customary terms against
certain liabilities in connection with the accuracy of
information contained in the restructuring documentation and
certain other documents in connection with admission.

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Deposit Agreement dated March 31, 2003
between Marconi Corporation, The Bank of New York, as
depositary, and owners and beneficial owners of American
Depositary Receipts.

This agreement governs the rights and obligations
of Marconi Corporation, The Bank of New York, as depositary, and
the owners and beneficial owners from time to time of American
Depositary Receipts issued in respect of our American Depositary
Shares.

ESOP Escrow Agreement dated
December 13, 2002 between Marconi Corporation, Marconi plc,
HSBC Bank plc and Barclays Bank PLC (Barclays).

The ESOP Escrow Agreement implements the
substantive provisions of the ESOP term sheet concluded on
August 28, 2002 and provided the basis on which two escrow
accounts could be funded and held pending agreement or
determination of Barclays claims, if any, against certain
operating subsidiaries of Marconi plc in relation to certain
potential liabilities. Which escrow account was established
depended on whether the restructuring was successful or not. The
ESOP Escrow Agreement:



| |   |                                                                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | sets out the terms on which approximately
    £145 million will be held in escrow and creates a
    framework for resolving Barclays entitlement, if any, to
    the balance of such cash;                                                                                                                  
|
| |  | provides for a number of detailed assumptions to
    assist a court with that determination;                                                                                                                                                                                                                 
|
| |  | sets out the terms, if our restructuring had not
    become effective, on which a certain amount of cash would be
    paid into escrow in accordance with the interim security
    arrangements and created a framework for resolving
    Barclays entitlement, if any, to the balance of such cash;
    and
|
| |  | provides for the release of any claims that
    Marconi plc or Barclays may have against each of the operating
    subsidiaries under certain funding letters entered into by the
    operating subsidiaries.                                                                                                

The terms of the ESOP Escrow Agreement dealing
with the money to be held in escrow have been superseded by the
ESOP settlement agreement referred to below. In other respects
the ESOP Escrow Agreement continues to apply.

ESOP Settlement Agreement dated
March 26, 2003 between Marconi plc, Marconi Corporation,
HSBC Bank plc (HSBC), Barclays, Salomon Brothers International
Limited (SBIL), UBS AG (UBS) and Bedell Cristin Trustees Limited
(BCT).

On March 26, 2003, Marconi Corporation and
Marconi plc reached agreement with the ESOP derivative banks for
a settlement of their ESOP derivative related claims against our
group. Under the terms of the settlement, Marconi Corporation
paid a total of £35 million to the ESOP derivative
banks in full and final settlement of their respective ESOP
related claims against our group.

Memorandum of Understanding dated
March 25, 2003 between the Marconi Corporation, Marconi plc
and the United States Pension Benefit Guaranty Corporation
(PBGC).

Marconi Corporation and Marconi plc entered into
a legally binding Memorandum of Understanding with the PBGC
under which the PBGC agreed (a) that it would not take any
action in connection with the restructuring to involuntarily
terminate either of the two tax-qualified defined benefit
pension plans sponsored by Greensboro Associates, Inc., an
indirect wholly owned subsidiary of Marconi Corporation, or the
U.S. pension plans, and (b) that it would withdraw any
contingent claims filed by the PBGC under the Marconi plc
restructuring as of May 19, 2003. Under the Memorandum of
Understanding with the PBGC, (a) Marconi Corporation or the
contributing employers to the U.S. pension plans will make
annual contributions to the U.S. pension plans in an amount
equal to each U.S. pension plans respective minimum
funding requirements under the applicable, United States
statutes, including ERISA, and the U.S. Internal Revenue Code,
or, if greater, the respective U.S. pension plans normal
cost, plus an additional U.S.$9 million per annum payable
in quarterly installments of U.S.$2.25 million commencing
as of June 30, 2003, but only to the extent deductible,
(b) Marconi Corporation will provide a guarantee to the
PBGC of the obligations of its subsidiaries in the United States
with respect to (x) such subsidiaries

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respective obligations to make contributions to
the U.S. pension plans as provided in clause (a) of this
sentence and, (y) any liability owing to the
U.S. pension plans or to the PBGC if either or both of the
U.S. pension plans should terminate while such guarantee is
in effect. To the extent that any required annual contributions
in excess of annual normal cost would result in a credit balance
under either of the U.S. pension plans which could
otherwise be used to satisfy minimum funding requirements, the
Memorandum of Understanding with the PBGC significantly limits
such usage.


The Memorandum of Understanding with the PBGC
provides that if Marconi Corporation intends to sell any of its
business units in the United States to a third-party purchaser
whose debt immediately following the consummation of such
transaction is not then rated investment grade, no proposed
transfer of assets and liabilities of the U.S. pension plans to
a pension plan of the third-party purchaser may be made without
the consent of the PBGC. To the extent that any sale of a
business unit will not include the transfer of the assets and
liabilities of the applicable U.S. pension plan to a pension
plan of the purchaser of such business unit, Marconi Corporation
will cause a portion of the proceeds of such business unit sale
equal to the net shortfall, if any, under the applicable U.S.
pension plan which is attributable to such business unit to be
contributed to the applicable U.S. pension plan upon completion
of such business unit sale, with the amount to be contributed
based on the then applicable PBGC safe harbor assumptions used
for plan termination purposes, subject to any applicable
limitations under ERISA or the U.S. Internal Revenue Code
with respect to deductibility of such contributions or
otherwise. The Memorandum of Understanding with the PBGC also
requires that one of the U.S. pension plans be fully funded
or transferred to a purchaser of a business unit upon the
occurrence of certain business unit sales.

The Memorandum of Understanding with the PBGC
further provides that Marconi Corporation will consent to
jurisdiction in the United States federal district courts and
will agree as a contractual matter to be jointly and severally
liable with its U.S. subsidiaries which are participating
employers in the U.S. pension plans with respect to its
obligations under the PBGC Memorandum of Understanding.

As part of its obligations under the Memorandum
of Understanding with the PBGC, Marconi Corporation will
provide, or cause its U.S. subsidiaries to provide, certain
specific information relevant to the U.S. pension plans to
the PBGC on a regular basis during the term of the Memorandum of
Understanding.

Marconi Corporations obligation under this
Memorandum of Understanding with the PBGC with respect to any
U.S. pension plan will cease on the earliest to occur of
(a) the date that a U.S. pension plan is terminated in
a standard termination under ERISA, or (b) on May 20,
2008 when either (x) such U.S. pension plan has been fully
funded on a termination basis for two consecutive years ending
on or after the expiration of such five-year period or
(y) Marconi Corporations debt is rated investment
grade. If Marconi Corporation is acquired at any time while the
Memorandum of Understanding with the PBGC remains in effect and
the acquirors debt is rated investment grade immediately
following such sale, the PBGC will agree to review the
acquisition of Marconi Corporation in good faith to determine
whether the need for its Memorandum of Understanding with
Marconi Corporation and Marconi plc still exists and whether
such Memorandum of Understanding may then be terminated.

Indenture dated May 19, 2003 relating
to the Senior Notes due 2008 between Marconi Corporation, the
guarantors, party thereto, and Law Debenture Trust Company of
New York, as trustee.

The Senior Notes were issued in an aggregate
amount of U.S.$717,139,584. We issued the Senior Notes to
creditors as part of our financial restructuring. The Senior
Notes trade on the London Stock Exchanges market for
listed securities. The Senior Notes bear interest payable
quarterly in arrears in cash at a rate of 8% per annum. The
indenture governing the Senior Notes provides for events of
default and restrictive covenants.

The obligations of Marconi Corporation under the
Senior Notes are unconditionally and irrevocably subject to
limitations imposed by applicable law or arising by reason of
directors fiduciary duties or other potential liabilities,
guaranteed by each guarantor party thereto, except Marconi
Corporation and Marconi Communications Telemulti Ltda, pursuant
to a Senior Note guarantee executed by each guarantor

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pursuant to the indenture for the Senior Notes.
The issuer and the guarantors secured their respective
obligations under the Senior Notes and the guarantees thereof
under the security documents.


Indenture dated May 19, 2003 relating
to the Junior Notes due 2008 between Marconi Corporation, the
guarantors party thereto, and JPMorgan Chase Bank, as
trustee.

The Junior Notes were issued in an initial
aggregate principal amount of U.S.$486,881,472. We issued the
Junior Notes to creditors as part of our financial
restructuring. The Junior Notes trade on the London Stock
Exchanges market for listed securities. The Junior Notes
bear interest payable quarterly in arrears in cash at a rate of
10% per annum or, at Marconi Corporations option, in kind
at a rate of 12% per annum. The indenture governing the Junior
Notes provides for events of default and restrictive covenants.

The obligations of Marconi Corporation under the
Junior Notes will be unconditionally and irrevocably, subject to
limitations imposed by applicable law or arising by reason of
directors fiduciary duties or other potential liabilities,
guaranteed by each guarantor, except Marconi Corporation and
Marconi Communications Telemulti Ltda, pursuant to a Junior Note
guarantee executed by each guarantor pursuant to the indenture
for the Junior Notes. The issuer and the guarantors secured
their respective obligations under the Junior Notes and the
guarantees thereof under the security documents.

Instrument by way of Deed Poll dated
May 18, 2003 executed by Marconi Corporation.

Pursuant to the Instrument by way of Deed Poll,
Marconi Corporation created and issued warrants to the existing
holders of Marconi plc shares, entitling the holders of the
warrants to subscribe for shares in aggregate equal to 5% of
Marconi Corporations issued share capital immediately post
financial restructuring at a strike price equivalent to a post
restructuring market capitalization of Marconi Corporation of
£1.5 billion. The warrants were issued in registered
form and may be held in certificated or uncertificated form. The
warrants will expire four years after the restructuring, if not
exercised prior to that date.

Guarantees of the Senior Notes, the Junior
Notes and the performance bonding facility each dated
May 19, 2003.



| |   |                                                                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Guarantee relating to the obligations of Marconi
    Corporation under the Senior Notes between inter alia the
    guarantors party to the indenture governing the Senior Notes,
    except for Marconi Corporation and Marconi Communications
    Telemulti Ltda, and the security trustee.                              
|
| |  | Guarantee relating to the obligations of Marconi
    Corporation under the Junior Notes between inter alia the
    guarantors party to the indenture governing the Junior Notes,
    except for Marconi Corporation and Marconi Communications
    Telemulti Ltda, and the security trustee.                              
|
| |  | Composite guarantee relating to obligations under
    the security trust and intercreditor deed, the performance
    bonding facility and each of the security documents between the
    guarantors party thereto, except for Marconi Corporation and
    Marconi Communications Telemulti Ltda, and the security trustee.

Security Trust and Intercreditor Deed dated
May 19, 2003 between Marconi Corporation, the guarantors
party thereto, the security trustee, Law Debenture Trust Company
of New York, as senior note trustee, JPMorgan Chase Bank, as
junior note trustee, HSBC Bank plc, as new bonding facility
agent, the new bonding facility banks named therein, The Bank of
New York, as depositary, paying agent and registrar and the
intra-group creditors and intra-group borrowers named
therein.

The Security Trust and Intercreditor Deed binds
each of the secured creditors and each of the obligors,
including the issuer and the guarantors of the Senior Notes and
Junior Notes. The Senior Notes and Junior Notes are subject to
the Security Trust and Intercreditor Deed pursuant to which the
exercise by each note trustee of its rights under the security
documents on behalf of the note holders and of the rights of the
noteholders under the relevant notes may in certain
circumstances be directed by, or subject

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to the prior consent of, other parties to the
Security Trust and Intercreditor Deed. Note holders are bound
by, and deemed to have notice of, all the provisions of the
Security Trust and Intercreditor Deed.


The purpose of the Security Trust and
Intercreditor Deed is to regulate, inter alia:
(a) the ranking of claims of the secured creditors;
(b) the exercise, acceleration and enforcement of rights by
the secured creditors; (c) the rights of the secured
creditors to instruct the security trustee; (d) the rights
of the senior note trustee to issue a standstill notice
(e) the rights of the secured creditors during a standstill
period and the effects of the standstill period; (f) the
giving of consents and waivers and the making of modifications
to the relevant documents; and (g) the rights of the
secured creditors and the priorities following a payment stop
event.

The Security Trust and Intercreditor Deed
provides for the ranking in priority of payment of the claims of
the secured creditors and for the subordination of intercompany
claims by the issuer and those of its subsidiaries that are
parties to the Security Trust and Intercreditor Deed.

Australian Fixed and Floating Charge dated
May 19, 2003 granted by Marconi Australia Pty Limited
(MAPL) in favor of the security trustee.

Under this charge, and with respect to all
present and future assets of MAPL located in New South Wales,
Victoria, Tasmania, South Australia, Queensland and Western
Australia, MAPL granted a fixed charge over any freehold or
leasehold property interests, any goodwill, any uncalled or
called but unpaid capital of MAPL, any encumbrances over any
real or personal property or any guarantee, any document
evidencing a right to any real or personal property, all
monetary claims as a result of any claims in relation to any
insurance policy relating to real property, certain shares, the
designated account and any monetary claims in relation to any
intellectual property rights or intra-group loan contracts, but
not the proceeds of any such debt, and a floating charge over
the balance of the relevant assets. The fixed and floating
charge secures all amounts owing by MAPL but the amount
recoverable under the charge is limited to the asset values in
the relevant jurisdictions from time to time subject to the
security trustee increasing the amount recoverable to reflect
the asset values from time to time;

Australian Fixed and Floating Charge dated
May 19, 2003 granted by Marconi Australia Pty Limited
(MAPL) in favor of the security trustee.

Under this charge and with respect to all assets
present and future of MAPL located in the Australian Capital
Territory, the Northern Territory and outside Australia, MAPL
granted a fixed charge over any freehold or leasehold property
interests, any goodwill, any uncalled or called but unpaid
capital of MAPL, any encumbrances over any real or personal
property or by guarantee, any document evidencing a right to any
real or personal property, all monetary claims as a result of
any claims in relation to any insurance policy relating to real
property, certain shares, the designated account and any
monetary claims in relation to any intellectual property rights
or intra-group loan contracts, but not the proceeds of any such
debt, and a floating charge over the balance of the relevant
assets. The fixed and floating charge secures all amounts owing
by MAPL but the amount recoverable under the charge is limited
to the asset values in the relevant jurisdictions from time to
time subject to the security trustees increasing the amount
recoverable to reflect the asset values from time to time;

Australian Fixed and Floating Charge dated
May 19, 2003 granted by Marconi Australia Holdings Pty
Limited (MAHL) in favor of the security trustee.

Under this charge and with respect to all present
and future assets of MAHL located in New South Wales, Victoria,
Tasmania, South Australia, Queensland and Western Australia,
MAHL granted a fixed charge over any freehold or leasehold
property interests, any goodwill, any uncalled or called but
unpaid capital of MAHL, any encumbrances over any real or
personal property or any guarantee, any document evidencing a
right to any real or personal property, all monetary claims as a
result of any claims in relation to any insurance policy
relating to real property, certain shares, the designated
account and any monetary claims in relation to any, intellectual
property rights or intra-group loan contracts, but not the
proceeds of

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any such debt, and a floating charge over the
balance of the relevant assets. The fixed and floating charge
secures all amounts owing by MAHL but the amount recoverable
under the charge is limited to the asset values in the relevant
jurisdictions from time to time subject to the security trustee
increasing the amount recoverable to reflect the asset values
from time to time;


Australian Fixed and Floating Charge dated
May 19, 2003 granted by Marconi Australia Holdings Pty
Limited (MAHL) in favor of the security trustee.

Under this charge, and with respect to all
present and future assets of MAHL located in the Australian
Capital Territory, the Northern Territory and outside Australia,
MAHL granted a fixed charge over any freehold or leasehold
property interests, any goodwill, any uncalled or called but
unpaid capital of MAHL, any encumbrances over any real or
personal property or any guarantee, any document evidencing a
right to any real or personal property, all monetary claims as a
result of any claims in relation to any insurance policy
relating to real property, certain shares, the designated
account and any monetary claims in relation to any intellectual
property rights or intra-group loan contracts, but not the
proceeds of any such debt, and a floating charge over the
balance of the relevant assets. The fixed and floating charge
secures all amounts owing by MAHL but the amount recoverable
under the charge is limited to the asset values in the relevant
jurisdictions from time to time subject to the security trustee
increasing the amount recoverable to reflect the asset values
from time to time;

Share Mortgage relating to shares in
Marconi Australia Holdings Pty Limited dated May 19, 2003
between Associated Electrical Industries Limited, as mortgagor,
and the security trustee, as mortgagee.

Quota Pledge Agreement relating to the
pledge of quotas held by Marconi Communications International
Holdings Limited (MCIHL) in the capital stock of Marconi
Communications Telemulti Ltda (Telemulti) dated May 19,
2003 between MCIHL, as pledgor, Marconi Communications do Brasil
Ltda., as quotaholder and consenting party, Telemulti, as
acknowledging party and the security trustee, the senior note
trustee, the junior note trustee, the new bonding facility
agent, the depositary, the principal paying agent and the
registrar, as pledgees.

Under this agreement, MCIHL granted a pledge over
all the current quotas it holds in the capital stock of
Telemulti, a company incorporated in Brazil and also committed
to pledge any additional quotas of Telemulti which may be
acquired by MCIHL, together with all options or rights of any
nature whatsoever that may be issued or granted by Telemulti to
MCIHL in the future;

Notarial Deed of pledge of shares relating
to shares in Marconi Communications B.V. dated May 15, 2003
between Marconi Communications, Inc., as pledgor, and the
security trustee, as pledgee;

Composite Debenture dated May 19, 2003
granted by the issuer and all guarantors registered in England
and Wales, in favor of the security trustee.

Under this debenture, the issuer and each
guarantor registered in England and Wales granted a fixed charge
or legal mortgage, as applicable, over the right, title,
interest from time to time and related rights of such person in
specified real property, tangible moveable property, goodwill,
the uncalled capital of such person, certain shares, all
monetary claims relating to intellectual property and the
proceeds of any insurance policy relating to secured real
property. Marconi Corporation and these guarantors also assigned
their right, title and interest in all rights and claims
relating to specified escrow accounts and specified intra-group
loan contracts. A floating charge was also granted by the issuer
and these guarantors over the whole of their undertakings and
assets, present or future, other than those validly and
effectively charged or assigned by way of fixed security,
however this floating charge over any accounts held by the
issuer and these guarantors shall not restrict the ability of
these persons to create any security which secures obligations
under or in respect of the interim bonding facility letter, the
performance bonding facility agreement, the existing performance
bonds and any other bonding facility, as a result of the
provision of cash collateral. For tax reasons property located
in any Australian state or territory is excluded from the
composite debenture and secured under a separate security
instrument. In connection with this debenture,

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each of Marconi Corporation, Marconi
Communications International Holdings Limited and Marconi
Communications Limited also granted mortgages over certain
specific properties to the Security Trustee;


Australian Assets Fixed and Floating Charge
dated May 19, 2003 between the U.K. guarantors, as
chargors, and the security trustee.

Under this agreement, each U.K. guarantor charged
as security all of its interest in any undertakings, assets or
rights, present or future, in each case taken and located (for
the purpose of Australian stamp duty law) in Australia. The
charge excludes marketable securities in Marconi Australia
Holdings Pty Limited held by the chargors.

Security over Shares Agreement relating to
shares of Mobile Systems International Holdings Limited, dated
May 19, 2003 between Metapath Software International, Inc.,
as grantor, and the security trustee, as grantee.

Share pledge agreement, or Verpfändung
von Gesellschaftsanteilen, relating to shares in Marconi
Communications Real Estate GmbH dated May 15, 2003 between
Marconi Communications Holdings GmbH, as pledgor, and the
security trustee, as pledgee;

Share pledge agreement, or Verpfändung
von Gesellschaftsanteilen, relating to shares in Marconi
Communications GmbH, dated May 15, 2003 between Marconi
Communications Holdings GmbH, as pledgor, and the security
trustee, as pledgee;

Share pledge agreement, or Verpfändung
von Gesellschaftsanteilen, relating to shares in Marconi
Communications Holdings GmbH, dated May 15, 2003 between
Marconi Communications International Holdings Limited, as
pledgor, and the security trustee, as pledgee;

Share pledge agreement, or Verpfändung
von Gesellschaftsanteilen, relating to shares in Marconi
Communications ONDATA GmbH dated May 15, 2003 between
Marconi Communications Holdings GmbH, as pledgor, and the
security trustee, as pledgee;

Share pledge agreement, or Verpfändung
von Gesellschaftsanteilen, relating to shares in Marconi
Communications Software Systems Verwaltungsgesellschaft GmbH
dated May 15, 2003 between Marconi Communications GmbH, as
pledgor, and the security trustee, as pledgee;

Account pledge agreement, or
Kontoverpfändung, dated May 16, 2003 between Marconi
Communications Real Estate GmbH, as pledgor, and the security
trustee, as pledgee.

Under this agreement, the pledgor pledged to the
pledgee all present and future credit balances, including all
interest payable from time to time standing to the credit on
certain bank accounts, including any sub-account, renewal,
redesignation or replacement thereof;

Account pledge agreement, or
Kontoverpfändung, dated May 16, 2003 between Marconi
Communications Holdings GmbH, as pledgor, and the security
trustee, as pledgee.

Under this agreement, the pledgor pledged to the
pledgee all present and future credit balances, including all
interest payable from time to time standing to the credit on
certain bank accounts, including any sub-account, renewal,
redesignation or replacement thereof;

Account pledge agreement, or
Kontoverpfändung, dated May 16, 2003 between Marconi
Communications GmbH, as pledgor and the security trustee, as
pledgee.

Under this agreement, the pledgor pledged to the
pledgee all present and future credit balances, including all
interest payable from time to time standing to the credit on
certain bank accounts, including any sub-account, renewal,
redesignation or replacement thereof;

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Limited partners interest pledge
agreement, or Verpfändung von Kommanditanteilen, dated
May 15, 2003 between Marconi Communications GmbH, as
pledgor, and the security trustee, as pledgee.

Under this agreement, the existing and future
limited partners interest in the capital of Marconi
Communications Software Systems GmbH & Co. KG, together with
all ancillary rights and claims were pledged. These included,
but are not limited to, the present and future rights to receive
profits payable in relation to these interests, liquidation
proceeds, redemption proceeds, repaid capital in case of a
capital decrease, any compensation in case of termination
(Kündigung) and/or withdrawal of a partner of
Marconi Communications Software Systems GmbH & Co. KG, the
surplus in case of surrender, any claim to a distribution quote
and all other pecuniary claims associated with these interests,
as well as all other rights and benefits attributable to these
interests;

Security transfer agreement, or
Sicherungsübereignung, dated May 16, 2003 between
Marconi Communications GmbH, as transferor, and the security
trustee, as transferee.

Under this agreement, title to all current
assets, Umlaufvermögen, including, but not limited
to, the entire stock, or Warenbestand, and all fixed
assets, or Anlagevermögen, which are located at
specified premises or which will be located at these specified
premises from time to time in the future have been and will be
transferred to the security trustee;

Global assignment agreement, or
Globalabtretung, dated May 16, 2003 between Marconi
Communications GmbH, as assignor, and the security trustee,
as assignee.

Under this agreement, subject to consent
requirements, if any, receivables together with all securities,
collateral and ancillary rights, being all present and future
rights and claims owing to the assignor and originating from
selling goods and/or providing services, or Lieferungen und
Leistungen, and all present and future rights and claims to
which the assignor is now or may become entitled to in respect
of all present and future insurance contracts or any part
thereof have been and will be assigned to the security trustee.
In the event that the assignor maintains a current account
management with its customers, or
Kontokorrentverhältnis, the assignment includes all
claims from any existing or future current account balances, the
right to determine the net balance and the right to terminate
the current account relationship;

Security transfer and assignment agreement,
or Sicherungsübereignung und -abtretung, dated May 19,
2003 between Marconi Communications GmbH, as transferor, and the
security trustee, as transferee.

Under this agreement, subject to consent
requirements, if any, know-how, utility models, patents,
registered designs, trademarks, inbound licenses of third
parties and the unlimited, unrestricted, exclusive right to use
any copyrights have been assigned to the security trustee to the
extent legally possible;

Shareholder loan assignment agreement, or
Abtretung von Gesellschaftsdarlehen, relating to all present and
future rights and claims owing to the assignor originating from
shareholder loans the aggregate of which exceed
£20 million dated May 16, 2003 between Marconi
Communications Holdings GmbH, as assignor, and the security
trustee, as assignee.

Under this agreement, all present and future
rights and claims owing to the assignor and originating from
certain shareholder loans have been and will be assigned to the
security trustee for itself and as trustee on behalf of the
secured creditors;

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Shareholder loan assignment agreement, or
Abtretung von Gesellschaftsdarlehen, relating to all present and
future rights and claims owing to the assignor originating from
shareholder loans the aggregate of which exceed
£20 million dated May 16, 2003 between Marconi
Communications GmbH, as assignor, and the security trustee,
as assignee.

Under this agreement, all present and future
rights and claims owing to the assignor and originating from
certain shareholder loans have been and will be assigned to the
security trustee for itself and as trustee on behalf of the
secured creditors;

Shareholder loan assignment agreement, or
Abtretung von Gesellschaftsdarlehen, relating to all present and
future rights and claims owing to the assignor originating from
shareholder loans the aggregate of which exceed
£20 million dated May 16, 2003 between Marconi
Communications Real Estate GmbH, as assignor, and the security
trustee, as assignee.

Under this agreement, all present and future
rights and claims owing to the assignor and originating from
certain shareholder loans have been and will be assigned to the
security trustee for itself and as trustee on behalf of the
secured creditors;

Security Interest Agreement relating to
shares in Bruton Street Overseas Investments Limited dated
May 19, 2003 between FS Finance Corp. and the
security trustee;

Composite Debenture granted by Marconi
Communications Asia Limited (MCAL) in favor of the security
trustee dated May 19, 2003.

Under this debenture, MCAL granted a first fixed
charge over tangible moveable property, excluding any for the
time being forming part of its stock in trade or work in
progress, goodwill, rights in relation to its uncalled share
capital, monetary claims relating to intellectual property and
existing real property insurance, if any, certain intra-group
shares, if any, dividends, interests and other money payable in
respect of those shares and grants an assignment of all rights,
title and interests in contracts in respect of intra-group
loans. A floating charge was granted over its remaining assets,
subject to certain limitations;

Composite Debenture dated May 19, 2003
granted by G.E.C. (Hong Kong) Limited in favor of the security
trustee.

Under this debenture, G.E.C. (Hong Kong) Limited
granted a first fixed charge over tangible moveable property,
excluding any for the time being forming part of its stock in
trade or work in progress, goodwill, rights in relation to its
uncalled share capital, monetary claims relating to intellectual
property and existing real property insurance, if any, certain
intra-group shares, if any, dividends, interests and other money
payable in respect of those shares and grants an assignment of
all rights, title and interests in contracts in respect of
intra-group loans. A floating charge was granted over its
remaining assets, subject to certain limitations;

Shares Charge relating to shares in Marconi
Communications Asia Limited dated May 19, 2003 between
Marconi Communications International Holdings Limited, as
chargor, and the security trustee;

Shares Charge relating to shares in G.E.C.
(Hong Kong) Limited dated May 19, 2003 between Marconi
Corporation plc, as chargor, and the
security trustee.

Composite Mortgage Debenture dated
May 19, 2003 granted by Marconi Communications Limited and
Marconi Communications Optical Networks Limited in favor of the
security trustee.

Under this debenture, specified freehold and
leasehold property, together with any future estate or interest
in such property, was and is to be granted, conveyed, demised,
or charged, as applicable, and all title and interest in certain
contracts, monetary claims resulting from claims relating to
intellectual property or insurances relating to secured real
property, ancillary covenants and compensation rights were and
are to be assigned. A fixed charge was also granted over
specified property which has a yearly or lesser tenancy
interest, any future estate or interest which may be acquired in
certain property, any other

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property not specified in the composite mortgage
debenture, plant and machinery, all monetary claims other than
any claims which are otherwise subject to an assignment pursuant
to the composite mortgage debenture, present and future goodwill
and present and future uncalled capital. A floating charge was
granted over all its undertaking, property and assets not
subject to any legal mortgage, security assignment or fixed
charge created by the composite mortgage debenture;


Memorandum of Deposit of Shares as security
relating to shares in Marconi Communications Optical Networks
Limited dated May 19, 2003 between Marconi Communications
Inc. and the security trustee;

Memorandum of Deposit of Shares as security
relating to shares in Marconi Communications Optical Networks
Limited dated May 19, 2003 between Marconi Networks
Worldwide, Inc. and the security trustee;

Memorandum of Deposit of Shares as security
relating to shares in Marconi Communications Limited dated
May 19, 2003 between Marconi Communications GmbH and the
security trustee;

Pledge over shares of Marconi
Communications S.p.A. dated May 19, 2003 between Marconi
Holdings S.p.A. as pledgor, and the security trustee,
as pledgee;

Pledge over shares of Marconi Holdings
S.p.A. dated May 19, 2003 between Marconi Bruton Street
Limited as pledgor, and the security trustee,
as pledgee;

Pledge over shares of Marconi Mobile Access
S.p.A. dated May 19, 2003 between Marconi Holdings S.p.A.
as pledgor, and the security Trustee,
as pledgee;

Pledge over shares of Marconi International
S.p.A. dated May 19, 2003 between Marconi Communications
S.p.A. and Marconi Sud S.p.A. as pledgors, and the security
trustee, as pledgee;

Pledge over shares of Marconi Sud S.p.A.
dated May 19, 2003 between Marconi Communications S.p.A. as
pledgor, and the security trustee,
as pledgee;

Pledge over the claims of Marconi
Communications S.p.A. dated May 19, 2003 between Marconi
Communications S.p.A. as pledgor, and the security trustee,
as pledgee.

Under this agreement, the pledgor granted in
pledge to the security trustee certain existing claims and
undertook to grant in pledge certain future claims in relation
to customers connected with the supply of commercial products or
services, and the possible sale of the real property referred to
below and all inter-company loans once those inter-company loans
in aggregate exceed the materiality threshold;

Pledge over the claims of Marconi Sud
S.p.A. dated May 19, 2003 between Marconi Sud S.p.A., as
pledgor, and the security trustee,
as pledgee.

Under this agreement, the pledgor granted in
pledge to the security trustee certain existing claims and
undertook to grant in pledge certain future claims in relation
to customers connected with the supply of commercial products or
services, and all inter-company loans once those inter-company
loans in aggregate exceed the materiality threshold;

Undertaking for the creation of a pledge
over the future claims of Marconi Holdings S.p.A. dated
May 19, 2003 between Marconi Holdings S.p.A., as pledgor,
and the security trustee, as pledgee.

Under this agreement, the pledgor undertook to
grant in pledge to the security trustee any future claim, in
relation to any party, that falls within the materiality
threshold;

Pledge over the current accounts of Marconi
Communications S.p.A. dated May 19, 2003 between Marconi
Communications S.p.A. as pledgor, and the security trustee,
as pledgee.

Under this agreement, the pledgor granted in
pledge to the security trustee: (1) all of its rights on
the bank current accounts held in Italy; (2) all the sums
from time to time credited on the current accounts,

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including any future payments made by third
parties or by order of the pledgor on such accounts; and
(3) its claims for restitution of the balance from time to
time existing on the bank accounts;


Pledge over the current accounts of Marconi
Holdings S.p.A. dated May 19, 2003 between Marconi Holdings
S.p.A. as pledgor, and the security trustee,
as pledgee.

Under this agreement, the pledgor granted in
pledge to the security trustee: (1) all of its rights on
the bank current accounts held in Italy; (2) all the sums
from time to time credited on the current accounts, including
any future payments made by third parties or by order of the
pledgor on such accounts; and (3) its claims for
restitution of the balance from time to time existing on the
bank accounts;

Pledge over the current accounts of Marconi
Sud S.p.A. dated May 19, 2003 between Marconi Sud S.p.A. as
pledgor, and the security trustee,
as pledgee.

Under this agreement, the pledgor granted in
pledge to the security trustee: (1) all of its rights on
the bank current accounts held in Italy; (2) all the sums
from time to time credited on the current accounts, including
any future payments made by third parties or by order of the
pledgor on such accounts; and (3) its claims for
restitution of the balance from time to time existing on the
bank accounts;

Mortgage over real property located in
Marcianise (Caserta) dated May 19, 2003 between Marconi Sud
S.p.A., as grantor, and the security trustee, junior note
trustee and senior note trustee in their capacity as secured
creditors, as mortgagees;

Mortgage over real property located in
Genova dated May 19, 2003 between Marconi Communications
S.p.A., as grantor, and the security trustee, junior note
trustee and senior note trustee in their capacity as secured
creditors, as mortgagees;

Share Pledge Agreement relating to shares
in each of Marconi Communications S.A. de C.V., Marconi
Communications de México, S.A. de C.V., Marconi
Communications Exportel, S.A. de C.V. and Administrativa Marconi
Communications, S.A. de C.V. dated May 19, 2003 between
each of Marconi Communications Inc., Marconi Communications,
S.A. de C.V. and Marconi Networks Worldwide, Inc., as pledgors,
and the security trustee, as pledgee;

Deed of pledge of shares relating to the
entire share capital of Marconi Communications GmbH dated
May 14, 2003 between Marconi Communications B.V., as
pledgor, and the security trustee, as pledgee;

Stock Pledge Agreement relating to shares
in Marconi Communications Inc. dated May 19, 2003 between
FS Holdings Corp., as pledgor and the security trustee, as
pledgee;

Stock Pledge Agreement relating to shares
in Marconi Communications Technology, Inc. Marconi
Communications Federal, Inc., Marconi Acquisition Corp., Marconi
Communications C.A., Inc., Gnome Inc., Nemesys Holding
Company, ALANTEC International, Inc. (California), Custom
Telecom Contractors, Inc. (Missouri), Marconi Networks
Worldwide, Inc. and Marconi Intellectual Property (Ringfence)
Inc. dated May 19, 2003 between Marconi Communications,
Inc., as pledgor, and the security trustee,
as pledgee;

Stock Pledge Agreement relating to shares
in Marconi Online Systems Inc., dated May 19, 2003 between
Marconi Holdings, LLC, as pledgor, and the security trustee,
as pledgee;

Stock Pledge Agreement relating to shares
in Marconi HCIS Inc., Marconi Systems Inc., Marconi Capital
Inc., Marconi Electronic Systems Holdings Inc., Greensboro
Associates Inc., Refac Marketing Services, Inc. (Pennsylvania),
LMF Holdings Incorporated, Marconi Communications Radio Systems,
Inc., NI Holdings Incorporated, Marconi Communications
North America Inc. and Marconi Intellectual Property (U.S) Inc.
dated May 19, 2003 between Marconi Inc., as pledgor, and
the security trustee, as pledgee;

Stock Pledge Agreement relating to shares
in FS Holdings Corp. dated May 19, 2003 between FS Finance
Corp., as pledgor, and the security trustee,
as pledgee;

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Stock Pledge Agreement relating to shares
in Marconi Software International Inc., dated May 19, 2003
between Marconi Corporation, as pledgor, and the security
trustee, as pledgee;

Stock Pledge Agreement relating to shares
in Metapath Software International (U.S), Inc. dated
May 19, 2003 between Metapath Software International Inc.,
as pledgor, and the security trustee,
as pledgee.

Stock Pledge Agreement relating to shares
in Metapath Software International, Inc. dated May 19, 2003
between Marconi Software International, Inc., as pledgor, and
the security trustee, as pledgee.

Stock Pledge Agreement relating to shares
in FS Finance Corp. and to interests in Marconi Holdings, LLC
dated May 19, 2003 between Marconi Communications North
America Inc., as pledgor, and the security trustee,
as pledgee.

Stock Pledge Agreement relating to shares
in FS Holdings Corp. dated May 19, 2003 between Bruton
Street Overseas Investment Limited, as pledgor, and the security
trustee, as pledgee.

Stock Pledge Agreement relating to shares
in Marconi Inc. dated May 19, 2003 between Regents Place,
Inc., as pledgor, and the security trustee, as
pledgee.

Stock Pledge Agreement relating to the
interest in Regents Place, Inc. dated May 19, 2003 between
Marconi (DGP1) Limited and Marconi (DGP2) Limited, as pledgors,
and the security trustee, as pledgee.

Security Agreement dated May 19, 2003
between Marconi Intellectual Property (U.S), Inc. and the
security trustee, as secured party.

Security Agreement dated May 19, 2003
between Marconi Communications, Inc. and the security trustee,
as secured party.

Security Agreement dated May 19, 2003
between Marconi Networks Worldwide, Inc. and the security
trustee, as secured party.

Security Agreement dated May 19, 2003
between Marconi Communications Technology, Inc. and the security
trustee, as secured party.

Security Agreement dated May 19, 2003
between Marconi Communications Federal, Inc. and the security
trustee, as secured party.

Security Agreement dated May 19, 2003
between Marconi Acquisition Corp, Inc. and the security trustee,
as secured party.

Security Agreement dated May 19, 2003
between Regents Place, Inc. and the security trustee, as secured
party.

Security Agreement dated May 19, 2003
between FS Holdings Corp. and the security trustee, as secured
party.

Security Agreement dated May 19, 2003
between Marconi Inc. and the security trustee, as secured
party.

Security Agreement dated May 19, 2003
between Marconi Holdings, LLC and the security trustee, as
secured party.

Security Agreement dated May 19, 2003
between Marconi Communications North America Inc. and the
security trustee, as secured party.

Security Agreement dated May 19, 2003
between FS Finance Corp. and the security trustee, as secured
party.

Security Agreement dated May 19, 2003
between Marconi Software International, Inc. and the security
trustee, as secured party.

Security Agreement dated May 19, 2003
between Metapath Software International (U.S), Inc. and the
security trustee, as secured party.

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Security Agreement dated May 19, 2003
between Metapath Software International, Inc. and the security
trustee, as secured party.

Security Agreement dated May 19, 2003
between the Marconi Intellectual Property (Ringfence), Inc. and
the security trustee, as secured party.

Under these agreements, interests in and
assignments over all personal property and fixtures of every
kind and nature with respect to each granting party, subject to
certain limitations, were created;

Indemnity Leasehold Deed to secure debt
assignment of leases and rents, security agreement, financing
statement and fixture filing relating to property located at
104 Wiley Road, LaGrange, Georgia 30240, dated May 19,
2003 between Marconi Communications, Inc. and the security
trustee;

Leasehold Mortgage, Assignment of Leases
and Rents, Security Agreement, Financing Statement and Fixture
Filing relating to property located at 4350 Weaver Parkway,
Warrenville, Illinois 60555 between Marconi Communications, Inc.
and the security trustee;

Deed of Trust, Assignment of Leases,
Security Agreement, Financing Statement and Fixture Filing
relating to property located at 956 North Broadway
Extended, Greenville, Mississippi 38702 between Marconi
Communications, Inc. and the security trustee;

Assignment of Rents relating to the
property located at 956 North Broadway Extended,
Greenville, Mississippi 38702 between Marconi Communications,
Inc. and the security trustee;

Deed of Trust, Assignment of Leases and
Rents, Security Agreement, Financing Statement and Fixture
Filing relating to property located at 325 Welcome Center
Boulevard, Welcome, North Carolina 27374 between Marconi
Communications, Inc. and the security trustee;

Open-End Mortgage (leasehold), Assignment
of Leases and Rents and Security Agreement relating to property
located at Taylor Woods Industrial Park Phase 3, North
Ridgeville, Ohio between Marconi Communications, Inc. and the
security trustee;

Second Open-End Mortgage, Assignment of
Leases and Rents and Security Agreement relating to property
located at 1000 Marconi Drive, Warrendale, Pennsylvania
15086 between Marconi Communications, Inc. and the security
trustee;

Deed of Trust, Assignment of Leases and
Rents, Security Agreement, Financing Statement and Fixture
Filing relating to property located at Intersection of Freeport
Parkway and Sterling Road, Irving, Texas between Marconi
Communications, Inc. and the security trustee;

Assignment of Rents relating to property
located at Intersection of Freeport Parkway and Sterling Road,
Irving, Texas between Marconi Communications, Inc. and the
security trustee;

Escrow Agreement dated May 19, 2003
between, inter alia, Marconi Corporation and the security
trustee.

This Escrow Agreement governs the relationship
between Marconi Corporation, the security trustee and the escrow
bank, as defined therein, regarding the payment of proceeds into
and the release of proceeds from the mandatory redemption
account and the existing performance bond escrow account.



| |                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Master Services Agreement dated
    May 23, 2003 between CSC International Systems
    Management Inc, Marconi Corporation plc and Marconi
    Communications Limited.

Under this agreement CSC International Systems
Management Inc has agreed to provide and or procure the
provision of information technology services to Marconi
Corporation plc and various of its subsidiaries. The
services are expected to be provided for a period of
10 years and the estimated charges for that period are
approximately £450 million.

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| |                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------
| | Asset Transfer Agreement dated May 23,
    2003 between Marconi Corporation plc and
    CSC International Systems
    Management Inc.

Under this agreement Marconi Corporation plc
agreed to sell and/or procure the sale and CSC International
Systems Management Inc agreed to purchase and/or procure the
purchase of various information technology and networking
assets. The price payable for the assets was
£26.3 million and the sale in respect of the assets in
the U.K., Ireland, U.S. and Canada completed on June 1,
2003. Completion of the sale of the remaining assets is expected
to be June 27, 2003.

Working capital and performance bonding
facility

Performance Bonding Facility dated
March 27, 2003 relating to a £50 million
committed revolving facility between Marconi Bonding Limited
(MBL), as applicant, Marconi Corporation, HSBC Bank plc, as
agent and security trustee, the original issuing banks named
therein, the original banks named therein and the original
indemnifying subsidiaries named therein and the Security Over
Cash Agreement dated March 27, 2003 between MBL and HSBC
Bank plc.

The Performance Bonding Facility will be used for
the issuance of bonds, guarantees, letters of credit,
indemnities or similar instruments at the request of MBL for the
purpose of supporting, directly or indirectly, obligations of
members of our group to third parties for obligations incurred
in the ordinary course of our groups trade or business.
The purposes for which the Performance Bonding Facility is
available include supporting financing facilities which have
been provided to members of our group for the purpose of
supporting directly obligations of members of our group in the
ordinary course of our groups trade or business, other
than obligations in respect of financial indebtedness. For
example, this may be used in connection with supporting a
facility in a foreign currency where such foreign currency is
not available under the Performance Bonding Facility.

Under the security over cash agreement, MBL has
granted, in favor of HSBC Bank plc, as security trustee,
security over the accounts into which cash collateral deposits
will be made in respect of bonds issued under the Performance
Bonding Facility.

Working Capital Facility dated
March 26, 2003 relating to a U.S.$22.5 million
revolving credit facility between Marconi Communications, Inc.
(MCI), as borrower and Liberty Funding, L.L.C., or Liberty, as
lender.

Subject to customary exculpatory exceptions,
MCIs obligations under the Working Capital Facility are
limited recourse, and are secured by a first mortgage lien on
MCIs real property and improvements, including fixtures,
located in Warrendale, Pennsylvania, U.S.A.

In addition to the loan agreement, the following
documents have been executed in relation to the Working Capital
Facility:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | note dated March 26, 2003 between MCI, as
    maker, and Liberty, as payee, under which MCI promises to pay to
    the order of Liberty the principal sum of $22,500,000, or the
    amount advanced under the loan agreement, together with interest
    as set out in the loan agreement;                                                                                                                                                                                                                                                                                                                                       
|
| |  | mortgage dated March 26, 2003 between MCI as
    mortgagor and Liberty as mortgagee, which is an open-end
    mortgage on property in Warrendale, Pennsylvania, securing
    future advances up to a maximum principal amount of $22,500,000
    plus other costs and expenses;                                                                                                                                                                                                                                                                                                                                                   
|
| |  | assignment of leases and rent dated
    March 26, 2003 between MCI as assignor and Liberty as
    assignee, which serves as additional security for the Working
    Capital Facility and the performance of all of MCIs
    obligations under the loan agreement, note, mortgage and all
    other documents evidencing or securing the Working Capital
    Facility. MCI agreed to assign to Liberty all of its rights
    under all leases affecting the property, including all
    extensions, renewals and modifications and subleases, together
    with all guarantees of any tenants or subtenants
    performance; and

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| |   |                                                                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | environmental indemnity dated March 26, 2003
    between MCI and Liberty, under which MCI agrees to provide
    Liberty with assurances, agreements and indemnities regarding
    environmental matters, as a material inducement for Liberty to
    make the loan.

Performance bond letters executed by
Marconi Corporation

In order to be satisfied that, on a portfolio
view, the £55 million deposit which was permitted to
be made into the existing performance bond escrow account by
Marconi Corporation would be an adequate reserve in respect of
existing performance bonds, Marconi Corporation entered into
arrangements with the syndicate bank issuers of existing
performance bonds. These arrangements were evidenced by letters
from Marconi Corporation to the banks named below which were
counter signed by those banks:



| |   |                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------
| |  | letter dated March 14, 2003 from Marconi
    Corporation to Australia and New Zealand Banking Group Limited;                         
|
| |  | letter dated February 26, 2003 from Marconi
    Corporation to BNP Paribas;                                                          
|
| |  | letter dated February 28, 2003 from Marconi
    Corporation to The Hongkong and Shanghai Banking Corporation
    Limited (U.K.);     
|
| |  | letter dated February 19, 2003 from Marconi
    Corporation to The Hongkong and Shanghai Banking Corporation
    Limited (Hong Kong);
|
| |  | letter dated February 14, 2003 from Marconi
    Corporation to Banca Monte dei Paschi di Siena SpA;                                  
|
| |  | letter dated February 18, 2003 from Marconi
    Corporation to National Westminster Bank plc; and                                    
|
| |  | letter dated March 18, 2003 from Marconi
    Corporation to Unicredit Banca dImpresa                                                

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EXCHANGE CONTROLS

There are currently no decrees or regulations
under the laws of the United Kingdom restricting the import or
export of capital or affecting the remittance of dividends or
other payments to holders of Marconi Corporation ordinary shares
or American depositary shares who are non-residents of the
United Kingdom.

There are no limitations relating only to
non-residents of the United Kingdom under U.K. law or the
Companys Memorandum and Articles of Association or on the
right to be a holder of, and to vote, Marconi Corporation
ordinary shares.

Marconi Corporation and its subsidiaries are not
permitted under the laws of the United Kingdom to hold ordinary
shares in the capital of Marconi Corporation.

We are subject to legal restrictions on the
amount of dividends we can pay our shareholders. In particular,
the U.K. Companies Act 1985 provides that a U.K. public
company may pay dividends only if:



| |   |                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the amount of its net assets is not less than the
    aggregate of its called-up share capital and undistributable
    reserves; and                                  
|
| |  | the payment does not reduce the amount of net
    assets to an amount that is less than the aggregate of its
    called-up share capital and undistributable reserves.

In addition, we may only declare a dividend if we
have sufficient distributable profits available for this
purpose. Distributable profits are accumulated realized profits
not previously distributed or capitalized less accumulated
realized losses not previously written off.

However, in connection with the capital reduction
that we affected in connection with our financial restructuring,
we were required to create a special reserve out of the excess
reserve over the deficit on our profit and loss account as at
the date of the capital reduction that we may not distribute to
our shareholders until certain of our creditors have been paid
off.

Regardless of the foregoing legal restrictions,
the indentures governing our outstanding Notes contain
significant restrictions on our ability to pay dividends on our
shares. Accordingly, we do not expect to pay a dividend in the
foreseeable future.

Holders of ADRs on the relevant record date will
be entitled to receive any dividends payable on the ordinary
shares underlying the ADRs, subject to the terms of the deposit
agreement under which the ADRs are issued. Subject to exceptions
provided in the deposit agreement, cash dividends paid in pounds
will be converted by the depositary to U.S. dollars and
paid by the depositary to holders of ADRs, net of conversion
expenses of the depositary, and in accordance with the deposit
agreement. The rights of holders of ADRs to any dividends or
other distributions on the ordinary shares underlying the ADRs
will be governed by the deposit agreement and may be different
from the rights of holders of ordinary shares.

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TAXATION

United States Federal Income
Taxation

The following summary describes material U.S.
federal income tax consequences that may be relevant to the
acquisition, ownership and disposition of our warrants, ordinary
shares and/or ADRs. This summary addresses only U.S. federal
income tax considerations for holders that acquire our warrants,
ordinary shares and/or ADRs as a result of the transactions
described in this document and that will hold our warrants,
ordinary shares and/or ADRs as capital assets. This summary does
not purport to be a comprehensive description of all the tax
considerations that may be relevant to a decision to acquire our
warrants, ordinary shares and/or ADRs. In particular, this
summary does not address tax considerations applicable to
holders that may be subject to special tax rules including,
without limitation, the following: (a) financial
institutions; (b) insurance companies; (c) dealers or
traders in securities or currencies; (d) tax-exempt
entities; (e) persons that will hold our warrants, ordinary
shares and/or ADRs as part of a hedging or
conversion transaction or as a position in a
straddle or as part of a synthetic
security or other integrated transaction for U.S. federal
income tax purposes; (f) persons that have a
functional currency other than the U.S. dollar;
(g) persons that own (or are deemed to own) 5% or more (by
voting power) of our share capital; (h) regulated
investment companies; and (i) persons who hold our
warrants, ordinary shares and/or ADRs through partnerships or
other pass-through entities. Further, this summary does not
address alternative minimum tax consequences or the indirect
effects on the holders of equity interests in a holder of our
warrants, ordinary shares and/or ADRs.

This summary is based on the Internal Revenue
Code of 1986, as amended (the Code), U.S. Treasury regulations
and judicial and administrative interpretations thereof, and the
Convention Between the Government of the United States of
America and the Government of the United Kingdom of Great
Britain and Northern Ireland for the Avoidance of Double
Taxation and the Prevention of Fiscal Evasion with Respect to
Taxes on Income and Capital Gains signed on July 24, 2001,
with an amending protocol signed July 19, 2002, or the new
treaty, replacing a treaty between the United States of America
and the United Kingdom signed on December 31, 1975, or the
old treaty, in each case as in effect and available on the date
of this document. All of the foregoing are subject to change,
which change could apply retroactively and could affect the tax
consequences described below.

Prospective holders should consult their own
tax advisor with respect to the U.S. federal, estate, state,
local, gift and other tax consequences of acquiring, owning and
disposing of our warrants, ordinary shares and/or
ADRs.

US Holders should also review the discussion
below under United Kingdom Taxation for the
U.K. tax consequences to a U.S. holder of our
warrants, ordinary shares and/or ADRs.

For purposes of this summary a
US holder is a beneficial owner of our
warrants, ordinary shares and/or ADRs that is, for
U.S. federal income tax purposes: (a) a citizen or
resident of the United States; (b) a corporation or other
entity treated as a corporation for U.S. tax purposes,
created or organized in or under the laws of the United States
or any state thereof, including the District of Columbia;
(c) an estate, the income of which is subject to U.S.
federal income taxation regardless of its source; or (d) a
trust if (i) a court within the United States is able to
exercise primary supervision over its administration and
(ii) one or more U.S. persons have the authority to
control all of the substantial decisions of such trust. If a
partnership holds our warrants, ordinary shares or ADRs, the
consequences to a partner will generally depend upon the status
of the partner and upon the activities of the partnership. A
partner of a partnership holding our warrants, ordinary shares
or ADRs should consult its tax advisor. A
Non-US holder is a beneficial owner of our
warrants, ordinary shares or ADRs that is not a U.S. holder.

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The Warrants

Consequences of exercise

Upon the exercise of a warrant, a
U.S. holder will not recognize gain or loss, except to the
extent of cash, if any, received in lieu of the issuance of
fractional ordinary shares, and will have a tax basis in our
ordinary shares acquired pursuant to such exercise equal to that
U.S. holders tax basis in our warrant plus the
exercise price of our warrant. The holding period for our
ordinary shares so acquired will commence on the date of
exercise of our warrant. Subject to the discussion 
Passive Foreign Investment Company considerations, if any
cash is received in lieu of fractional ordinary shares, the
U.S. holder will recognize gain or loss in an amount and of
the same character that this U.S. holder would have
recognized if she had received such fractional shares and then
immediately sold them for cash back to us.

Sale, exchange and expiration of
warrants

Subject to the discussion  Passive
Foreign Investment Company considerations, the sale of a
warrant will result in the recognition of capital gain or loss
to the U.S. holder in a manner similar to that described
below under  Sale or other disposition of Marconi
Corporation Shares. It is unclear whether the repurchase
of a warrant by us would be treated as a sale or exchange. If it
were not so treated, any gain or loss to a U.S. holder on
such repurchase would likely be treated as ordinary income or
loss.

If a warrant expires unexercised, a
U.S. holder will generally recognize a capital loss equal
to the U.S. holders tax basis in the warrant. That
capital loss may, subject to certain limitations, be used to
offset capital gains, if any, otherwise realized by a
U.S. holder.

Constructive distributions

Under section 305 of the Code, adjustments
to the exercise price or conversion ratio of the warrants which
occur under certain circumstances, or the failure to make such
adjustments, may result in the receipt of taxable constructive
dividends by a U.S. holder. See  The Marconi
Corporation Shares and/or ADRs below.

The Marconi Corporation Shares and/or
ADRs

The U.S. Treasury Department has expressed
concern that depositaries for depositary receipts, or other
intermediaries between the holders of shares of an issuer and
the issuer, may be taking actions that are inconsistent with the
claiming of U.S. foreign tax credits by U.S. holders
of such receipts or shares. Accordingly, the analysis regarding
the availability of a U.S. foreign tax credit for U.K.
taxes and sourcing rules described below could be affected by
future actions taken by the U.S. Treasury Department.

Distributions

Subject to the discussion  Passive
Foreign Investment Company considerations, the gross
amount of any distributions of cash or property, including any
amounts withheld in respect of any applicable withholding tax
and the tax credit amount, as described below, that are actually
or constructively received by a U.S. holder with respect to
our ordinary shares and/or ADRs will be a dividend includible in
gross income of a U.S. holder as ordinary income to the
extent of our current and accumulated earnings and profits as
determined under U.S. federal income tax principles.
Dividends paid on our ordinary shares and/or ADRs generally will
constitute income from sources outside the United States and
will not be eligible for the dividends received
deduction.

A distribution to a U.S. holder in excess of
our current and accumulated earnings and profits will be treated
first as a non-taxable return of capital to the extent of that
U.S. holders adjusted tax basis in our ordinary
shares or ADRs, as the case may be, and any distribution in
excess of such basis will constitute capital gain from the sale
or exchange of property, and will be long-term capital gain
(taxable at a reduced rate for individual holders, trusts or
estates) if our ordinary shares or ADRs, as applicable, were
held for more than one year.

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We do not maintain our calculations of our
earnings and profits under U.S. federal income tax principles.
Therefore, a U.S. holder should expect that a distribution
will generally be treated as a dividend even if that
distribution would otherwise be treated as a non-taxable return
of capital or as capital gain under the rules described above.
The amount of any distribution of property other than cash will
be the fair market value of the property on the date of the
distribution.

Under recently enacted U.S. legislation, the
new U.S. tax legislation, certain dividends received by
individual U.S. Holders after December 31, 2002, will
be subject to a maximum income tax rate of 15%. This reduced
income tax rate is only applicable to dividends paid by
qualified corporations and only with respect to
shares held by a qualified U.S. holder (i.e., an
individual) for a minimum holding period (generally,
61 days during the 120-day period beginning 60 days
before the ex-dividend date). We should be considered a
qualified corporation under the new U.S. tax legislation.
Accordingly, dividends paid by us to individual
U.S. holders on shares held for the minimum holding period
may be eligible for a reduced income tax rate. Under the new
U.S. tax legislation, the reduced tax rate for qualified
dividends is scheduled to expire on December 31, 2008,
unless further extended by Congress. Each prospective holder
should consult its own tax advisor regarding the implications of
the new U.S. tax legislation.

The gross amount of any distribution paid in
foreign currency will be included in the gross income of a
U.S. holder in an amount equal to the U.S. dollar
value of the foreign currency calculated by reference to the
exchange rate in effect on the date received by the
U.S. holder, regardless of whether the foreign currency is
converted into U.S. dollars. If the foreign currency is
converted into U.S. dollars on the date of receipt, a
U.S. holder generally should not be required to recognize
foreign currency gain or loss in respect of the dividend. If the
foreign currency received as a dividend is not converted into
U.S. dollars on the date of receipt, a U.S. holder will
have a basis in the foreign currency equal to its
U.S. dollar value on the date of receipt. Any gain or loss
on a subsequent conversion or other disposition of the foreign
currency will be treated as ordinary income or loss, and will
generally be income or loss from sources within the United
States for foreign tax credit limitation purposes.

A U.S. holder that elects application of the
old treaty, that is a United States resident for the purposes of
the old treaty and that receives a dividend on our ordinary
shares and/or ADRs generally is entitled to receive a payment
from the U.K. Inland Revenue equal to the amount of the tax
credit that a U.K. individual would be eligible to receive with
respect to an identical dividend, the Tax Credit Amount, subject
to a reduction for U.K. withholding taxes of up to a maximum of
15% of the sum of the dividend and tax credit amount, or the
U.K. withholding tax. As of April 6, 1999, the Tax Credit
Amount is equal to one-ninth of the cash dividend paid on our
ordinary shares and/or ADRs and the U.K. Withholding Tax
will exactly equal the Tax Credit Amount. As a result, and
because of the U.K. Withholding Tax, U.S. holders will
not receive any net payment under the old treaty.

If the old treaty applies, a U.S. holder
that receives a dividend on our ordinary shares and/or ADRs may
elect to include the Tax Credit Amount as an additional
distribution by filing an election on IRS Form 8833 with
the U.S. holders U.S. federal income tax return
for the relevant year. If a U.S. Holder makes the election,
the U.S. holder will be subject to U.S. taxation on
the sum of the dividend and the Tax Credit Amount. A
U.S. holder will also, in such a case, be treated as paying
U.K. Withholding Tax equal to the Tax Credit Amount that,
subject to generally applicable limitations, is eligible for
credit against such U.S. Holders U.S. federal
income tax liability or, at the U.S. holders
election, may be deducted in computing taxable income. Foreign
tax credits will not be allowed for withholding taxes imposed in
respect of certain short-term or hedged positions in securities
or in respect of arrangements in which a U.S. holders
expected economic profit, after non-U.S. taxes, is
insubstantial.

The new treaty does not provide for payment of
the Tax Credit Amount. Therefore, if a U.S. holder that
receives a dividend on our ordinary shares and/or ADRs does not
elect to apply the old treaty, the U.S. holder would need
to calculate the foreign tax credit it may be entitled to
receive with respect to any foreign withholding taxes paid on
such dividend under the Code and the accompany Treasury
regulations. See  United Kingdom
Taxation  Taxation of Dividends below for
treatment of withholding taxes with respect to dividends on our
ordinary shares and/or ADRs. Subject to certain conditions and

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limitations, foreign country income tax withheld
on dividends may be deducted from taxable income or credited
against a U.S. holders U.S. federal income tax
liability. Foreign tax credits will not be allowed for
withholding taxes imposed in respect of certain short-term or
hedged positions in securities or in respect of arrangements in
which a U.S. holders expected economic profit, after
non-U.S. taxes, is insubstantial.


For purposes of calculating the foreign tax
credit, dividends paid on our ordinary shares and/or ADRs will
be treated as income from sources outside the United States and
will generally constitute passive income or, in the
case of certain U.S. holders, financial services
income. In certain circumstances, a US holder that
(i) has held ordinary shares or ADRs for less than a
specified minimum period during which it is not protected from
risk of loss or (ii) is obligated to make payments related
to the dividends, will not be allowed a foreign tax credit for
U.K. withholding taxes imposed on dividends paid on our ordinary
shares or ADRs, as the case may be. Under the new U.S. tax
legislation, the amount of the qualified dividend income paid by
us to a U.S. holder that is subject to the reduced dividend
income tax rate and that is taken into account for the purposes
of calculating the U.S. holders U.S. foreign tax credit
limitation must be reduced by the rate differential
portion of such dividend (which, assuming a U.S. holder in
the highest income tax bracket, would generally require a
reduction of the dividend amount by approximately 57.14%).
Each prospective holder should consult its own tax advisor
regarding the implication of the new U.S. tax legislation on the
calculation of U.S. foreign tax credits.

Subject to the discussion under 
Backup withholding and information reporting, a
Non-U.S. holder generally will not be subject to
U.S. federal income or withholding tax on dividends
received on our ordinary shares and/or ADRs unless that income
is effectively connected with the conduct by that
Non-U.S. holder of a trade or business within the United
States.

However, as discussed in Item 3: Key
Information  Risk Factors discussion above, we
do not expect to pay a dividend in the foreseeable future.

Sale or other disposition of Marconi
Corporation Shares and/or ADRs

Subject to the discussion
Taxation  Passive Foreign Investment Company
considerations, a U.S. holder will generally
recognize a gain or loss for U.S. federal income tax
purposes upon the sale or exchange of our ordinary shares and/or
ADRs in an amount equal to the difference between the
U.S. dollar value of the amount realized from such sale or
exchange and the U.S. holders tax basis in those
ordinary shares or ADRs, as the case may be. That gain or loss
will be a capital gain or loss and will be long-term capital
gain (taxable at a reduced rate for individuals, trusts or
estates) if our ordinary shares or ADRs, as appropriate, were
held for more than one year. Any such gain or loss would
generally be treated as from sources within the United States.
The deductibility of capital losses is subject to significant
limitations.

To the extent U.S. holders receive our
ordinary shares and/or ADRs pursuant to our restructuring, any
gain arising from the sale or other disposition of our ordinary
shares and/or ADRs may be characterized as ordinary income to
the extent of any accrued market discount attributable to those
ordinary shares and/or ADRs. Prospective holders should
consult their own tax advisors regarding the applicability of
the market discount rules under the Code to each of their own
individual circumstances and the U.S. federal income tax
consequences relating to the sale or other disposition of our
ordinary shares and/or ADRs with accrued market discount.

A U.S. holder that receives foreign currency
on the sale or other disposition of our ordinary shares and/or
ADRs will realize an amount equal to the U.S. dollar value
of the foreign currency on the date of sale (or in the case of
cash basis and electing accrual basis taxpayers, the
U.S. dollar value of the foreign currency on settlement
date). If a U.S. holder receives foreign currency upon a
sale or exchange of our ordinary shares and/or ADRs, gain or
loss, if any, recognized on the subsequent sale, conversion or
disposition of that foreign currency will be ordinary income or
loss, and will generally be income or loss from sources within
the United States for foreign tax credit limitation purposes.
However, if such foreign

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currency is converted into U.S. dollars on
the date received by the U.S. holder, a cash basis or
electing accrual U.S. holder should not recognize any gain
or loss on such conversion.


When a U.S. holders basis in the common
shares includes any amount recognized under the passive foreign
investment company rules (described below) and the U.S. holder
recognizes a loss on the transaction with respect to such
amounts that exceeds certain specified thresholds, the U.S.
holder may be required to specifically disclose certain
information with respect to the transaction on its tax return
under recently issued tax disclosure regulations. U.S. holders
should consult their own tax advisors as to the applicability of
these disclosure regulations.

Subject to the discussion under
Taxation  Backup withholding and information
reporting, a Non-US holder generally will not be
subject to U.S. federal income or withholding tax on any gain
realized on the sale or exchange of our ordinary shares and/or
ADRs unless: (a) that gain is effectively connected with
the conduct by that Non-U.S. holder of a trade or business
in the United States, (b) in the case of any gain realized
by an individual Non-U.S. holder, that holder is present in the
United States for 183 days or more in the taxable year of
the sale or exchange and certain other conditions are met, or
(c) the Non-US holder is subject to tax pursuant to
provisions of the Code applicable to certain expatriates.

Redemption of Marconi Corporation Shares
and/or ADRs

Subject to the discussion  Passive
Foreign Investment Company considerations, our redemption
of our ordinary shares and/or ADRs will be treated as a sale of
our redeemed ordinary shares or ADRs, as the case may be, by the
U.S. holder (which is taxable as described under
Taxation  Sale or other disposition of Marconi
Corporation Shares and/or ADRs) or in certain
circumstances, as a distribution to the U.S. holder (which
is taxable as described under Taxation 
Distributions).

Passive Foreign Investment Company
considerations

A corporation organized outside the United States
generally will be classified as passive foreign investment
company, or a PFIC, for U.S. federal income tax purposes in
any taxable year in which either: (a) at least 75% of its
gross income is passive income, or (b) on
average at least 50% of the gross value of its assets is
attributable to assets that produce passive income
or are held for the production of passive income. Passive income
for this purpose generally includes dividends, interest,
royalties, rents and gains from commodities and securities
transactions. In determining whether it is a PFIC a foreign
corporation is required to take into account a pro rata portion
of the income and assets of each corporation in which it owns,
directly or indirectly, at least a 25% interest.

We believe that we are not, and do not expect to
become, a PFIC, for U.S. federal income tax purposes. However,
because this is a factual determination made annually at the end
of the taxable year, there can be no assurance that we will not
be considered a PFIC for any future taxable year. If we were a
PFIC in any year, special, possibly materially adverse,
consequences would, as discussed below, result for
U.S. holders.

If we are a PFIC in any year during which a
U.S. holder owns our ordinary shares and/or ADRs the
U.S. holder will be subject to additional taxes on any
excess distributions received from us and any gain realized from
the sale or other disposition of our ordinary shares and/or ADRs
(whether or not we continue to be a PFIC). A U.S. holder
has an excess distribution to the extent that distributions on
our ordinary shares and/or ADRs during a taxable year exceed
125% of the average amount received during the three preceding
taxable years (or, if shorter, the U.S. holders
holding period). To compute the tax on the excess distributions
or any gain, (a) the excess distribution or the gain is
allocated ratably over the U.S. holders holding
period, (b) the amount allocated to the current taxable
year and any year before we became a PFIC is taxed as ordinary
income in the current year, and (c) the amount allocated to
other taxable years is taxed at the highest applicable marginal
rate in effect for each year and an interest charge is imposed
to recover the deemed benefit from the deferred payment of the
tax attributable to each year.

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Some of the rules with respect to distributions
and dispositions described above may be avoided if a
U.S. holder makes a valid mark-to-market
election (in which case, subject to certain limitations, the
U.S. holder would essentially be required to take into
account the difference, if any, between the fair market value
and the adjusted tax basis of our ordinary shares or ADRs, as
the case may be, at the end of a taxable year as ordinary income
(or, subject to certain limitations, ordinary loss), in
calculating its income for such year). In addition, gains from
an actual sale or other disposition of our ordinary shares or
ADRs will be treated as ordinary income, and any losses will be
treated as ordinary losses to the extent of any
mark-to-market gains for prior years. A
mark-to-market election is only available to
U.S. holders in any tax year that the PFIC stock is
considered regularly traded on a qualified
exchange within the meaning of applicable
U.S. Treasury regulations. PFIC stock is regularly
traded if, among other requirements, it is traded on at
least 15 days during each calendar quarter. The London
Stock Exchange will constitute a qualified exchange for this
purpose. Prospective holders should consult their own tax
advisers as to whether our ordinary shares and/or ADRs would
qualify for the mark-to-market election and whether such
election is advisable.

The foregoing rules with respect to distributions
and dispositions may be avoided if a U.S. holder is
eligible for and timely makes a valid QEF election
(in which case the U.S. holder would be required to include
in income on a current basis its pro rata share of our ordinary
income and net capital gains). In order to be able to make the
QEF election, we would be required to provide a U.S. holder
with certain information. We may decide not to provide the
required information

Each U.S. holder of our ordinary shares
and/or ADRs must make an annual return on IRS Form 8621,
reporting distributions received and gains realized with respect
to each PFIC in which it holds a direct or indirect interest.

Prospective holders are urged to consult their
own tax advisors regarding whether an investment in our ordinary
shares or ADRs will be treated as an investment in PFIC stock
and the consequences of an investment in a PFIC.

Backup withholding and information
reporting

Backup withholding and information reporting
requirements may apply to certain payments to U.S. holders
of dividends on our ordinary shares and/or ADRs and to the
proceeds of a sale or redemption of our warrants, ordinary
shares or ADRs. We, our agent, a broker, or any paying agent, as
the case may be, may be required to withhold tax from any
payment that is subject to backup withholding at a maximum rate
of 28% of such payment if the U.S. holder fails (a) to
furnish the U.S. holders taxpayer identification
number, (b) to certify that the U.S. holder is not
subject to backup withholding or (c) to otherwise comply
with the applicable requirements of the backup withholding
rules. The backup withholding rate may be subject to change each
year. Certain U.S. holders, including, among others,
corporations, are not subject to the backup withholding and
information reporting requirements. Non-US holders who hold our
warrants, ordinary shares or ADRs through a U.S. broker or agent
or through the U.S. office of a non-US broker or agent may
be required to comply with applicable certification procedures
to establish that they are not U.S. holders in order to
avoid the application of such information reporting requirements
and backup withholding. Backup withholding is not an additional
tax. Any amounts withheld under the backup withholding rules
from a payment to a holder generally may be claimed as a credit
against such holders U.S. federal income tax
liability provided that the required information is furnished
timely to the IRS.

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Prospective holders should consult their
own tax advisers as to their qualification for exemption from
backup withholding and the procedure for obtaining this
exemption.

United Kingdom Taxation

The following generally applies to
U.S. shareholders.

The following summary describes certain U.K. tax
consequences for certain holders of our ordinary shares,
warrants and/or ADRs. It applies only to persons who are
US shareholders as that term is defined below.
It is intended to apply only to U.S. shareholders who are
the beneficial owners of our ordinary shares, warrants and/or
ADRs, and who hold them as investments. It may not apply to
certain classes of holders, such as dealers in securities.

This summary is based on current U.K. law and
U.K. Inland Revenue practice at the date hereof. However,
references to a permanent establishment are included
on the assumption that the Finance Bill 2003 will be enacted in
its current form.

This summary is not intended to be comprehensive,
and prospective holders of our ordinary shares, ADRs and
warrants are recommended to consult their professional advisers
to determine their tax position.

US Shareholders

For the purposes of this summary, you will be a
US shareholder if you are:



| |   |                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the beneficial owner of the shares, ADRs or
    warrants and of any dividends paid with respect to the shares or
    ADRs;                                                                                                             
|
| |  | an individual resident of the U.S., a
    U.S. corporation, or a partnership, estate or trust to the
    extent your income is subject to taxation in the U.S. in
    your hands or in the hands of your partners or beneficiaries; and
|
| |  | not also a resident of the U.K. for U.K. tax
    purposes or carrying on a business in the U.K. through a
    permanent establishment.                                                                                                 

UK/US double tax treaty

On July 24, 2001, the governments of the
U.S. and the U.K. agreed the terms of a new double tax treaty
(the new treaty), which was amended by a protocol
agreed on July 19, 2002 and which came into force on
March 31, 2003. The new treaty replaces the previous double
tax treaty agreed between the U.S. and the U.K. (the old
treaty). In general, U.S. shareholders will be entitled to
the benefits of the new treaty, subject to various limitations.
However, the provisions of the old treaty may still be relevant
for some U.S. shareholders. If you are in any doubt as to
whether you are entitled to benefits under either the new treaty
or the old treaty, you should consult your own tax advisers.

Taxation of dividends

Under current U.K. taxation legislation, no tax
is required to be withheld at source from cash dividends paid on
our ordinary shares and/or ADRs.

A U.S. shareholder that elects application of the
old treaty, that is a U.S. resident for the purposes of the old
treaty and that receives a dividend on our ordinary shares
and/or ADRs is, in principle, entitled to receive a payment from
the U.K. Inland Revenue equal to the amount of the tax
credit which is usually available to U.K. residents, less a
withholding tax levied on that payment. The tax credit is one
ninth of the amount of the dividend, that is, 10% of the
aggregate of the dividend and the tax credit. However, in
practice, U.S. shareholders will not receive any payment
from the U.K. Inland Revenue in respect of the tax credit
because the old treaty provides for a U.K. withholding tax
greater than the amount of the U.K. tax credit. The withholding
tax, however, is treated as fully satisfied by the amount
withheld from the tax credit.

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Under the new treaty, U.S. shareholders will
not be entitled to receive any payment from the U.K. Inland
Revenue in respect of any tax credit on dividends paid on our
ordinary shares and/or ADRs.

Taxation of capital gains

A U.S. shareholder who is not resident, and in
the case of an individual also not ordinarily resident, in the
U.K. for U.K. tax purposes will not be liable for U.K. taxation
on capital gains realized on the disposal of his or her shares,
warrants or ADRs unless at the time of the disposal:



| |   |                                                                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the U.S. shareholder carries on a trade,
    profession or vocation in the U.K. through a branch, agency or,
    for companies with accounting periods beginning on or after
    January 1, 2003, permanent establishment; and                                    
|
| |  | the shares, warrants or ADRs are or have been
    used, held or acquired for the purposes of the trade,
    profession, vocation, branch, agency or, for companies with
    accounting periods beginning on or after January 1, 2003,
    permanent establishment.

A U.S. shareholder who is an individual and who
has ceased to be resident or ordinarily resident for tax
purposes in the U.K. on or after March 17, 1998 and
continues not to be resident or ordinarily resident in the U.K.
for a period of less than five years of assessment and who
disposes of his shares, warrants or ADRs during that period will
also be liable on his return to the U.K. to U.K. tax on capital
gains, subject to any available exemption or relief, even though
he or she is not resident or ordinarily resident in the U.K. at
the time of the disposal. There are special rules for
individuals who leave the U.K. part way through a year of
assessment.

UK stamp duty and stamp duty reserve tax
(SDRT)

UK stamp duty or SDRT is payable upon the
transfer or issue of shares to, or to a nominee or agent of, a
person whose business is or includes issuing depositary receipts
or providing clearance services. For this purpose, the current
rate of stamp duty and SDRT is 1.5%, rounded up, in the case of
stamp duty, to the nearest £5. The rate is applied, in each
case, to the amount or value of the consideration or, in some
circumstances, to the value of the shares.

Provided that the instrument of transfer is not
executed in the U.K. and remains at all subsequent times outside
the U.K., no U.K. stamp duty will be payable on the transfer of
ADRs. An agreement to transfer ADRs will not give rise to a
liability to SDRT.

The purchase of shares, as opposed to ADRs, may
give rise to a charge to U.K. stamp duty or SDRT at the rate of
0.5%, rounded up, in the case of stamp duty, to the nearest
£5. The rate is applied to the price payable for the shares
at the time of the transfer or agreement to transfer. SDRT is
generally the liability of the purchaser who usually pays U.K.
stamp duty.

The U.K. Inland Revenue has confirmed that no
charge to stamp duty or SDRT will arise in relation to the issue
of our warrants.

Warrants held in uncertificated form will be held
through CREST (the U.K. electronic settlement service). Under
the CREST system for paperless transfers, deposits of warrants
into CREST will generally not be subject to stamp duty or SDRT
unless such a transfer is made for a consideration in money or
moneys worth, in which case a liability to SDRT will
arise, usually at the rate of 0.5% of the value of the
consideration given. Paperless transfers of warrants within
CREST are generally liable to SDRT, rather than stamp duty, at
the rate of 0.5% of the amount or value of the consideration
payable. CREST is obliged to collect SDRT from the purchaser of
the warrants on relevant transactions settled within the system.

The conveyance or transfer of warrants outside
CREST may give rise to a charge to U.K. stamp duty or SDRT at
the rate of 0.5% of the amount or value of the consideration
given.

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DOCUMENTS ON DISPLAY

We are subject to the informational requirements
of the Securities Exchange Act of 1934 and file reports and
other information with the Securities and Exchange Commission.
You may read and copy all or any portion of the reports and
their exhibits at the public reference facilities maintained by
the Securities and Exchange Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and at its regional offices at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of such material may also be obtained at prescribed rates
by writing to the Public Reference Section of the Securities and
Exchange Commission at 450 Fifth Street, N.W.,
Washington, D.C., 20549. You may obtain more information on
the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The Securities and Exchange Commission also
maintains a web site that contains reports and information about
issuers, like us, who file electronically with the SEC. The
address of that web site is www.sec.gov.




SUBSIDIARY INFORMATION

The following table provides information on the
principal subsidiary undertakings and other associated
companies, that we consider will likely have a significant
impact on the assessment of our assets and liabilities, the
financial position and/or the profits and losses to
March 31, 2003. Except where stated otherwise, each of
these companies is wholly owned by a member of our group and the
share capital is fully paid.

|                                                                        |  |                                                                                                                             
|----------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------
|Name                                                                    |  | Registered Office                                                                                                           
|                                                                       
|                                                                       
|Network Equipment and Services                                          |  |                                                                                                                             
|Marconi Communications Limited                                          |  | New Century Park, PO Box 53, Coventry CV3
    1HJ, England                                                                  
|Marconi Communications S.p.A.                                           |  | Via Ludovico Calda 5, 16153 Genoa, Italy                                                                                    
|Marconi Communications, Inc.                                            |  | c/o The Corporation Trust Company, Corporation
    Trust Center, 1209 Orange Street, Wilmington, Delaware, 19801,
    U.S.A.
|Marconi Communications GmbH                                             |  | Gerberstrasse 33, D 71522 Backnang,
    Germany                                                                             
|Capital                                                                 |  |                                                                                                                             
|Marconi Mobile S.p.A.(1)                                                |  | Via A. Negrone 1/A, 16153 Genoa, Italy                                                                                      
|Other Associated Companies                                              |  |                                                                                                                             
|Easynet Group plc (72.7% group equity share;
    49.9% voting share)(2) |  | 44-46 Whitfield Street, London W1T 2RJ, England                                                                             



---



|    |                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Marconi Mobile S.p.A. was sold as part of
    the disposal of its parent, Marconi Mobile Holdings S.p.A., to
    Finmeccanica S.p.A. on August 2, 2002.
|   
|(2) | See note 13 to our consolidated financial
    statements.                                                                                              

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Item 11: Quantitative and
Qualitative Disclosures about Market Risk

Please see Item 5: Operating and
Financial Review and Prospects  Risk Management.




Item 12: Description of
Securities other than Equity Securities

This item is not applicable.

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PART II






Item 13: Defaults, Dividend
Arrearages and Delinquencies


In connection with the Companys financial
restructuring, we did not repay amounts that came due under our
banking facility on March 25, 2003. On March 23, 2003,
we also failed to make interest payments due on our 7 3/4%
Bonds due 2010 and our 8 3/8% Bonds due 2030, and on
March 31, 2003, we failed to make interest payments due on
our 5.625% Bonds due 2005 and our 6.375% Bonds due 2030. These
defaults were not cured but the debts, including accrued but
unpaid interest, were retired pursuant to our scheme of
arrangement, which became effective on May 19, 2003.
Accordingly, no amounts remained in arrears.




Item 14: Material Modifications
to the Rights of Security Holders and Use of
Proceeds

Pursuant to our scheme of arrangement, our
creditors, including the holder of our 7 3/4% Bonds due
2010 and our 8 3/8% Bonds due 2030, received a mixture
of cash, new senior guaranteed notes, new junior guaranteed
notes and new ordinary shares in the Company. Please see
Item 4: Information on the Company 
History and Developments of the Company 
History  Restructuring for additional
information with respect to our financial restructuring. Further
detail with respect to our scheme of arrangement can be found in
the scheme document that we furnished under cover of
Form 6-K on March 31, 2003, which is incorporated
herein by reference.




Item 15: Disclosure Controls and
Procedures

Within the 90 days prior to the filing date
of this annual report, we performed an evaluation, under the
supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness and design and operation of our
disclosure controls and procedures. Based upon that evaluation,
which will be used as input for further improvement actions, the
Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures were effective (as
defined in Rule 13a-14(c) under the Securities Exchange Act
of 1934). Since the date of the evaluation, there have been no
significant changes in our internal controls or in other factors
that could significantly affect the controls. Therefore, no
corrective actions were taken.




Item 16A: Reserved




Item 16B: Reserved




Item 16C: Principal Accountant
Fees and Services

The following table provides information on fees
paid to our accountants and auditors for certain services in the
past two fiscal years.

|                         |  |                   |      |      |  |  |      | 
|------------------------ |  | ----------------- | ---- | ---- |  |  | ---- | 
|                         |  |                  
|                         |  | Fiscal year ended
|                         |  | March 31,        
|(£ millions)             |  | 2003              |      | 2002
|                         |  |                  
|                         |  |                  
|Deloitte & Touche        |  |                   |      |      |  |  |      | 
|Audit                    |  |                   | 1    |      |  |  | 2    | 
|Audit-related            |  |                   | 13   |      |  |  | 4    | 
|Tax and other compliance |  |                   | 2    |      |  |  | 2    | 
|Business Support         |  |                   | 1    |      |  |  | 3    | 
|                         |  |                  
|Total Deloitte & Touche  |  |                   | 17   |      |  |  | 11   | 
|Arthur Andersen          |  |                   |      |      |  |  |      | 
|Internal Audit           |  |                   | 1.6  |      |  |  | 12.5 | 
|                         |  |                  
|TOTAL FEES               |  |                   | 18.6 |      |  |  | 23.5 | 
|                         |  |                  

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Audit services of £1 million are the
costs of the annual audit. Audit-related services include
£7.2 million of costs incurred during the financial
restructuring process, including the reporting accountants
work in relation to the filing of the prospectus and scheme
documents required by U.K. law in connection with the scheme of
arrangement and listing of our shares on the London Stock
Exchange, £4.1 million of costs in relation to the
disposal of the Marconi Mobile Holdings S.p.A. business, and
£1.2 million in relation to quarterly and half year
review and audit procedures. Tax and other compliance services
principally relates to tax compliance work performed. Business
support services principally relate to accounting advisory
services in relation to the application of U.K. and
U.S. GAAP.

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PART III




Item 17: Financial
Statements

Financial statements are being furnished pursuant
to the instructions of Item 18 of Form 20-F.




Item 18: Financial
Statements

Marconi Corporation plc is furnishing
consolidated financial statements beginning at page F-1.

Item 19:     Exhibits

| |         |  |  |                                                                                                                                                                                                                                                           
| | ------- |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1.1    |  |  | Memorandum and Articles of Association of Marconi
    Corporation plc                                                                                                                                                                                     
| | 2.1*    |  |  | Deposit Agreement dated as of March 31, 2003
    between Marconi Corporation plc and The Bank of New York, as
    depositary, and owners and beneficial holders of American
    Depositary Receipts                                                       
| | 2.2*    |  |  | American Depositary Receipt of Marconi
    Corporation plc (included in Exhibit 2.1)                                                                                                                                                                      
| | 2.3*    |  |  | Indenture dated May 19, 2003 relating to
    $717,139,584 8% Guaranteed Senior Secured Notes due 2008 between
    Marconi Corporation plc, the guarantors party thereto and Law
    Debenture Trust Company of New York                                   
| | 2.4*    |  |  | Indenture dated May 19, 2003 relating to
    $486,881,472 10% Guaranteed Junior Secured Notes due 2008
    between Marconi Corporation plc, the guarantors party thereto
    and JPMorgan Chase Bank                                                      
| | 2.5*    |  |  | Composite Debenture dated May 19, 2003
    granted by the issuer and all guarantors registered in England
    and Wales, in favor of the Law Debenture Trust Corporation plc
    as security trustee                                                      
| | 2.6*    |  |  | Guarantee of the 8% Guaranteed Senior Secured
    Notes due 2008 dated May 19, 2003, granted by each of the
    guarantors in favor of The Law Debenture Trust
    Corporation plc, Law Debenture Trust Company of New York
    and each senior noteholder
| | 2.7*    |  |  | Guarantee of the 10% Guaranteed Junior Secured
    Notes due 2008 dated May 19, 2003, granted by each of the
    guarantors in favor of The Law Debenture Trust
    Corporation plc, JPMorgan Chase Bank and each junior
    noteholder                   
| | 2.8   |  |  | Marconi Corporation and Marconi plcs
    Proposals in Relation to Schemes of Arrangement under
    Section 425 of the UK Companies Act 1985, dated
    March 31, 2003 between Marconi Corporation,
    Marconi plc and their respective scheme creditors.
| | 4.01*   |  |  | ESOP Escrow Agreement dated December 13,
    2002 between Marconi Corporation, Marconi plc, HSBC Bank plc and
    Barclays Bank PLC                                                                                                                       
| | 4.02*   |  |  | Composite Debenture granted by Marconi
    Communications Asia Limited in favor of Law Debenture Trust
    Corporation dated May 19, 2003                                                                                                                 
| | 4.03*   |  |  | Composite Debenture dated May 19, 2003
    granted by G.E.C. (Hong Kong) Limited in favor of the security
    trustee                                                                                                                                     
| | 4.04*   |  |  | Composite Mortgage Debenture dated May 19,
    2003 granted by Marconi Communications Limited and Marconi
    Communications Optical Networks Limited in favor of the security
    trustee                                                                
| | 4.05*   |  |  | Escrow Agreement dated May 19, 2003 between,
    inter alia, Marconi Corporation and the security trustee                                                                                                                                                 
| | 4.06*   |  |  | Settlement Deed dated December 19, 2002
    between RT Group Telecom Services Limited, RT Group plc, Marconi
    Corporation, Ultramast Limited, James Smith and Nicholas Dargan                                                                          
| | 4.07*** |  |  | Merger Agreement dated June 26, 2001 between
    Marconi Corporation and Easynet Group plc relating to the merger
    of ipsaris Limited with Easynet                                                                                                     
| | 4.08*** |  |  | Relationship Agreement dated June 26, 2001
    between Marconi Corporation and Easynet Group plc                                                                                                                                                          
| | 4.09**  |  |  | Subscription Agreement dated October 6, 2000
    between Marconi Communications International Holdings Limited
    and Splice do Brasil Telecommunicacoes e Electronica S.A.                                                                              
| | 4.10**  |  |  | Share Purchase Agreement dated August 2,
    2002 between Marconi (Bruton Street) Limited, Marconi plc and
    Finmeccanica SpA                                                                                                                           

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| |         |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ------- |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 4.11**  |  |  | Stock Purchase Agreement dated January 10,
    2002 in respect of the sale of Marconi plcs data systems
    subsidiaries by Marconi Systems Holdings Inc., Marconi
    Corporation and AB Dick Holdings Limited to DH Holdings Corp.,
    Launchchange Limited and Kollmorgen S.A.S. and a guarantee dated
    January 10, 2002 from Marconi plc in favor of DH Holdings
    Corp., Launchchange Limited and Kollmorgen S.A.S.                                                                                                                                                                                                                                                                                                                                                                                          
| | 4.12**  |  |  | Sale and Purchase Agreement dated
    December 20, 2001, as restated, for the sale of Marconi
    Corporations 50% shareholding in General Domestic
    Appliances Holdings Limited between Merloni Elettrodomestici SpA
    and Marconi Corporation, for a cash consideration of
    195.5 million                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | 4.13**  |  |  | Stock Purchase Agreement dated December 20,
    2001 between Marconi Corporation, Marconi Systems Holdings Inc.,
    DH Holdings Corp. and Launchchange Limited                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | 4.14**  |  |  | Asset Purchase Agreement dated December 17,
    2001, as amended, between Marconi Corporation, Marconi Optical
    Components Limited and Bookham Technology plc                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | 4.15**  |  |  | Global Procurement Agreement dated
    December 17, 2001 between Marconi Communications Inc. and
    Bookham Technology plc                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | 4.16*   |  |  | Block Trade Agreement dated November 28,
    2001 between Marconi Mobile SpA and Salomon Brothers
    International Limited under which Marconi Mobile SpA disposed of
    6,163,641 of its 11,083,625 shares in Lottomatica SpA, an
    Italian registered company, for a total consideration of
    approximately
    40 million                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | 4.17**  |  |  | Sale Agreement relating to the sale by Marconi
    Corporation of its remaining shareholding of 1.49% in
    Lagardère SCA, a listed French company, to Salomon Brothers
    International Limited on September 26, 2001 for
    approximately
    69 million                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | 4.18**  |  |  | Asset Sale and Leaseback Agreement dated
    September 26, 2001 between Marconi Fleet Management
    Limited, Inchcape Vehicle Contracts Limited and IVC Contract
    Hire Limited                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | 4.19**  |  |  | Sale and Purchase Agreement dated July 12,
    2002 between Marconi Corporation and Redwood 2002 Limited in
    respect of the sale of Marconi Applied Technologies Limited,
    Marconi Applied Technologies Inc. and the assets of Marconi
    Applied Technologies S.A. to Redwood 2002 Limited for
    £57 million                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | 4.20*** |  |  | Stock Purchase Agreement dated July 3, 2001,
    as amended, between Marconi Corporation, Marconi Systems
    Holdings Inc. and Koninklijke Philips Electronics N.V.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | 4.21*** |  |  | Purchase and Sale Agreement dated June 19,
    2001 between Credit Suisse First Boston (Europe) Limited and
    Marconi Corporation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | 4.22*   |  |  | Agreement dated August 6, 2002 between
    Barclays Bank PLC and Marconi Corporation related to the
    termination of certain interest rate swap transactions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | 4.23*   |  |  | Agreement dated August 6, 2002 between
    JPMorgan Chase Bank and Marconi Corporation related to the
    termination of certain interest rate swap and foreign exchange
    transactions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | 4.24*   |  |  | Agreement dated November 4, 2002 between UBS
    AG and Marconi Corporation related to the payment of interest on
    certain interest rate swap transactions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | 4.25*   |  |  | Interim Performance Bond Facility Agreement dated
    May 10, 2002 between HSBC Bank plc (HSBC), Barclays Bank
    PLC (Barclays) and Marconi Bonding Limited (MBL) (as amended by
    an Amendment Letter dated October 24, 2002, under which
    JPMorgan Chase Bank (JPMorgan) acceded as a new bank pursuant to
    the interim bonding facility and as further amended by an
    Amendment Letter dated March 28, 2003), Counter Indemnity
    Agreement between MBL and each of HSBC and Barclays dated
    May 10, 2002, Security Over Cash Agreement between MBL and
    each of HSBC and Barclays dated May 10, 2002, Counter
    Indemnity Agreement given by MBL in favor of JPMorgan dated
    October 29, 2002 and Security Over Cash Agreement given by
    MBL in favor of JPMorgan dated October 29, 2002
| | 4.26*   |  |  | Temporary Bonding Facility Agreement dated
    February 8, 2002 between HSBC Bank plc (HSBC), Barclays
    Bank PLC (Barclays) and Marconi Bonding Limited (MBL) (as
    amended), Counter Indemnity Agreements between MBL and each of
    HSBC and Barclays dated February 8, 2002, and Cash
    Collateral Agreements between MBL and each of HSBC and Barclays
    dated February 8, 2002                                                                                                                                                                                                                                                                                                                                                                                                                            

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| |        |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ------ |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 4.27** |  |  | Purchase Agreement dated December 17, 2001
    as extended on January 14, 2002 between Ancrane, a
    subsidiary of Marconi plc, Morgan Stanley & Co. Incorporated
    and Morgan Stanley and Co. International Limited for the
    purchase on behalf of Ancrane from various private vendors of
    500,000,000
    5.625% bonds due 2005,
    1,000,000,000
    6.375% bonds due 2010, U.S.$900,000,000 7 3/4% bonds due
    2010 and U.S.$900,000,000 8 3/8% bonds due 2030 issued by
    Marconi Corporation                                                   
| | 4.28*  |  |  | Scheme Implementation Deed dated March 27,
    2003, between Marconi plc, Marconi Corporation, Ancrane, E A
    Continental Limited, Marconi Nominees Limited, British Sealed
    Beams Limited and various other group companies                                                                                                                                                                                                                                                                                                                                     
| | 4.29*  |  |  | Escrow and Distribution Agreement dated
    March 27, 2003 between Marconi plc, Marconi Corporation
    plc, Regent Escrow Limited, The Bank of New York, The Law
    Debenture Trust Corporation plc, Ancrane, Bondholder
    Communications Group and the Supervisors                                                                                                                                                                                                                                                                                               
| | 4.30*  |  |  | Statement and waiver of intercompany balances
    agreement dated on or about March 27, 2003 between Marconi
    plc, Marconi Corporation and certain other group companies                                                                                                                                                                                                                                                                                                                                                                                           
| | 4.31*  |  |  | Deed of Novation dated March 26, 2003
    between Marconi Corporation, Marconi plc and BAE SYSTEMS plc                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | 4.32*  |  |  | Assumption Agreement and Consent dated
    March 26, 2003 between Marconi Corporation, Marconi plc and
    Lemelson Medical Education and Research Foundation, Limited
    Partnership                                                                                                                                                                                                                                                                                                                                                                                
| | 4.33*  |  |  | Deed of Novation and Amendment dated
    March 26, 2003 between Marconi Corporation, Marconi plc and
    Finmeccanica SpA                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | 4.34*  |  |  | Sponsors Agreement dated March 31,
    2003 between the Company, Marconi plc, Lazard Brothers & Co.
    and Morgan Stanley & Co. Limited                                                                                                                                                                                                                                                                                                                                                                                                                             
| | 4.35*  |  |  | ESOP Settlement Agreement dated March 26,
    2003 between Marconi plc, Marconi Corporation, HSBC Bank plc,
    Barclays, Salomon Brothers International Limited, UBS AG and
    Bedell Cristin Trustees Limited                                                                                                                                                                                                                                                                                                                                                      
| | 4.36*  |  |  | Memorandum of Understanding dated March 25,
    2003 between the Marconi Corporation, Marconi plc and the United
    States Pension Benefit Guaranty Corporation                                                                                                                                                                                                                                                                                                                                                                                                      
| | 4.37*  |  |  | Instrument by way of Deed Poll dated May 18,
    2003 executed by Marconi Corporation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | 4.38*  |  |  | Security Trust and Intercreditor Deed dated
    May 19, 2003 between Marconi Corporation, the guarantors
    party thereto, the security trustee, Law Debenture Trust Company
    of New York, as senior note trustee, JPMorgan Chase Bank, as
    junior note trustee, HSBC Bank plc, as new bonding facility
    agent, the new bonding facility banks named therein, The Bank of
    New York, as depositary, paying agent and registrar and the
    intra-group creditors and intra-group borrowers named therein                                                 
| | 4.39*  |  |  | Australian Fixed and Floating Charge dated
    May 19, 2003 granted by Marconi Australia Pty Limited in
    favor of the security trustee                                                                                                                                                                                                                                                                                                                                                                                                                             
| | 4.40*  |  |  | Fixed and Floating Charge dated May 19, 2003
    granted by Marconi Australia Pty Limited in favor of the
    security trustee                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | 4.41*  |  |  | Australian Fixed and Floating Charge dated
    May 19, 2003 granted by Marconi Australia Holdings Pty
    Limited in favor of the security trustee                                                                                                                                                                                                                                                                                                                                                                                                                    
| | 4.42*  |  |  | Australian Fixed and Floating Charge dated
    May 19, 2003 granted by Marconi Australia Holdings Pty
    Limited in favor of the security trustee                                                                                                                                                                                                                                                                                                                                                                                                                    
| | 4.43*  |  |  | Share Mortgage relating to shares in Marconi
    Australia Holdings Pty Limited dated May 19, 2003 between
    Associated Electrical Industries Limited, as mortgagor, and the
    security trustee, as mortgagee                                                                                                                                                                                                                                                                                                                                                     
| | 4.44*  |  |  | Quota Pledge Agreement relating to the pledge of
    quotas held by Marconi Communications International Holdings
    Limited in the capital stock of Marconi Communications Telemulti
    Ltda dated May 19, 2003 between MCIHL, as pledgor, Marconi
    Communications do Brasil Ltda., as quotaholder and consenting
    party, Telemulti, as acknowledging party and the security
    trustee, the senior note trustee, the junior note trustee, the
    new bonding facility agent, the depositary, the principal paying
    agent and the registrar, as pledgees
| | 4.45*  |  |  | Notarial Deed of pledge of shares relating to
    shares in Marconi Communications B.V. dated May 15, 2003
    between Marconi Communications, Inc., as pledgor, and the
    security trustee, as pledgee                                                                                                                                                                                                                                                                                                                                                             

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| |       |  |  |                                                                                                                                                                                                                                                                                                                                                                                      
| | ----- |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 4.46* |  |  | Australian Assets Fixed and Floating Charge dated
    May 19, 2003 between the U.K. guarantors, as chargors, and
    the security trustee                                                                                                                                                                                                                                            
| | 4.47* |  |  | Security over Shares Agreement relating to shares
    of Mobile Systems International Holdings Limited, dated
    May 19, 2003 between Metapath Software International, Inc.,
    as grantor, and the security trustee, as grantee                                                                                                                                                   
| | 4.48* |  |  | Share pledge agreement, or Verpfändung von
    Gesellschaftsanteilen, relating to shares in Marconi
    Communications Real Estate GmbH dated May 15, 2003 between
    Marconi Communications Holdings GmbH, as pledgor, and the
    security trustee, as pledgee                                                                                                                    
| | 4.49* |  |  | Share pledge agreement, or Verpfändung von
    Gesellschaftsanteilen, relating to shares in Marconi
    Communications GmbH, dated May 15, 2003 between Marconi
    Communications Holdings GmbH, as pledgor, and the security
    trustee, as pledgee                                                                                                                               
| | 4.50* |  |  | Share pledge agreement, or Verpfändung von
    Gesellschaftsanteilen, relating to shares in Marconi
    Communications Holdings GmbH, dated May 15, 2003 between
    Marconi Communications International Holdings Limited, as
    pledgor, and the security trustee, as pledgee                                                                                                     
| | 4.51* |  |  | Share pledge agreement, or Verpfändung von
    Gesellschaftsanteilen, relating to shares in Marconi
    Communications ONDATA GmbH dated May 15, 2003 between
    Marconi Communications Holdings GmbH, as pledgor, and the
    security trustee, as pledgee                                                                                                                         
| | 4.52* |  |  | Share pledge agreement, or Verpfändung von
    Gesellschaftsanteilen, relating to shares in Marconi
    Communications Software Systems Verwaltungsgesellschaft GmbH
    dated May 15, 2003 between Marconi Communications GmbH, as
    pledgor, and the security trustee, as pledgee                                                                                                
| | 4.53* |  |  | Account pledge agreement, or
    Kontoverpfändung, dated May 16, 2003 between Marconi
    Communications Real Estate GmbH, as pledgor, and the security
    trustee, as pledgee                                                                                                                                                                                                      
| | 4.54* |  |  | Account pledge agreement, or
    Kontoverpfändung, dated May 16, 2003 between Marconi
    Communications Holdings GmbH, as pledgor, and the security
    trustee, as pledgee                                                                                                                                                                                                         
| | 4.55* |  |  | Account pledge agreement, or
    Kontoverpfändung, dated May 16, 2003 between Marconi
    Communications GmbH, as pledgor and the security trustee, as
    pledgee                                                                                                                                                                                                                   
| | 4.56* |  |  | Limited partners interest pledge agreement,
    or Verpfändung von Kommanditanteilen, dated May 15,
    2003 between Marconi Communications GmbH, as pledgor, and the
    security trustee, as pledgee                                                                                                                                                                              
| | 4.57* |  |  | Security transfer agreement, or
    Sicherungsübereignung, dated May 16, 2003 between
    Marconi Communications GmbH, as transferor, and the security
    trustee, as transferee                                                                                                                                                                                                    
| | 4.58* |  |  | Global assignment agreement, or Globalabtretung,
    dated May 16, 2003 between Marconi Communications GmbH, as
    assignor, and the security trustee, as assignee                                                                                                                                                                                                                  
| | 4.59* |  |  | Security transfer and assignment agreement, or
    Sicherungsübereignung und -abtretung, dated May 19,
    2003 between Marconi Communications GmbH, as transferor, and the
    security trustee, as transferee                                                                                                                                                                      
| | 4.60* |  |  | Shareholder loan assignment agreement, or
    Abtretung von Gesellschaftsdarlehen, relating to all present and
    future rights and claims owing to the assignor originating from
    shareholder loans the aggregate of which exceed
    £20 million dated May 16, 2003 between Marconi
    Communications Holdings GmbH, as assignor, and the security
    trustee, as assignee   
| | 4.61* |  |  | Shareholder loan assignment agreement, or
    Abtretung von Gesellschaftsdarlehen, relating to all present and
    future rights and claims owing to the assignor originating from
    shareholder loans the aggregate of which exceed
    £20 million dated May 16, 2003 between Marconi
    Communications GmbH, as assignor, and the security trustee, as
    assignee            
| | 4.62* |  |  | Shareholder loan assignment agreement, or
    Abtretung von Gesellschaftsdarlehen, relating to all present and
    future rights and claims owing to the assignor originating from
    shareholder loans the aggregate of which exceed
    £20 million dated May 16, 2003 between Marconi
    Communications Real Estate GmbH, as assignor, and the security
    trustee, as assignee
| | 4.63* |  |  | Security Interest Agreement relating to shares in
    Bruton Street Overseas Investments Limited dated May 19,
    2003 between FS Finance Corp. and the security trustee                                                                                                                                                                                                            

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| |       |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ----- |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 4.64* |  |  | Shares Charge relating to shares in Marconi
    Communications Asia Limited dated May 19, 2003 between
    Marconi Communications International Holdings Limited, as
    chargor, and the security trustee                                                                                                                                                                                                                                                                  
| | 4.65* |  |  | Shares Charge relating to shares in G.E.C. (Hong
    Kong) Limited dated May 19, 2003 between Marconi
    Corporation plc, as chargor, and the security trustee                                                                                                                                                                                                                                                                                                             
| | 4.66* |  |  | Memorandum of Deposit of Shares as security
    relating to shares in Marconi Communications Optical Networks
    Limited dated May 19, 2003 between Marconi Communications
    Inc. and the security trustee                                                                                                                                                                                                                                                               
| | 4.67* |  |  | Memorandum of Deposit of Shares as security
    relating to shares in Marconi Communications Optical Networks
    Limited dated May 19, 2003 between Marconi Networks
    Worldwide, Inc. and the security trustee                                                                                                                                                                                                                                                          
| | 4.68* |  |  | Memorandum of Deposit of Shares as security
    relating to shares in Marconi Communications Limited dated
    May 19, 2003 between Marconi Communications GmbH and the
    security trustee                                                                                                                                                                                                                                                                                
| | 4.69* |  |  | Agreement for the Creation of a Pledge over
    shares of Marconi Communications SpA dated May 19, 2003
    between Marconi Holdings SpA as pledgor, and the security
    trustee, as pledgee                                                                                                                                                                                                                                                                               
| | 4.70* |  |  | Agreement for the Creation of a Pledge over
    shares of Marconi Holdings SpA dated May 19, 2003 between
    Marconi (Bruton Street) Limited as pledgor, and the security
    trustee, as pledgee                                                                                                                                                                                                                                                                          
| | 4.71* |  |  | Pledge over shares of Marconi Mobile Access SpA
    dated May 19, 2003 between Marconi (Bruton Street) Limited
    as pledgor, and the security Trustee, as pledgee                                                                                                                                                                                                                                                                                                         
| | 4.72* |  |  | Agreement for the Creation of a Pledge over
    shares of Marconi International SpA dated May 19, 2003
    between Marconi Communications SpA and Marconi Sud SpA as
    pledgors, and the security trustee, as pledgee                                                                                                                                                                                                                                                     
| | 4.73* |  |  | Agreement for the Creation of a Pledge over
    shares of Marconi Sud SpA dated May 19, 2003 between
    Marconi Communications SpA as pledgor, and the security trustee,
    as pledgee                                                                                                                                                                                                                                                                                    
| | 4.74* |  |  | Agreement for the Creation of a Pledge over the
    claims of Marconi Communications SpA dated May 19, 2003
    between Marconi Communications SpA as pledgor, and the security
    trustee, as pledgee                                                                                                                                                                                                                                                                     
| | 4.75* |  |  | Agreement for the Creation of a Pledge over the
    claims of Marconi Sud SpA dated May 19, 2003 between
    Marconi Sud SpA, as pledgor, and the security trustee, as pledgee                                                                                                                                                                                                                                                                                              
| | 4.76* |  |  | Undertaking for the creation of a pledge over the
    future claims of Marconi Holdings SpA dated May 19, 2003
    between Marconi Holdings SpA, as pledgor, and the security
    trustee, as pledgee                                                                                                                                                                                                                                                                       
| | 4.77* |  |  | Agreement for the Creation of a Pledge over bank
    accounts of Marconi Communications SpA dated May 19, 2003
    between Marconi Communications SpA as pledgor, and the security
    trustee, as pledgee                                                                                                                                                                                                                                                                  
| | 4.78* |  |  | Agreement for the Creation of a Pledge over bank
    accounts of Marconi Holdings SpA dated May 19, 2003 between
    Marconi Holdings SpA as pledgor, and the security trustee, as
    pledgee                                                                                                                                                                                                                                                                              
| | 4.79* |  |  | Pledge over the bank accounts of Marconi Sud SpA
    dated May 19, 2003 between Marconi Sud SpA as pledgor, and
    the security trustee, as pledgee                                                                                                                                                                                                                                                                                                                        
| | 4.80* |  |  | Mortgage over real property located in Marcianise
    (Caserta) dated May 19, 2003 between Marconi Sud SpA, as
    grantor, and the security trustee, junior note trustee and
    senior note trustee in their capacity as secured creditors, as
    mortgagees                                                                                                                                                                                                             
| | 4.81* |  |  | Mortgage over real property located in Genova
    dated May 19, 2003 between Marconi Communications SpA, as
    grantor, and the security trustee, junior note trustee and
    senior note trustee in their capacity as secured creditors, as
    mortgagees                                                                                                                                                                                                                
| | 4.82* |  |  | Pledge of Shares Agreement relating to shares in
    each of Marconi Communications S.A. de C.V., Marconi
    Communications de México, S.A. de C.V., Marconi
    Communications Exportel, S.A. de C.V. and Administrativa Marconi
    Communications, S.A. de C.V. dated May 19, 2003 between
    each of Marconi Communications Inc., Marconi Communications,
    S.A. de C.V. and Marconi Networks Worldwide, Inc., as pledgors,
    and the security trustee, as pledgee
| | 4.83* |  |  | Deed of pledge of shares relating to the entire
    share capital of Marconi Communications GmbH dated May 14,
    2003 between Marconi Communications B.V., as pledgor, and the
    security trustee, as pledgee                                                                                                                                                                                                                                                           

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| |        |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | ------ |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 4.84*  |  |  | Stock Pledge Agreement relating to shares in
    Marconi Communications Inc. dated May 19, 2003 between FS
    Holdings Corp., as pledgor and the security trustee, as pledgee                                                                                                                                                                                                                                                                                                                                                                     
| | 4.85*  |  |  | Stock Pledge Agreement relating to shares in
    Marconi Communications Technology, Inc. Marconi Communications
    Federal, Inc., Marconi Acquisition Corp., Marconi Communications
    C.A., Inc., Gnome Inc., Nemesys Holding Company, ALANTEC
    International, Inc. (California), Custom Telecom Contractors,
    Inc. (Missouri), Marconi Networks Worldwide, Inc. and Marconi
    Intellectual Property (Ringfence) Inc. dated May 19, 2003
    between Marconi Communications, Inc., as pledgor, and the
    security trustee, as pledgee 
| | 4.86*  |  |  | Stock Pledge Agreement relating to shares in
    Marconi Online Systems Inc., dated May 19, 2003 between
    Marconi Holdings, LLC, as pledgor, and the security trustee, as
    pledgee                                                                                                                                                                                                                                                                                                                                                           
| | 4.87*  |  |  | Stock Pledge Agreement relating to shares in FS
    Finance Corp. and to interests in Marconi Holdings, LLC, dated
    May 19, 2003 between Marconi Communications North America,
    Inc., as pledgor, and the security trustee, as pledgee                                                                                                                                                                                                                                                                                                       
| | 4.88*  |  |  | Stock Pledge Agreement relating to shares in
    Marconi HCIS Inc., Marconi Systems Inc., Marconi Capital Inc.,
    Marconi Electronic Systems Holdings Inc., Greensboro Associates
    Inc., Refac Marketing Services, Inc. (Pennsylvania), LMF
    Holdings Incorporated, Marconi Communications Radio Systems,
    Inc., NI Holdings Incorporated, Marconi Communications North
    America Inc. and Marconi Intellectual Property (U.S.) Inc. dated
    May 19, 2003 between Marconi Inc., as pledgor, and the
    security trustee, as pledgee
| | 4.89*  |  |  | Stock Pledge Agreement relating to shares in FS
    Holdings Corp. dated May 19, 2003 between FS Finance Corp.,
    as pledgor, and the security trustee, as pledgee                                                                                                                                                                                                                                                                                                                                                                               
| | 4.90*  |  |  | Stock Pledge Agreement relating to shares in
    Marconi Software International Inc., dated May 19, 2003
    between Marconi Corporation, as pledgor, and the security
    trustee, as pledgee                                                                                                                                                                                                                                                                                                                                                     
| | 4.91*  |  |  | Stock Pledge Agreement relating to shares in
    Metapath Software International (U.S.), Inc. dated May 19,
    2003 between Metapath Software International Inc., as pledgor,
    and the security trustee, as pledgee                                                                                                                                                                                                                                                                                                                            
| | 4.92*  |  |  | Stock Pledge Agreement relating to shares in
    Metapath Software International, Inc. dated May 19, 2003
    between Marconi Software International, Inc., as pledgor, and
    the security trustee, as pledgee                                                                                                                                                                                                                                                                                                                                   
| | 4.93*  |  |  | Stock Pledge Agreement relating to shares in FS
    Holdings Corp. dated May 19, 2003 between Bruton Street
    Overseas Investment Limited, as pledgor, and the security
    trustee, as pledgee                                                                                                                                                                                                                                                                                                                                                  
| | 4.94*  |  |  | Stock Pledge Agreement relating to shares in
    Marconi Inc. dated May 19, 2003 between Regents Place,
    Inc., as pledgor, and the security trustee, as pledgee                                                                                                                                                                                                                                                                                                                                                                                 
| | 4.95*  |  |  | Stock Pledge Agreement relating to the interest
    in Regents Place, Inc. dated May 19, 2003 between Marconi
    (DGP1) Limited and Marconi (DGP2) Limited, as pledgors, and the
    security trustee, as pledgee                                                                                                                                                                                                                                                                                                                                 
| | 4.96*  |  |  | Security Agreement dated May 19, 2003
    between Marconi Intellectual Property (U.S.), Inc. and the
    security trustee, as secured party                                                                                                                                                                                                                                                                                                                                                                                                        
| | 4.97*  |  |  | Security Agreement dated May 19, 2003
    between Marconi Communications, Inc. and the security trustee,
    as secured party                                                                                                                                                                                                                                                                                                                                                                                                                      
| | 4.98*  |  |  | Security Agreement dated May 19, 2003
    between Marconi Networks Worldwide, Inc. and the security
    trustee, as secured party                                                                                                                                                                                                                                                                                                                                                                                                                  
| | 4.99*  |  |  | Security Agreement dated May 19, 2003
    between Marconi Communications Technology, Inc. and the security
    trustee, as secured party                                                                                                                                                                                                                                                                                                                                                                                                           
| | 4.100* |  |  | Security Agreement dated May 19, 2003
    between Marconi Communications Federal, Inc. and the security
    trustee, as secured party                                                                                                                                                                                                                                                                                                                                                                                                              
| | 4.101* |  |  | Security Agreement dated May 19, 2003
    between Marconi Acquisition Corp, Inc. and the security trustee,
    as secured party                                                                                                                                                                                                                                                                                                                                                                                                                    
| | 4.102* |  |  | Security Agreement dated May 19, 2003
    between Regents Place, Inc. and the security trustee, as secured
    party                                                                                                                                                                                                                                                                                                                                                                                                                               
| | 4.103* |  |  | Security Agreement dated May 19, 2003
    between FS Holdings Corp. and the security trustee, as secured
    party                                                                                                                                                                                                                                                                                                                                                                                                                                 

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| |         |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ------- |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 4.104*  |  |  | Security Agreement dated May 19, 2003
    between Marconi Inc. and the security trustee, as secured party                                                                                                                                                                                                                                                                                                                                                                                   
| | 4.105*  |  |  | Security Agreement dated May 19, 2003
    between Marconi Holdings, LLC and the security trustee, as
    secured party                                                                                                                                                                                                                                                                                                                                                                      
| | 4.106*  |  |  | Security Agreement dated May 19, 2003
    between Marconi Communications North America Inc. and the
    security trustee, as secured party                                                                                                                                                                                                                                                                                                                                                  
| | 4.107*  |  |  | Security Agreement dated May 19, 2003
    between FS Finance Corp. and the security trustee, as secured
    party                                                                                                                                                                                                                                                                                                                                                                           
| | 4.108*  |  |  | Security Agreement dated May 19, 2003
    between Marconi Software International, Inc. and the security
    trustee, as secured party                                                                                                                                                                                                                                                                                                                                                       
| | 4.109*  |  |  | Security Agreement dated May 19, 2003
    between Metapath Software International (U.S.), Inc. and the
    security trustee, as secured party                                                                                                                                                                                                                                                                                                                                               
| | 4.110*  |  |  | Security Agreement dated May 19, 2003
    between Metapath Software International, Inc. and the security
    trustee, as secured party                                                                                                                                                                                                                                                                                                                                                      
| | 4.111*  |  |  | Security Agreement dated May 19, 2003
    between the Marconi Intellectual Property (Ringfence), Inc. and
    the security trustee, as secured party                                                                                                                                                                                                                                                                                                                                        
| | 4.112*  |  |  | Indemnity Leasehold Deed to secure debt
    assignment of leases and rents, security agreement, financing
    statement and fixture filing relating to property located at
    104 Wiley Road, LaGrange, Georgia 30240, dated May 19,
    2003 between Marconi Communications, Inc. and the security
    trustee                                                                                                                                                                            
| | 4.113*  |  |  | Leasehold Mortgage, Assignment of Leases and
    Rents, Security Agreement, Financing Statement and Fixture
    Filing relating to property located at 4350 Weaver Parkway,
    Warrenville, Illinois 60555 between Marconi Communications, Inc.
    and the security trustee                                                                                                                                                                                                               
| | 4.114*  |  |  | Deed of Trust, Assignment of Leases, Security
    Agreement, Financing Statement and Fixture Filing relating to
    property located at 956 North Broadway Extended,
    Greenville, Mississippi 38702 between Marconi Communications,
    Inc. and the security trustee                                                                                                                                                                                                                    
| | 4.115*  |  |  | Assignment of Rents relating to the property
    located at 956 North Broadway Extended, Greenville,
    Mississippi 38702 between Marconi Communications, Inc. and the
    security trustee                                                                                                                                                                                                                                                                                                
| | 4.116*  |  |  | Deed of Trust, Assignment of Leases and Rents,
    Security Agreement, Financing Statement and Fixture Filing
    relating to property located at 325 Welcome Center
    Boulevard, Welcome, North Carolina 27374 between Marconi
    Communications, Inc. and the security trustee                                                                                                                                                                                                         
| | 4.117*  |  |  | Open-End Mortgage (Leasehold), Assignment of
    Leases and Rents and Security Agreement relating to property
    located at Taylor Woods Industrial Park Phase 3, North
    Ridgeville, Ohio between Marconi Communications, Inc. and the
    security trustee                                                                                                                                                                                                                             
| | 4.118*  |  |  | Second Open-End Mortgage, Assignment of Leases
    and Rents and Security Agreement relating to property located at
    1000 Marconi Drive, Warrendale, Pennsylvania 15086 between
    Marconi Communications, Inc. and the security trustee                                                                                                                                                                                                                                                
| | 4.119*  |  |  | Deed of Trust, Assignment of Leases and Rents,
    Security Agreement, Financing Statement and Fixture Filing
    relating to property located at Intersection of Freeport Parkway
    and Sterling Road, Irving, Texas between Marconi Communications,
    Inc. and the security trustee                                                                                                                                                                                                   
| | 4.120*  |  |  | Assignment of Rents relating to property located
    at Intersection of Freeport Parkway and Sterling Road, Irving,
    Texas between Marconi Communications, Inc. and the security
    trustee                                                                                                                                                                                                                                                                                             
| | 4.121* |  |  | Master Services Agreement dated May 23, 2003
    between CSC International Systems Management Inc, Marconi
    Corporation plc and Marconi Communications Limited                                                                                                                                                                                                                                                                                                                           
| | 4.122* |  |  | Asset Transfer Agreement dated May 23, 2003
    between Marconi Corporation plc and CSC International Systems
    Management Inc.                                                                                                                                                                                                                                                                                                                                                           
| | 4.123*  |  |  | Performance Bonding Facility dated March 27,
    2003 relating to a new £50 million committed revolving
    facility between Marconi Bonding Limited (MBL), as applicant,
    Marconi Corporation, HSBC Bank plc, as agent and security
    trustee, the original issuing banks named therein, the original
    banks named therein and the original indemnifying subsidiaries
    named therein and the Security Over Cash Agreement dated
    March 27, 2003 between MBL and HSBC Bank plc

172



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##### Table of Contents



| |        |  |  |                                                                                                                                                                                                                                 
| | ------ |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 4.124* |  |  | Loan Agreement (working capital facility) dated
    March 26, 2003 relating to a new U.S.$22.5 million
    revolving credit facility between Marconi Communications, Inc.,
    as borrower and Liberty Funding, L.L.C. as lender
| | 4.125* |  |  | Performance bond letters executed by Marconi
    Corporation plc                                                                                                                                                                
| | 6.1*   |  |  | Computation of Earnings Per Share of Marconi
    Corporation plc (incorporated by reference to Note 19 of
    the Notes to the Consolidated Financial Statements included in
    this annual report)                            
| | 8.1*   |  |  | List of principal subsidiaries and other
    associated companies of Marconi Corporation plc (incorporated by
    reference to Note 22 of the Notes to the Consolidated
    Financial Statements included in this Annual Report)
| | 99.1*  |  |  | Certification pursuant to 18 U.S.C.
    Section 1350, as adopted pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002.                                                                                                 
| | 99.2*  |  |  | Certification pursuant to 18 U.S.C.
    Section 1350, as adopted pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002.                                                                                                 



---



| |   |                               
| | - | ------------------------------
| | * | Filed with this annual report.



| |    |                                                                                                                                   
| | -- | ----------------------------------------------------------------------------------------------------------------------------------
| | ** | Incorporated by reference to the Annual Report on
    Form 20-F (File No. 333-12430) filed with the SEC on
    September 30, 2002.



| |     |                                                                                                                                   
| | --- | ----------------------------------------------------------------------------------------------------------------------------------
| | *** | Incorporated by reference to the Annual Report on
    Form 20-F (File No. 333-12430) filed with the SEC on
    September 28, 2001.



| |   |                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Incorporated by reference to the Application for
    Qualifications of Indentures on Form T-3/A (File
    No. 022-28670) filed with the SEC on May 16, 2003.



| |   |                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Portions of this exhibit omit confidential
    material pursuant to a request for confidential treatment. The
    material so omitted has been filed separately with the SEC.



| |    |                                                                                                                                     
| | -- | ------------------------------------------------------------------------------------------------------------------------------------
| |  | Incorporated by reference to the Report under
    cover of Form 6-K (File No. 333-12430) furnished to the SEC
    on March 31, 2003.

173



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##### Table of Contents






SIGNATURES

The registrant hereby certifies that it meets all
the requirements for filing on Form 20-F and that it has
duly caused and authorized the undersigned to sign this annual
report on its behalf.



| |                        
| | -----------------------
| | MARCONI CORPORATION PLC



| |     |                
| | --- | ---------------
| | By: | /s/ Mary Skelly

| |                          
| | -------------------------
| |                          
| | Name: Mary Skelly        
| | Title:  Company Secretary
| | Date:  June 27, 2003     

174



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##### Table of Contents






CERTIFICATION

I, Michael Parton certify that:



|   |                                                                                                                                                                                                                                                                                                                                             
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. | I have reviewed this annual report on
    Form 20-F of Marconi Corporation plc;                                                                                                                                                                                                                                                             
|  
|2. | Based on my knowledge, this annual report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    annual report;
|  
|3. | Based on my knowledge, the financial statements,
    and other financial information included in this annual report,
    fairly present in all material respects the financial condition,
    results of operations and cash flows of the registrant as of,
    and for, the periods presented in this annual report;                       



|   |                                                                                                                                                                                                                                  
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4. | The registrants other certifying officer
    and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and have:



| |    |                                                                                                                                                                                                                                                                                                             
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | designed such disclosure controls and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this annual report is being prepared;
|
| | b) | evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) | presented in this annual report our conclusions
    about the effectiveness of the disclosure controls and
    procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



|   |                                                                                                                                                                                                                                                                  
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|5. | The registrants other certifying officer
    and I have disclosed, based on our most recent evaluation, to
    the registrants auditors and the audit committee of the
    registrants board of directors (or persons performing the
    equivalent function):



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | all significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) | any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and                                                                                                                                                    



|   |                                                                                                                                                                                                                                                                                                                                                                                                              
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|6. | The registrants other certifying officer
    and I have indicated in this annual report whether or not there
    were significant changes in internal controls or in other
    factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses.



|                    | 
|------------------- | 
|Date: June 27, 2003 | 

| |                               
| | ------------------------------
| | /s/ MICHAEL PARTON            
| |                               
| | Name: Michael Parton          
| | Title: Chief Executive Officer

175



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##### Table of Contents






CERTIFICATION

I, Christopher Holden, certify that:



|   |                                                                                                                                                                                                                                                                                                                                             
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. | I have reviewed this annual report on
    Form 20-F of Marconi Corporation plc;                                                                                                                                                                                                                                                             
|  
|2. | Based on my knowledge, this annual report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    annual report;
|  
|3. | Based on my knowledge, the financial statements,
    and other financial information included in this annual report,
    fairly present in all material respects the financial condition,
    results of operations and cash flows of the registrant as of,
    and for, the periods presented in this annual report;                       
|  
|4. | The registrants other certifying officer
    and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and have:                                                                                                           



| |    |                                                                                                                                                                                                                                                                                                            
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | designed such disclosure control and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this annual report is being prepared;
|
| | b) | evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                     
|
| | c) | presented in this annual report our conclusions
    about the effectiveness of the disclosure controls and
    procedures based on our evaluation as of the Evaluation Date;                                                                                                                               



|   |                                                                                                                                                                                                                                                                  
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|5. | The registrants other certifying officer
    and I have disclosed, based on our most recent evaluation, to
    the registrants auditors and the audit committee of the
    registrants board of directors (or persons performing the
    equivalent function):



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | all significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) | any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and                                                                                                                                                    



|   |                                                                                                                                                                                                                                                                                                                                                                                                              
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|6. | The registrants other certifying officer
    and I have indicated in this annual report whether or not there
    were significant changes in internal controls or in other
    factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses.



|                    |  | 
|------------------- |  | 
|Date: June 27, 2003 |  | 

| |                               
| | ------------------------------
| | /s/ CHRISTOPHER HOLDEN        
| |                               
| | Name: Christopher Holden      
| | Title: Chief Financial Officer

176



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##### Table of Contents



INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS

Marconi Corporation plc and
subsidiaries

Consolidated financial statements as of
March 31, 2003 and 2002 and

for the three years ended March 31,
2003


|                                                                 |  |      |     | 
|---------------------------------------------------------------- |  | ---- | --- | 
|                                                                 |  | Page
|                                                                 |  |     
|Independent auditors report                                     |  |      | F-2 | 
|Consolidated balance sheets                                      |  |      | F-3 | 
|Consolidated statements of operations                            |  |      | F-4 | 
|Consolidated statements of cash flows                            |  |      | F-5 | 
|Consolidated statements of other comprehensive
    (loss)/income |  |      | F-7 | 
|Consolidated statements of shareholders
    (deficit)/equity    |  |      | F-8 | 
|Notes to consolidated financial statements                       |  |      | F-9 | 

F-1



---



##### Table of Contents



INDEPENDENT AUDITORS REPORT

To the board of directors and shareholders of
Marconi Corporation plc:

We have audited the accompanying consolidated
balance sheets of Marconi Corporation plc and its subsidiaries
and joint ventures (together the Company) as of
March 31, 2003 and 2002 and the related consolidated
statements of operations, cash flows, other comprehensive
(loss)/income, and shareholders (deficit)/equity for each
of the three fiscal years in the period ended March 31,
2003 (expressed in pounds sterling). These consolidated
financial statements are the responsibility of the
Company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, such consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of the Company as of
March 31, 2003 and 2002, and the consolidated results of
its operations and its cash flows for each of the three fiscal
years in the period ended March 31, 2003 in conformity with
accounting principles generally accepted in the United States of
America.

As stated in note 2, Summary of significant
accounting policies, effective April 1, 2002, the Company
adopted Statement of Financial Accounting Standard No. 142,
Goodwill and Other Intangible Assets.

Our audits also comprehended the translation of
certain pounds sterling amounts into U.S. Dollars and, in
our opinion, such translation has been made in conformity with
the basis described in note 2. Such U.S. Dollar
amounts are presented solely for the convenience of readers in
the United States of America.

/s/ Deloitte & Touche




Deloitte & Touche

London, England


June 25, 2003


F-2



---



##### Table of Contents



Marconi Corporation plc and
subsidiaries

CONSOLIDATED BALANCE SHEETS

|                                                   |                                                                   |           |        |        |   |      |        |        |   |  |        |        |  
|-------------------------------------------------- | ----------------------------------------------------------------- | --------- | ------ | ------ | - | ---- | ------ | ------ | - |  | ------ | ------ | -
|                                                   |                                                                   |          
|                                                   |                                                                   | March 31,
|                                                   |                                                                   | 2003      |        |       
|                                                   |                                                                   | U.S.$     |        | 2003   |   | 2002
|(in millions, except share data)                   |                                                                   |           |        | £      |   | £   
|                                                   |                                                                   |          
|                                                   |                                                                   |          
|ASSETS                                             |                                                                   |           |        |        |   |      |        |        |   |  |        |       
|Current assets                                     |                                                                   |           |        |        |   |      |        |        |   |  |        |       
|                                                   | Cash and cash equivalents                                         |           |        | 303    |   |      |        | 192    |   |  |        | 1,230  |  
|                                                   | Restricted cash                                                   |           |        | 1,522  |   |      |        | 964    |   |  |        | 272    |  
|                                                   | Investment in securities                                          |           |        | 25     |   |      |        | 16     |   |  |        | 53     |  
|                                                   | Accounts receivable, net                                          |           |        | 730    |   |      |        | 462    |   |  |        | 746    |  
|                                                   | Inventories, net                                                  |           |        | 369    |   |      |        | 234    |   |  |        | 530    |  
|                                                   | Prepaid expenses and other current assets                         |           |        | 200    |   |      |        | 126    |   |  |        | 183    |  
|                                                   | Net assets of discontinued operations                             |           |        |       |   |      |        |       |   |  |        | 325    |  
|                                                   |                                                                   |          
|Total current assets                               |                                                                   |           | 3,149  |        |   |      | 1,994  |        |   |  | 3,339  |       
|Property, plant and equipment, net                 |                                                                   |           | 415    |        |   |      | 263    |        |   |  | 478    |       
|Investments in affiliates                          |                                                                   |           | 28     |        |   |      | 18     |        |   |  | 116    |       
|Goodwill                                           |                                                                   |           | 1,038  |        |   |      | 657    |        |   |  | 679    |       
|Intangibles, net                                   |                                                                   |           | 160    |        |   |      | 101    |        |   |  | 145    |       
|Other non-current assets                           |                                                                   |           | 118    |        |   |      | 75     |        |   |  | 155    |       
|                                                   |                                                                   |          
|TOTAL ASSETS                                       |                                                                   |           | 4,908  |        |   |      | 3,108  |        |   |  | 4,912  |       
|                                                   |                                                                   |          
|LIABILITIES AND SHAREHOLDERS
    (DEFICIT)/EQUITY |                                                                   |           |        |        |   |      |        |        |   |  |        |       
|Current liabilities                                |                                                                   |           |        |        |   |      |        |        |   |  |        |       
|                                                   | Short-term debt                                                   |           |        | 3,466  |   |      |        | 2,195  |   |  |        | 2,338  |  
|                                                   | Current maturities of long-term debt                              |           |        | 3,460  |   |      |        | 2,191  |   |  |        | 41     |  
|                                                   | Accounts payable                                                  |           |        | 257    |   |      |        | 163    |   |  |        | 326    |  
|                                                   | Amounts due to Marconi plc and fellow subsidiaries                |           |        | 636    |   |      |        | 403    |   |  |        | 63     |  
|                                                   | Accrued expenses and other current liabilities                    |           |        | 1,734  |   |      |        | 1,098  |   |  |        | 1,568  |  
|                                                   | Net liabilities of discontinued operations                        |           |        | 19     |   |      |        | 12     |   |  |        |       |  
|                                                   |                                                                   |          
|Total current liabilities                          |                                                                   |           | 9,572  |        |   |      | 6,062  |        |   |  | 4,336  |       
|Long-term debt                                     |                                                                   |           | 47     |        |   |      | 30     |        |   |  | 2,195  |       
|Deferred income taxes                              |                                                                   |           | 8      |        |   |      | 5      |        |   |  | 5      |       
|Other liabilities                                  |                                                                   |           | 540    |        |   |      | 342    |        |   |  | 321    |       
|                                                   |                                                                   |          
|Total liabilities                                  |                                                                   |           | 10,167 |        |   |      | 6,439  |        |   |  | 6,857  |       
|Commitments and contingencies (Note 10)            |                                                                   |           |        |        |   |      |        |        |   |  |        |       
|Minority interests                                 |                                                                   |           | 5      |        |   |      | 3      |        |   |  | 9      |       
|Shareholders (deficit)/equity                     |                                                                   |           |        |        |   |      |        |        |   |  |        |       
|                                                   | Ordinary shares, £0.05 par value;                                 |           |        |        |   |      |        |        |   |  |        |        |  
|                                                   | Authorized: 6,000,000,000 shares in 2003 and 2002;                |           |        |        |   |      |        |        |   |  |        |        |  
|                                                   | Issued and outstanding: 2,866,250,735 shares in
    2003 and 2002 |           |        | 226    |   |      |        | 143    |   |  |        | 143    |  
|                                                   | Additional paid-in capital                                        |           |        | 1,413  |   |      |        | 895    |   |  |        | 878    |  
|                                                   | Accumulated deficit                                               |           |        | (6,402 | ) |      |        | (4,055 | ) |  |        | (2,888 | )
|                                                   | Accumulated other comprehensive loss                              |           |        | (501   | ) |      |        | (317   | ) |  |        | (87    | )
|                                                   |                                                                   |          
|Total shareholders deficit                        |                                                                   |           | (5,264 | )      |   |      | (3,334 | )      |   |  | (1,954 | )     
|                                                   |                                                                   |          
|TOTAL LIABILITIES AND SHAREHOLDERS
    DEFICIT    |                                                                   |           | 4,908  |        |   |      | 3,108  |        |   |  | 4,912  |       
|                                                   |                                                                   |          

See notes to consolidated financial statements.

F-3



---



##### Table of Contents



Marconi Corporation plc and
subsidiaries

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                                                                                                                 |                                                                                             |                             |        |       |   |      |        |       |   |  |        |       |   |  |       |       |  
|------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------- | --------------------------- | ------ | ----- | - | ---- | ------ | ----- | - |  | ------ | ----- | - |  | ----- | ----- | -
|                                                                                                                                                 |                                                                                             |                            
|                                                                                                                                                 |                                                                                             | Fiscal year ended March 31,
|                                                                                                                                                 |                                                                                             | 2003                        |        |      
|                                                                                                                                                 |                                                                                             | U.S.$                       |        | 2003  |   | 2002 |        | 2001 
|(in millions, except share data)                                                                                                                 |                                                                                             |                             |        | £     |   | £    |        | £    
|                                                                                                                                                 |                                                                                             |                            
|                                                                                                                                                 |                                                                                             |                            
|Revenue:                                                                                                                                         |                                                                                             |                             |        |       |   |      |        |       |   |  |        |       |   |  |       |      
|                                                                                                                                                 | Network equipment                                                                           |                             |        | 1,786 |   |      |        | 1,131 |   |  |        | 1,812 |   |  |       | 3,268 |  
|                                                                                                                                                 | Network services                                                                            |                             |        | 1,173 |   |      |        | 743   |   |  |        | 969   |   |  |       | 1,016 |  
|                                                                                                                                                 | Other                                                                                       |                             |        | 35    |   |      |        | 22    |   |  |        | 465   |   |  |       | 637   |  
|                                                                                                                                                 |                                                                                             |                            
|                                                                                                                                                 |                                                                                             |                             | 2,994  |       |   |      | 1,896  |       |   |  | 3,246  |       |   |  | 4,921 |      
|Direct costs                                                                                                                                     |                                                                                             |                             | 2,403  |       |   |      | 1,522  |       |   |  | 3,297  |       |   |  | 3,034 |      
|                                                                                                                                                 |                                                                                             |                            
|                                                                                                                                                 | Gross margin                                                                                |                             |        | 591   |   |      |        | 374   |   |  |        | (51   | ) |  |       | 1,887 |  
|Operating expenses:                                                                                                                              |                                                                                             |                             |        |       |   |      |        |       |   |  |        |       |   |  |       |      
|                                                                                                                                                 | Selling, general and administrative                                                         |                             |        | 562   |   |      |        | 356   |   |  |        | 836   |   |  |       | 783   |  
|                                                                                                                                                 | Research and development                                                                    |                             |        | 458   |   |      |        | 290   |   |  |        | 525   |   |  |       | 506   |  
|                                                                                                                                                 | Amortization of goodwill and intangibles                                                    |                             |        | 70    |   |      |        | 44    |   |  |        | 436   |   |  |       | 647   |  
|                                                                                                                                                 | Purchased in-process research and development                                               |                             |        |      |   |      |        |      |   |  |        |      |   |  |       | 32    |  
|                                                                                                                                                 | Business restructuring charges                                                              |                             |        | 349   |   |      |        | 221   |   |  |        | 396   |   |  |       |      |  
|                                                                                                                                                 | Impairment of long-lived assets                                                             |                             |        | 109   |   |      |        | 69    |   |  |        | 3,968 |   |  |       |      |  
|                                                                                                                                                 | (Gain)/loss on sale of businesses, net                                                      |                             |        | (8    | ) |      |        | (5    | ) |  |        | 93    |   |  |       | (45   | )
|                                                                                                                                                 | Other (income)/expenses                                                                     |                             |        | (3    | ) |      |        | (2    | ) |  |        | 116   |   |  |       | 16    |  
|                                                                                                                                                 |                                                                                             |                            
|Total operating expenses                                                                                                                         |                                                                                             |                             | 1,537  |       |   |      | 973    |       |   |  | 6,370  |       |   |  | 1,939 |      
|                                                                                                                                                 |                                                                                             |                            
|Operating loss                                                                                                                                   |                                                                                             |                             | (946   | )     |   |      | (599   | )     |   |  | (6,421 | )     |   |  | (52   | )    
|Other income/(expense):                                                                                                                          |                                                                                             |                             |        |       |   |      |        |       |   |  |        |       |   |  |       |      
|                                                                                                                                                 | (Loss)/gain on sale of investments, net                                                     |                             |        | (8    | ) |      |        | (5    | ) |  |        | 81    |   |  |       | 475   |  
|                                                                                                                                                 | Impairment of investments                                                                   |                             |        | (63   | ) |      |        | (40   | ) |  |        |      |   |  |       |      |  
|                                                                                                                                                 | Provision for related party receivables                                                     |                             |        | (472  | ) |      |        | (299  | ) |  |        |      |   |  |       |      |  
|                                                                                                                                                 | Interest income                                                                             |                             |        | 71    |   |      |        | 45    |   |  |        | 40    |   |  |       | 44    |  
|                                                                                                                                                 | Interest expense                                                                            |                             |        | (576  | ) |      |        | (365  | ) |  |        | (278  | ) |  |       | (195  | )
|                                                                                                                                                 |                                                                                             |                            
|(Loss)/income from continuing operations before
    income taxes, minority interests, cumulative effects of changes
    in accounting principles |                                                                                             |                             | (1,994 | )     |   |      | (1,263 | )     |   |  | (6,578 | )     |   |  | 272   |      
|                                                                                                                                                 | Income tax benefit/(provision)                                                              |                             |        | 330   |   |      |        | 209   |   |  |        | 471   |   |  |       | (17   | )
|                                                                                                                                                 | Equity in net loss of affiliates                                                            |                             |        | (98   | ) |      |        | (62   | ) |  |        | (196  | ) |  |       | (137  | )
|                                                                                                                                                 | Minority interests                                                                          |                             |        |      |   |      |        |      |   |  |        |      |   |  |       | (3    | )
|                                                                                                                                                 |                                                                                             |                            
|(Loss)/income from continuing operations, before
    cumulative effects of changes in accounting principles                                      |                                                                                             |                             | (1,762 | )     |   |      | (1,116 | )     |   |  | (6,303 | )     |   |  | 115   |      
|Discontinued operations:                                                                                                                         |                                                                                             |                             |        |       |   |      |        |       |   |  |        |       |   |  |       |      
|                                                                                                                                                 | (Loss)/income from discontinued operations, net
    of tax of £2 (2002, £36, and 2001, £57) |                             |        | (117  | ) |      |        | (74   | ) |  |        | (64   | ) |  |       | 59    |  
|Gain on sale of discontinued operations, net of
    tax of £nil                                                                                  |                                                                                             |                             | 36     |       |   |      | 23     |       |   |  | 248    |       |   |  | 20    |      
|                                                                                                                                                 |                                                                                             |                            
|Net (loss)/income before cumulative effect of
    changes in accounting principles                                                               |                                                                                             |                             | (1,843 | )     |   |      | (1,167 | )     |   |  | (6,119 | )     |   |  | 194   |      
|Cumulative effect of changes in accounting
    principles, net of tax of £nil                                                                    |                                                                                             |                             |       |       |   |      |       |       |   |  | (240   | )     |   |  |      |      
|                                                                                                                                                 |                                                                                             |                            
|Net (loss)/income                                                                                                                                |                                                                                             |                             | (1,843 | )     |   |      | (1,167 | )     |   |  | (6,359 | )     |   |  | 194   |      
|                                                                                                                                                 |                                                                                             |                            
|Earnings per share  basic and diluted                                                                                                           |                                                                                             |                             |        |       |   |      |        |       |   |  |        |       |   |  |       |      
|                                                                                                                                                 | (Loss)/income from continuing operations                                                    |                             |        | (0.62 | ) |      |        | (0.39 | ) |  |        | (2.20 | ) |  |       | 0.04  |  
|                                                                                                                                                 | (Loss)/income from discontinued operations                                                  |                             |        | (0.05 | ) |      |        | (0.03 | ) |  |        | (0.02 | ) |  |       | 0.02  |  
|                                                                                                                                                 | Gain on sale of discontinued operations                                                     |                             |        | 0.02  |   |      |        | 0.01  |   |  |        | 0.09  |   |  |       | 0.01  |  
|                                                                                                                                                 | Cumulative effect of changes in accounting
    principles                                   |                             |        |      |   |      |        |      |   |  |        | (0.09 | ) |  |       |      |  
|                                                                                                                                                 |                                                                                             |                            
|Net (loss)/income                                                                                                                                |                                                                                             |                             | (0.65  | )     |   |      | (0.41  | )     |   |  | (2.22  | )     |   |  | 0.07  |      
|                                                                                                                                                 |                                                                                             |                            

See notes to consolidated financial statements.

F-4



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##### Table of Contents



Marconi Corporation plc and
subsidiaries

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                                                                  |                                           |                             |        |      |   |      |        |      |   |  |        |      |   |  |      |      |  
|----------------------------------------------------------------------------------------------------------------- | ----------------------------------------- | --------------------------- | ------ | ---- | - | ---- | ------ | ---- | - |  | ------ | ---- | - |  | ---- | ---- | -
|                                                                                                                  |                                           |                            
|                                                                                                                  |                                           | Fiscal year ended March 31,
|                                                                                                                  |                                           | 2003                        |        |     
|                                                                                                                  |                                           | U.S.$                       |        | 2003 |   | 2002 |        | 2001
|(in millions)                                                                                                     |                                           |                             |        | £    |   | £    |        | £   
|                                                                                                                  |                                           |                            
|                                                                                                                  |                                           |                            
|Cash flows from operating
    activities:                                                                         |                                           |                             |        |      |   |      |        |      |   |  |        |      |   |  |      |     
|Net (loss)/income                                                                                                 |                                           |                             | (1,843 | )    |   |      | (1,167 | )    |   |  | (6,359 | )    |   |  | 194  |     
|Adjustments to reconcile net (loss)/income to net
    cash used in operating activities of continuing operations: |                                           |                             |        |      |   |      |        |      |   |  |        |      |   |  |      |     
|Loss/(income) from discontinued operations                                                                        |                                           |                             | 117    |      |   |      | 74     |      |   |  | 64     |      |   |  | (59  | )   
|Gain on sale of discontinued operations                                                                           |                                           |                             | (36    | )    |   |      | (23    | )    |   |  | (248   | )    |   |  | (20  | )   
|Cumulative effect of changes in accounting
    principles                                                         |                                           |                             |       |      |   |      |       |      |   |  | 240    |      |   |  |     |     
|Loss on equity forward contracts                                                                                  |                                           |                             |       |      |   |      |       |      |   |  | 95     |      |   |  |     |     
|Loss/(gain) on sale of businesses and properties                                                                  |                                           |                             | 5      |      |   |      | 3      |      |   |  | 149    |      |   |  | (45  | )   
|(Gain)/loss on sale of debt and marketable equity
    securities                                                  |                                           |                             |       |      |   |      |       |      |   |  | (18    | )    |   |  | 96   |     
|Loss/(gain) on sale of investments in affiliates                                                                  |                                           |                             | 8      |      |   |      | 5      |      |   |  | (27    | )    |   |  | (571 | )   
|Charge arising on sale of accounts receivable                                                                     |                                           |                             |       |      |   |      |       |      |   |  |       |      |   |  | 3    |     
|Stock compensation                                                                                                |                                           |                             | 22     |      |   |      | 14     |      |   |  | 26     |      |   |  | 7    |     
|Impairment of long-lived assets                                                                                   |                                           |                             | 109    |      |   |      | 69     |      |   |  | 3,968  |      |   |  |     |     
|Impairment of investments                                                                                         |                                           |                             | 63     |      |   |      | 40     |      |   |  |       |      |   |  |     |     
|Depreciation and amortization                                                                                     |                                           |                             | 267    |      |   |      | 169    |      |   |  | 653    |      |   |  | 824  |     
|Purchased in-process research and development                                                                     |                                           |                             |       |      |   |      |       |      |   |  |       |      |   |  | 32   |     
|Provision for doubtful accounts                                                                                   |                                           |                             | (16    | )    |   |      | (10    | )    |   |  | 175    |      |   |  | 48   |     
|Provision for allowance for inventory write off                                                                   |                                           |                             | 39     |      |   |      | 25     |      |   |  | 805    |      |   |  |     |     
|Provision for related party receivables                                                                           |                                           |                             | 472    |      |   |      | 299    |      |   |  |       |      |   |  |     |     
|(Profit)/loss on disposal of property, plant and
    equipment                                                    |                                           |                             | (14    | )    |   |      | (9     | )    |   |  | (85    | )    |   |  | 20   |     
|Change in current and deferred taxes                                                                              |                                           |                             | (280   | )    |   |      | (177   | )    |   |  | (468   | )    |   |  | (193 | )   
|Equity in net loss of affiliates                                                                                  |                                           |                             | 98     |      |   |      | 62     |      |   |  | 196    |      |   |  | 137  |     
|Change in minority interests                                                                                      |                                           |                             |       |      |   |      |       |      |   |  |       |      |   |  | 3    |     
|Changes in operating assets and liabilities, net
    of the effect of acquisitions:                               |                                           |                             |        |      |   |      |        |      |   |  |        |      |   |  |      |     
|                                                                                                                  | Accounts receivable                       |                             |        | 248  |   |      |        | 157  |   |  |        | 479  |   |  |      | (415 | )
|                                                                                                                  | Proceeds from sale of accounts receivable |                             |        |     |   |      |        |     |   |  |        |     |   |  |      | 170  |  
|                                                                                                                  | Inventories                               |                             |        | 360  |   |      |        | 228  |   |  |        | 151  |   |  |      | (704 | )
|                                                                                                                  | Prepaid expenses and other assets         |                             |        | (33  | ) |      |        | (21  | ) |  |        | (36  | ) |  |      | (69  | )
|                                                                                                                  | Accounts payable                          |                             |        | (292 | ) |      |        | (185 | ) |  |        | (231 | ) |  |      | (74  | )
|                                                                                                                  | Accrued expenses and other liabilities    |                             |        | (240 | ) |      |        | (152 | ) |  |        | (152 | ) |  |      | 8    |  
|                                                                                                                  |                                           |                            
|Net cash used in operating activities                                                                             |                                           |                             | (946   | )    |   |      | (599   | )    |   |  | (623   | )    |   |  | (608 | )   
|                                                                                                                  |                                           |                            

See notes to consolidated financial statements.

F-5



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##### Table of Contents



|                                                                  |                                         |                             |        |      |  |      |        |      |  |  |       |     |   |  |       |       |  
|----------------------------------------------------------------- | --------------------------------------- | --------------------------- | ------ | ---- |  | ---- | ------ | ---- |  |  | ----- | --- | - |  | ----- | ----- | -
|                                                                  |                                         |                            
|                                                                  |                                         | Fiscal year ended March 31,
|                                                                  |                                         | 2003                        |        |     
|                                                                  |                                         | U.S.$                       |        | 2003 |  | 2002 |        | 2001
|(in millions)                                                     |                                         |                             |        | £    |  | £    |        | £   
|                                                                  |                                         |                            
|                                                                  |                                         |                            
|Cash flow from investing activities:                              |                                         |                             |        |      |  |      |        |      |  |  |       |     |   |  |       |      
|Maturities and sales of debt and marketable
    equity securities |                                         |                             |       |      |  |      |       |      |  |  | 317   |     |   |  | 39    |      
|Purchases of debt and marketable equity securities                |                                         |                             | (31    | )    |  |      | (20    | )    |  |  | (111  | )   |   |  | (131  | )    
|Proceeds from the sale of investments in
    affiliates           |                                         |                             |       |      |  |      |       |      |  |  | 150   |     |   |  | 646   |      
|Purchases of property, plant and equipment                        |                                         |                             | (55    | )    |  |      | (35    | )    |  |  | (327  | )   |   |  | (519  | )    
|Proceeds from the sale of property, plant and
    equipment       |                                         |                             | 47     |      |  |      | 30     |      |  |  | 171   |     |   |  | 12    |      
|Change in other non-current assets                                |                                         |                             |       |      |  |      |       |      |  |  |      |     |   |  | (5    | )    
|Dividends received from affiliates                                |                                         |                             |       |      |  |      |       |      |  |  | 29    |     |   |  | 80    |      
|Net cash paid for investments in affiliates                       |                                         |                             |       |      |  |      |       |      |  |  | (65   | )   |   |  |      |      
|Cash received from disposals                                      |                                         |                             | 688    |      |  |      | 436    |      |  |  | 971   |     |   |  | 185   |      
|Net cash paid for acquisitions                                    |                                         |                             |       |      |  |      |       |      |  |  | (18   | )   |   |  | (832  | )    
|                                                                  |                                         |                            
|Net cash provided by/(used in) investing
    activities           |                                         |                             | 649    |      |  |      | 411    |      |  |  | 1,117 |     |   |  | (525  | )    
|                                                                  |                                         |                            
|Cash flow (used in)/from financing
    activities:                |                                         |                             |        |      |  |      |        |      |  |  |       |     |   |  |       |      
|Short-term repayments, net                                        |                                         |                             | (47    | )    |  |      | (30    | )    |  |  | (206  | )   |   |  | (599  | )    
|Term loan (repayments)/borrowings, net                            |                                         |                             | (71    | )    |  |      | (45    | )    |  |  | 981   |     |   |  | 1,221 |      
|Issuance of ordinary shares                                       |                                         |                             |       |      |  |      |       |      |  |  |      |     |   |  | 303   |      
|Net cash provided by/(used in) related parties                    |                                         |                             | 38     |      |  |      | 24     |      |  |  | 62    |     |   |  | (99   | )    
|Restricted cash transferred to secured accounts                   |                                         |                             | (1,093 | )    |  |      | (692   | )    |  |  | (191  | )   |   |  | (81   | )    
|                                                                  |                                         |                            
|Net cash (used in)/provided by financing
    activities           |                                         |                             | (1,173 | )    |  |      | (743   | )    |  |  | 646   |     |   |  | 745   |      
|                                                                  |                                         |                            
|Net cash (used in)/provided by discontinued
    operations        |                                         |                             | (126   | )    |  |      | (80    | )    |  |  | 40    |     |   |  | 37    |      
|Effects of exchange rate changes on cash and cash
    equivalents |                                         |                             | (43    | )    |  |      | (27    | )    |  |  | (10   | )   |   |  | 30    |      
|Net (decrease)/increase in cash and cash
    equivalents          |                                         |                             | (1,639 | )    |  |      | (1,038 | )    |  |  | 1,170 |     |   |  | (321  | )    
|Cash and cash equivalents, beginning of year                      |                                         |                             | 1,942  |      |  |      | 1,230  |      |  |  | 60    |     |   |  | 381   |      
|                                                                  |                                         |                            
|Cash and cash equivalents, end of year                            |                                         |                             | 303    |      |  |      | 192    |      |  |  | 1,230 |     |   |  | 60    |      
|                                                                  |                                         |                            
|Supplemental disclosure of cash flow
    activity:                |                                         |                             |        |      |  |      |        |      |  |  |       |     |   |  |       |      
|Cash payments for interest                                        |                                         |                             | 396    |      |  |      | 251    |      |  |  | 266   |     |   |  | 156   |      
|Cash (repayment)/payment for income taxes                         |                                         |                             | (49    | )    |  |      | (31    | )    |  |  |      |     |   |  | 118   |      
|Acquisitions:                                                     |                                         |                             |        |      |  |      |        |      |  |  |       |     |   |  |       |      
|                                                                  | Tangible assets acquired                |                             |        |     |  |      |        |     |  |  |       | 1   |   |  |       | 63    |  
|                                                                  | Liabilities assumed                     |                             |        |     |  |      |        |     |  |  |       | (2  | ) |  |       | (115  | )
|                                                                  | Intangible assets generated             |                             |        |     |  |      |        |     |  |  |       | (22 | ) |  |       | 1,009 |  
|                                                                  | Deferred consideration                  |                             |        |     |  |      |        |     |  |  |       | 41  |   |  |       | (101  | )
|                                                                  | Issuance of loan notes for acquisitions |                             |        |     |  |      |        |     |  |  |       |    |   |  |       | (24   | )
|                                                                  |                                         |                            
|Total cash paid for acquisitions                                  |                                         |                             |       |      |  |      |       |      |  |  | 18    |     |   |  | 832   |      
|                                                                  |                                         |                            

During the fiscal year ended March 31, 2002,
the Company received shares in various businesses as
consideration for the disposal of ipsaris, Marconi Optical
Components, and Marconi Communications South Africa. Such
consideration was fair valued at £245 million.

See notes to consolidated financial statements.

F-6



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##### Table of Contents



Marconi Corporation plc and
subsidiaries

CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE
(LOSS)/INCOME

|                                                                          |                                                                                                                    |                             |        |      |   |      |        |      |   |  |        |      |   |  |     |     | 
|------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------ | --------------------------- | ------ | ---- | - | ---- | ------ | ---- | - |  | ------ | ---- | - |  | --- | --- | 
|                                                                          |                                                                                                                    |                            
|                                                                          |                                                                                                                    | Fiscal year ended March 31,
|                                                                          |                                                                                                                    | 2003                        |        |     
|                                                                          |                                                                                                                    | U.S.$                       |        | 2003 |   | 2002 |        | 2001
|(in millions)                                                             |                                                                                                                    |                             |        | £    |   | £    |        | £   
|                                                                          |                                                                                                                    |                            
|                                                                          |                                                                                                                    |                            
|Other comprehensive income:                                               |                                                                                                                    |                             |        |      |   |      |        |      |   |  |        |      |   |  |     |    
|Net (loss)/income                                                         |                                                                                                                    |                             | (1,843 | )    |   |      | (1,167 | )    |   |  | (6,359 | )    |   |  | 194 |    
|Other comprehensive (loss)/income:                                        |                                                                                                                    |                             |        |      |   |      |        |      |   |  |        |      |   |  |     |    
|                                                                          | Unrealized gains/(losses) on derivative
    instruments                                                            |                             |        | 35   |   |      |        | 22   |   |  |        | (23  | ) |  |     |    | 
|                                                                          | Accumulated translation adjustments, (net of
    income tax and reclassification adjustments)                      |                             |        | 68   |   |      |        | 43   |   |  |        | (68  | ) |  |     | 248 | 
|                                                                          | Unrealized (losses)/gains on investments, (net of
    income tax and reclassification adjustments)                 |                             |        |     |   |      |        |     |   |  |        |     |   |  |     | 117 | 
|                                                                          | Minimum pension liability, (net of income tax of
    £nil)                                                         |                             |        | (466 | ) |      |        | (295 | ) |  |        |     |   |  |     |    | 
|                                                                          |                                                                                                                    |                            
|Other comprehensive (loss)/income                                         |                                                                                                                    |                             | (2,206 | )    |   |      | (1,397 | )    |   |  | (6,450 | )    |   |  | 559 |    
|                                                                          |                                                                                                                    |                            
|Disclosure of tax and reclassification
    amounts:                       |                                                                                                                    |                             |        |      |   |      |        |      |   |  |        |      |   |  |     |    
|Unrealized gains/(losses) on derivative
    instruments, net of tax of £1 |                                                                                                                    |                             | 35     |      |   |      | 22     |      |   |  | (18    | )    |   |  |    |    
|                                                                          | Cumulative effect of accounting change, net of
    tax of £1                                                       |                             |        |     |   |      |        |     |   |  |        | (2   | ) |  |     |    | 
|                                                                          | Less: reclassification adjustment for loss
    included in net (loss)/income, net of tax of £1                     |                             |        |     |   |      |        |     |   |  |        | (3   | ) |  |     |    | 
|                                                                          |                                                                                                                    |                            
|                                                                          | Unrealized gains/(losses) on derivative
    instruments                                                            |                             |        | 35   |   |      |        | 22   |   |  |        | (23  | ) |  |     |    | 
|                                                                          |                                                                                                                    |                            
|                                                                          | Accumulated translation adjustments, net of tax
    of £nil                                                        |                             |        | 68   |   |      |        | 43   |   |  |        | (111 | ) |  |     | 248 | 
|                                                                          | Less: reclassification adjustment for gains
    included in net (loss)/income, net of tax of £nil (2002,
    £nil) |                             |        |     |   |      |        |     |   |  |        | 43   |   |  |     |    | 
|                                                                          |                                                                                                                    |                            
|                                                                          | Net translation adjustments                                                                                        |                             |        | 68   |   |      |        | 43   |   |  |        | (68  | ) |  |     | 248 | 
|                                                                          |                                                                                                                    |                            
|                                                                          | Unrealized (gains)/losses on investments, net of
    tax of £nil (2002, £77 and 2001, £50)                         |                             |        |     |   |      |        |     |   |  |        | (217 | ) |  |     | 117 | 
|                                                                          | Less: reclassification adjustment for gains
    included in net (loss)/income, net of tax of £nil
    (2002, £77)  |                             |        |     |   |      |        |     |   |  |        | 217  |   |  |     |    | 
|                                                                          |                                                                                                                    |                            
|                                                                          | Net unrealized gains on investments                                                                                |                             |        |     |   |      |        |     |   |  |        |     |   |  |     | 117 | 
|                                                                          |                                                                                                                    |                            

See notes to consolidated financial statements.

F-7



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##### Table of Contents



Marconi Corporation plc and
subsidiaries

CONSOLIDATED STATEMENTS OF SHAREHOLDERS
(DEFICIT)/EQUITY

|                                   |                                                         |                 |               |            |  |           |     |               |  |               |     |       |   |  |        |        |   |  |      |      |   |  |        |        |  
|---------------------------------- | ------------------------------------------------------- | --------------- | ------------- | ---------- |  | --------- | --- | ------------- |  | ------------- | --- | ----- | - |  | ------ | ------ | - |  | ---- | ---- | - |  | ------ | ------ | -
|                                   |                                                         |                 |               |            |  |           |     |               |  | Accumulated   |     |      
|                                   |                                                         |                 |               | Additional |  | Retained  |     | other         |  |              
|                                   |                                                         | Ordinary shares |               | paid-in    |  | earnings/ |     | comprehensive |  |              
|(in £ millions, except share data) |                                                         | Shares          |               | Amount     |  | capital   |     | (deficit)     |  | income/(loss) |     | Total
|                                   |                                                         |                
|                                   |                                                         |                
|As of March 31, 2000               |                                                         |                 | 2,825,426,890 |            |  |           | 141 |               |  |               | 490 |       |   |  | 3,277  |        |   |  | (144 | )    |   |  | 3,764  |       
|                                   | Net income                                              |                 |               |            |  |           |     |               |  |               |     |       |   |  |        | 194    |   |  |      |      |   |  |        | 194    |  
|                                   | Issuance of ordinary shares                             |                 |               | 40,823,845 |  |           |     | 2             |  |               |     | 329   |   |  |        |        |   |  |      |      |   |  |        | 331    |  
|                                   | Unrealized gains on investments, net of tax             |                 |               |            |  |           |     |               |  |               |     |       |   |  |        |        |   |  |      | 117  |   |  |        | 117    |  
|                                   | Equity forward contracts                                |                 |               |            |  |           |     |               |  |               |     | (215  | ) |  |        |        |   |  |      |      |   |  |        | (215   | )
|                                   | Capital contribution for stock based compensation       |                 |               |            |  |           |     |               |  |               |     | 25    |   |  |        |        |   |  |      |      |   |  |        | 25     |  
|                                   | Translation adjustments                                 |                 |               |            |  |           |     |               |  |               |     |       |   |  |        |        |   |  |      | 248  |   |  |        | 248    |  
|                                   |                                                         |                
|As of March 31, 2001               |                                                         |                 | 2,866,250,735 |            |  |           | 143 |               |  |               | 629 |       |   |  | 3,471  |        |   |  | 221  |      |   |  | 4,464  |       
|                                   | Net loss                                                |                 |               |            |  |           |     |               |  |               |     |       |   |  |        | (6,359 | ) |  |      |      |   |  |        | (6,359 | )
|                                   | Fair value movements on derivative instruments          |                 |               |            |  |           |     |               |  |               |     |       |   |  |        |        |   |  |      | (21  | ) |  |        | (21    | )
|                                   | Unrealized holding gains on investments, net of
    tax |                 |               |            |  |           |     |               |  |               |     |       |   |  |        |        |   |  |      | (217 | ) |  |        | (217   | )
|                                   | Equity forward contracts                                |                 |               |            |  |           |     |               |  |               |     | (25   | ) |  |        |        |   |  |      |      |   |  |        | (25    | )
|                                   | Capital contribution for stock based compensation       |                 |               |            |  |           |     |               |  |               |     | 34    |   |  |        |        |   |  |      |      |   |  |        | 34     |  
|                                   | Translation adjustments                                 |                 |               |            |  |           |     |               |  |               |     |       |   |  |        |        |   |  |      | (68  | ) |  |        | (68    | )
|                                   | Cumulative effect of accounting
    change  EITF 00-19 |                 |               |            |  |           |     |               |  |               |     | 240   |   |  |        |        |   |  |      |      |   |  |        | 240    |  
|                                   | Cumulative effect of accounting
    change  SFAS 133   |                 |               |            |  |           |     |               |  |               |     |       |   |  |        |        |   |  |      | (2   | ) |  |        | (2     | )
|                                   |                                                         |                
|As of March 31, 2002               |                                                         |                 | 2,866,250,735 |            |  |           | 143 |               |  |               | 878 |       |   |  | (2,888 | )      |   |  | (87  | )    |   |  | (1,954 | )     
|                                   | Net loss                                                |                 |               |            |  |           |     |               |  |               |     |       |   |  |        | (1,167 | ) |  |      |      |   |  |        | (1,167 | )
|                                   | Fair value movements on derivative instruments          |                 |               |            |  |           |     |               |  |               |     |       |   |  |        |        |   |  |      | 22   |   |  |        | 22     |  
|                                   | Capital contribution for stock based compensation       |                 |               |            |  |           |     |               |  |               |     | 14    |   |  |        |        |   |  |      |      |   |  |        | 14     |  
|                                   | Shares issued by equity method investee                 |                 |               |            |  |           |     |               |  |               |     | 3     |   |  |        |        |   |  |      |      |   |  |        | 3      |  
|                                   | Translation adjustments                                 |                 |               |            |  |           |     |               |  |               |     |       |   |  |        |        |   |  |      | 43   |   |  |        | 43     |  
|                                   | Minimum pension liability                               |                 |               |            |  |           |     |               |  |               |     |       |   |  |        |        |   |  |      | (295 | ) |  |        | (295   | )
|                                   |                                                         |                
|As of March 31, 2003               |                                                         |                 | 2,866,250,735 |            |  |           | 143 |               |  |               | 895 |       |   |  | (4,055 | )      |   |  | (317 | )    |   |  | (3,334 | )     
|                                   |                                                         |                

See notes to consolidated financial statements.

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Marconi Corporation plc and
subsidiaries

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

1.   Nature of Business and
basis of preparation:

Nature of business

Marconi Corporation plc and its subsidiaries and
joint ventures (together the Company) is a global
vendor of telecommunications equipment and services. The Company
is organized into two main divisions: Core and Capital. The Core
business includes the provision of optical networks, broadband
routing and switching, broadband access, outside plant and
power, other network equipment and associated installation,
maintenance and other value-added services. The Companys
customers include telecommunications companies and providers of
internet services for their public networks and some large
corporations, government departments and agencies, utilities and
educational institutions for their private networks. The Capital
business comprises certain non-core businesses that are managed
for value and ultimately for disposal. These include an
investment in Easynet Group plc as well as a number of other
minor activities, investments and assets with whom the Company
has a base of installed equipment.

On May 19, 2003, the Company and its former
parent holding company Marconi plc concluded a financial
restructuring (the Financial Restructuring). The
Financial Restructuring was effected through two separate
schemes of arrangement under the U.K. Companies Act 1985.

One scheme of arrangement involved the creditors
of the Company, except for certain excluded categories of
creditors, but including the syndicate banks and bondholders to
whom our primary financial indebtedness was owed. The second
scheme of arrangement involved creditors of Marconi plc, the
Companys former parent holding company. In connection with
the Financial Restructuring, the existing share capital of
Marconi Corporation plc was converted to non-voting deferred
shares, and subsequently cancelled through a capital reduction.
As a result, Marconi Corporation plc became the new holding
company, replacing Marconi plc, and Marconi plc ceased to be
beneficial owner of the Company.

Additional information on the Financial
Restructuring can be found in note 23, Subsequent events.

Basis of preparation

The accompanying consolidated financial
statements have been prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. During fiscal
2003, the Company met its day-to-day working capital
requirements through syndicated banking facilities, certain
bilateral bank facilities and its own cash resources. As shown
in the consolidated financial statements, during fiscal 2003,
the Company incurred losses from continuing operations before
income taxes, minority interests, cumulative effects of changes
in accounting principles of £1,263 million and, as of
the fiscal year then ended, its current liabilities
exceeded its current assets by £4,068 million, and
its shareholders deficit was
£3,334 million. Following the Financial Restructuring
concluded on May 19, 2003, which resulted in, amongst other
things, a significant reduction in the Companys external
debt, the Company believes it has sufficient resources to
continue as a going concern.

2.   Summary of significant
accounting policies

Basis of consolidation

The accompanying consolidated financial
statements include the accounts of Marconi Corporation plc and
its subsidiaries that are more than 50% owned and controlled.
Investments in affiliates in which the Company exercises
significant influence but not control (generally those with a
20-50% ownership interest) are accounted for under the equity
method of accounting. Investments in non-listed entities in
which the Company has less than a 20% ownership interest are
accounted for under the cost method. All intercompany balances
and transactions have been eliminated upon consolidation.

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Use of estimates

The preparation of the consolidated financial
statements and related disclosures in conformity with accounting
principles generally accepted in the United States of America
(U.S. GAAP) 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, inventory reserves, depreciation and amortization,
sales returns, warranty costs, taxes, certain accruals,
payables, long-term contract profit estimates, employee
benefits, long-lived asset impairment calculations and
contingencies. Actual results could differ from these estimates.

Income taxes

The Company 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. The Company recognizes
a valuation allowance against such deferred tax assets when it
is more likely than not that such assets will not be
recovered. During fiscal years 2003 and 2002 all deferred tax
assets, without offsetting liabilities in the same jurisdiction,
were fully reserved.

Foreign currency

The consolidated financial statements are
prepared in U.K. pounds sterling. The functional currency of
each of Marconi Corporation plcs subsidiaries is the local
currency in which each subsidiary is located. Transactions in
currencies other than the functional currency are translated at
the exchange rate in effect at the date of each transaction.
Differences in exchange rates during the period between the date
a transaction denominated in a foreign currency is consummated
and the date on which it is either settled or translated are
recognized in the statement of operations.

Net income and cash flows of non-U.K. pounds
sterling subsidiaries and equity investments are translated at
the average rates of exchange during the year. The assets and
liabilities of such entities are translated at year-end rates of
exchange. Translation adjustments are included in other
comprehensive (loss)/income, as a separate component of
shareholders (deficit)/equity. Key exchange rates relative
to U.K. pounds sterling used are as follows:

|            |  |                             |      |                 |  |      |      |      |  |      |      |  |  |  |      |  |  |  |      | 
|----------- |  | --------------------------- | ---- | --------------- |  | ---- | ---- | ---- |  | ---- | ---- |  |  |  | ---- |  |  |  | ---- | 
|            |  |                             |      |                
|            |  | Average rates               |      | Year-end rates 
|            |  | Fiscal year ended March 31, |      | As of March 31,
|            |  | 2003                        |      | 2002            |  | 2001 |      | 2003 |  | 2002
|            |  |                            
|            |  |                            
|U.S. Dollar |  |                             | 1.55 |                 |  |      | 1.43 |      |  |      | 1.48 |  |  |  | 1.58 |  |  |  | 1.42 | 
|Euro        |  |                             | 1.55 |                 |  |      | 1.63 |      |  |      | 1.63 |  |  |  | 1.45 |  |  |  | 1.63 | 

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, 2003 are also presented in
U.S. dollars. These U.S. dollar amounts are presented
solely for the convenience of the reader at the rate of
£1.00 = $1.5790, the noon buying rate of the
U.S. Federal Reserve Bank as of March 31, 2003. This
rate may differ from the rates used in the preparation of our
consolidated financial statements. These translated amounts
should not be construed as representations that the U.K. pounds
sterling amounts could have been, or could in the future be
converted into U.S. dollars at this or any other exchange
rate.

Revenue

The Company recognizes revenue under Statement of
Position (SOP) 81-1, Accounting for Performance of
Construction-Type and certain Production-Type Contracts,
SOP 97-2, Software Revenue

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Recognition and SEC
Staff Accounting Bulletin No. 101, Revenue Recognition
in Financial Statements depending upon the terms of the
contract.


Revenue from product sales of hardware and
software is recognised when: persuasive evidence of an
arrangement exists; delivery has occurred or services have been
rendered; customer acceptance has occurred; the price to the
buyer is fixed or determinable; and collectability is reasonably
assured.

Revenue from services is recognised at time of
performance and acceptance by the customer.

Revenue from multiple element contracts is
allocated based on the relative fair value of each individual
element.

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

Revenue is reported net of sales returns and
allowances, early settlement discounts, sales rebates settled by
credit notes, volume discounts and commissions earned by
distributors.

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.

Cash and cash equivalents

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

Restricted cash

Cash balances pledged or advanced as collateral
are considered to be restricted cash. At March 31, 2003 and
2002, the total restricted cash was £964 million and
£272 million respectively. The total restricted cash
balance consists of: £771 million (2002, £nil)
held in secured accounts, £135 million (2002,
£25 million) of cash collateral placed against bonding
facilities; £27 million (2002, £nil) of cash held
in Employee Share Option Plan (ESOP) escrow accounts;
£17 million (2002, £17 million) of cash in
insurance reserves and £14 million (2002,
£16 million) of cash deposited against secured loans
in Italy. At March 31, 2003, the Marconi Employee Trust
provided £nil as collateral against certain equity forward
contracts (2002, £214 million) This is discussed
further in Equity forward contracts within this section.

Marketable equity securities

Investments in securities are classified as
available-for-sale and recorded at fair value. Net unrealized
holding gains and losses, net of tax, are reported as a separate
component of shareholders (deficit)/equity, except where
holding losses are determined to be
other-than-temporary, whereby the losses are
reported in gains and losses on sales of investments in the
consolidated statement of operations. Gains and losses on
disposals of marketable equity securities are determined using
the specific identification method.

Inventories and contracts in
progress

Inventories are stated at the lower of cost,
including appropriate overheads, determined on a
weighted-average basis or estimated net realizable value.
Reserves are made for any losses incurred or expected to be
incurred on uncompleted contracts. Profit on long-term contracts
in progress is taken when a sale is recorded on part-delivery of
products or part-performance of services, provided that the
outcome of the contract can be assessed with reasonable
certainty. Advance payments received from customers are shown as
creditors unless there is a right of set-off against the value
of work undertaken. Progress payments

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received are deducted from the value of the work
carried out, any excess being included with payments received in
advance.


Property, plant and equipment

Property, plant and equipment is stated at cost.
Cost of significant assets includes capitalized interest
incurred during the construction and development period.
Depreciation expense is computed using the straight-line method
over the estimated useful lives of the depreciable assets. The
estimated 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 operating (loss)/income.

Impairment or disposal of long-lived
assets

The Company 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 its disposition, is less than the
carrying value of the asset. The impairment loss is calculated
by comparing the carrying value of the asset with its fair
value, which is usually estimated using discounted cash flows
expected to be generated from the assets.

During fiscal 2003 tangible fixed assets were
impaired by £69 million (2002, £154 million).

Long-lived assets are classified as held-for-sale
when certain criteria are met, which include: management
commitment to a plan to sell the assets; the availability of the
assets for immediate sale in their present condition; whether an
active program to locate buyers and other actions to sell the
assets has been initiated; whether the sale of the assets is
probable and their transfer is expected to qualify for
recognition as a completed sale within one year; whether the
assets are being marketed at reasonable prices in relation to
their fair value; and how unlikely it is that significant
changes will be made to the plan to sell the assets. The Company
measures long-lived assets to be disposed of by sale at the
lower of carrying amount and fair value less cost to sell. Fair
value is determined using quoted market prices or the
anticipated cash flows discounted at a rate commensurate with
the risk involved.

The Company classifies an asset or asset group
that will be disposed of other than by sale as held and used
until the disposal transaction occurs. The asset or asset group
continues to be depreciated based on revisions to its estimated
useful life until the date of disposal or abandonment.

Goodwill and other intangible
assets

Fiscal 2003

Beginning in fiscal 2003 with the adoption of
Statement of Financial Accounting Standard
(SFAS) No. 142,Goodwill and Other Intangible
Assets, the Company no longer amortizes goodwill, but
instead tests for impairment on an annual basis and at any other
time if events occur or circumstances change that would more
likely than not reduce the fair value of the reporting unit
below its carrying amount.

If the carrying amount of the reporting unit
exceeds its estimated fair value, its associated goodwill is
written down to its implied fair value using a hypothetical
purchase price allocation. Any impairment loss is recorded in
the consolidated statement of operations. Measurement of the
fair value of a reporting unit is based on one or more of the
following fair value measures including: amounts at which the
unit as a whole could be bought or sold in a current transaction
between willing parties; using present value techniques of
estimated future cash flows; or using valuation techniques based
on multiples of earnings or revenue, or a similar performance
measure.

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Upon adoption of SFAS 142, the Company completed
a transitional goodwill impairment test. As a result a net book
value of £1 million of previously recognized
intangible assets related to the assembled workforce was
reclassified to goodwill. The Company has not identified any
intangible assets for which it will adopt an indefinite useful
life, nor has it revised the amortization periods for any
intangible assets. Intangible assets are carried at cost and are
amortized using the straight-line method over the estimated
periods to be benefited, ranging from 4 to 15 years.

Based on these evaluations, in fiscal 2003, no
impairment charge was recorded in respect of goodwill and other
intangible assets.

Periods ended March 31, 2002

Prior to fiscal 2003, goodwill was amortized
using the straight-line method over its estimated useful life.

The Company periodically evaluated 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. The Company measured
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, an impairment charge of £3,814 million
was recorded in respect of goodwill and other intangible assets
in fiscal 2002. There were no impairments to the carrying value
of goodwill and other intangible assets in fiscal 2001. This is
discussed further in notes 6 and 7.

Concentrations of credit risk

Credit risk relates to the risk of loss that the
Company would incur as a result of non-performance by
counterparties. The Company maintains credit policies with
regard to its counterparties that enable management to manage
overall credit risk. The Company generally does not obtain
collateral to support the agreements but establishes credit
limits, monitors the financial viability of counterparties and
seeks guarantees where appropriate. The Company believes that it
has established adequate reserves in regard to the risk of
non-performance by counterparties. At March 31, 2003, there
are no customers who accounted for more than 10% of the
groups trade receivables.

Derivative instruments, excluding equity
forward contracts

The Company is exposed to interest rate risk on
its borrowings, cash and investments. Its general policy has
been to maintain at least 50% of debt at fixed rates of
interest. This was achieved by entering into receive-variable
pay-fixed interest rate swaps to reduce variability of cash
flows on floating-rate debt, and entering into receive fixed,
pay-variable interest rate swaps to reduce the fair value risk
on its fixed rate bonds. As a result of the discussions relative
to the Financial Restructuring, these contracts have all been
terminated during fiscal 2003.

The Company conducts a significant proportion of
its business activities outside the United Kingdom in currencies
other than sterling. Its principal exchange rate exposures
relate to U.S. dollar/ pounds sterling and euro/pounds
sterling exchange rates for both transactional and translation
related exposures. The Company uses foreign currency exchange
contracts to manage currency rate fluctuations by generating
cash flows, which offset the foreign currency cash flows of
certain contractual and forecast payments and receipts incurred
in the ordinary course of business.

The Companys derivative financial
instruments are for purposes other than trading and are not
entered into for speculative purposes. The Companys
non-derivative financial instruments include letters of credit,
commitments to extend credit and guarantees of debt.

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Equity forward contracts

The Companys former parent company, Marconi
plc, has, in the past, issued share options to the
Companys employees under a number of different option
plans, collectively known as the ESOP. Under these
plans, options may be satisfied by way of a transfer of existing
Marconi plc ordinary shares acquired in the market by an
employee trust or other vehicle, or, under some of the plans
only, by an issue of new Marconi plc shares.

From January 2000, in order to hedge part of the
potential cost of the plans estimated at that time, the
independent trustee of the Marconi Employee Trust (MET), Bedell
Cristin Trustees Limited (BCTL), entered into swap
contracts with three financial institutions (the ESOP Derivative
Banks) to purchase a total of 40 million shares in the
future at prices which were fixed at the date of contract.

On June 30, 2001, the Company adopted
Emerging Issues Task Force (EITF) No. 00-19, Accounting
for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Companys Own Stock, which requires such
instruments to be marked to market, and the obligations recorded
as a liability. As a result, the Company recorded a cumulative
effect of changes in accounting principles of
£240 million related to the loss on such instrument as
of the implementation date, which was previously recorded within
equity. Subsequent to the implementation date, additional market
losses of £95 million have been recorded in other
expenses in the statement of operations.

At March 31, 2003, the purchase of
38.5 million shares under these contracts was outstanding.
The maximum exposure under the contracts was
£337 million, plus accrued finance charges. Certain
contracts require BCTL to deposit cash collateral with the
relevant ESOP Derivative Banks if the share price falls to
certain levels stipulated in those contracts. The Company, at
the request of Marconi plc, funds the provision of this
collateral.

At March 31, 2002, £214 million of
collateral, the maximum amount of collateral payable under these
contracts, had been paid. Agreement has been reached to settle
these contracts which were closed out on May 19, 2003. The
agreed settlement amount is £35 million. The carrying
value at March 31, 2003 is £158 million. At
March 31, 2003, £27 million of cash balances was
held in escrow with respect to these equity forward contracts.
See Restricted cash within this section.

Fair value hedges

As part of its overall risk management strategy,
the Company uses derivatives to convert its fixed-rate debt into
variable-rate debt, and to hedge its foreign currency firm
commitments. These derivatives are typically designated as fair
value hedges, to manage the interest rate risk or foreign
currency risk of the hedged item accordingly. The carrying
amount of the hedged item is adjusted for gains or losses
attributable to the hedged risk. This unrealised gain or loss is
offset by changes in the fair value of the derivative. All
hedging ineffectiveness is included in earnings in the current
period.

Hedge accounting is discontinued prospectively
when the derivative no longer qualifies as an effective hedge,
the derivative is terminated or sold, or on the sale or early
termination of the hedged item.

For fiscal 2003, the ineffective portion of all
the Companys fair value hedges was immaterial as the terms
of the hedging instruments match the terms of the underlying
hedged items. The Company does not exclude any components of the
derivative gains and losses from the assessment of hedge
effectiveness. The amount recognized in earnings for hedged firm
commitments that no longer qualified for fair value hedges was
immaterial.

Net investment hedges

The Companys policy has been to finance its
activities in the same currencies as those used for its foreign
investments in order to hedge foreign currency exposure of net
investments in foreign operations. This policy has been
implemented either by financing in the related currency or using
derivatives, such as currency swaps, which provide a synthetic
effect of a foreign currency loan, thereby reducing the exchange

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risk. As a result of the Financial Restructuring
which became effective May 19, 2003, a significant portion
of the Companys borrowings will be denominated in
U.S. Dollars. For further information on the Companys
Financial Restructuring, refer to note 23, Subsequent
events.


For fiscal 2003, approximately
£169 million (2002, £17 million) of net
gains related to non-derivative instruments used as net
investment hedges were included as a cumulative translation
adjustment in the statement of comprehensive (loss)/income.
These net gains principally offset the net losses recorded on
the respective net investments in foreign currencies being
hedged. The hedge instruments used by the Company did not result
in any material ineffectiveness. Their notional amounts were
similar to the net investments being hedged as of the beginning
of each quarter, and the currencies of the hedging instrument
and hedged item were the same.

The recorded amounts of the hedging instruments
are as follows:

|              |  |              |       |              |  |  |       | 
|------------- |  | ------------ | ----- | ------------ |  |  | ----- | 
|              |  | At March 31, |       | At March 31,
|              |  | 2003         |       | 2002        
|(in millions) |  | £            |       | £           
|              |  |             
|              |  |             
|Loans         |  |              | 2,330 |              |  |  | 2,533 | 
|              |  |             

Cash flow hedges

The Company has used interest rate swaps to hedge
the uncertainty of future cash flows due to its floating rate
debt, and foreign currency forward exchange contracts that
expire in less than twelve months to hedge against the effect
that fluctuation in exchange rates may have on cash flow
associated with forecasted purchases.

Hedge accounting is discontinued prospectively
when the derivative no longer qualifies as an effective hedge or
the derivative is terminated or sold. On the sale or early
termination of the hedged item, gains and losses are immediately
reclassified to other (income)/expense.

For fiscal 2003, the total ineffectiveness of all
cash flow hedges was immaterial since most of the terms of the
hedging instruments match the terms of the underlying hedged
items. The reclassification of gains and losses into earnings
from accumulated other comprehensive income as a result of the
discontinuance of cash flow hedges because management estimated
that it was still probable that original forecasted transactions
would occur by the end of the originally specified time period
or within an additional two-months thereafter was also
immaterial.

For those hedging relationships that are
designated as cash flow hedges the respective effective portion
of the gain or loss recorded in other comprehensive income until
it is necessary to be adjusted against net income in order to
offset the respective change in expected future cash flows on
the hedged transaction.

The total amount of losses in accumulated other
comprehensive income of £23 million (£1 million
related to tax) has been reclassified into earnings during
fiscal 2003 because, as a consequence of the Financial
Restructuring which occurred on May 19, 2003 it was no
longer probable at March 31, 2003 that the forecasted
transactions would occur.

Embedded derivatives

The Company has entered into various contracts
that may contain embedded derivative instruments,
implicit or explicit terms that affect some or all of the cash
flows or the value of other exchanges required by the contract
in a manner similar to a derivative instrument. According to the
requirements of SFAS 133, Accounting for Derivative
Instruments and Hedging Activities, they would need to be
bifurcated from the host contract and accounted for as a
derivative instrument. The Company has assessed the existence of
potential embedded derivatives contained in its contracts. No
material embedded derivatives in contracts were identified.

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All derivatives not designated as certain hedges
are recorded on the balance sheet at fair value with all changes
in fair value being recorded as a component of income from
continuing operations during the period that such contracts
remain outstanding.

At March 31, 2003 and 2002, other current
assets included £14.9 million and
£22.4 million respectively, representing the fair
value of derivative instruments. In addition,
£67.5 million and £23.6 million were
included in accrued expenses and other current payables for
derivative liabilities at March 31, 2003 and 2002,
respectively.

Pension and other post-retirement
benefits

The Company accounts for its defined benefit
pension plans and its non-pension post-retirement benefit plans
using actuarial models required by SFAS 87,
Employers Accounting for Pensions, and
SFAS 106, Employers Accounting for Post-retirement
Benefits Other Than Pensions, respectively. These models use
an attribution approach that generally spreads individual events
over the service lives of the employees in the plan. Examples of
events are plan amendments and changes in actuarial
assumptions such as discount rate, rate of compensation
increases and mortality. The principle underlying the required
attribution approach is that employees render service over their
service lives on a relatively smooth basis and, therefore, the
income statement effects of pensions or non-pension
post-retirement benefit plans are earned in, and should follow,
the same pattern.

One of the main components of the net periodic
pension calculation is the expected long-term rate of return on
plan assets. The required use of expected long-term rate of
return on plan assets may result in recognized pension income
that is greater or less than the actual returns of those plan
assets in any given year. Over time, however, the expected
long-term returns are designed to approximate the actual
long-term returns and, therefore, result in a pattern of income
and expense recognition that more closely matches the pattern of
the services provided by the employees. Differences between
actual and expected returns (to the extent that they exceed 10%
of the market value of assets at the start of the period) are
recognized in the net periodic pension calculation over the
remaining average service lifetimes of active members.

The Company uses long-term historical actual
return information, the mix of investments that comprise plan
assets, and future estimates of long-term investment returns by
reference to external sources to develop its expected return on
plan assets.

The discount rate assumptions used for pension
and non-pension post-retirement benefit plan accounting reflect
the rates available on high-quality fixed-income debt
instruments on March 31 of each year. The rate of
compensation increase is another significant assumption used in
the actuarial model for pension accounting and is determined by
the Company based upon its long-term plans for such increases.
For retiree medical plan accounting, the Company reviews
external data and its own historical trends for health care
costs to determine the health care cost trend rates.

If the unfunded accumulated benefit obligation
exceeds the fair value of the plan assets, the Company
recognizes an additional minimum liability that is at least
equal to the unfunded accumulated benefit obligation. Where an
additional minimum liability is recognized an intangible asset
is recognized up to the amount of any unrecognized prior service
cost and the balance is recognized through other comprehensive
income.

Product warranty

Provisions for estimated expenses related to
product warranties are made at the time products are sold. These
estimates are established using historical information on the
nature, frequency, and average cost of warranty claims.
Management actively studies trends of warranty claims and takes
action to improve equipment quality and minimize warranty
claims. Management believes that the warranty reserve is
appropriate; however, actual claims incurred could differ from
the original estimates, requiring adjustments to the reserve.

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Sale of accounts receivable

Periodically, the Company enters into
transactions to sell certain of its trade accounts receivable
and retains a servicing obligation but does not incur a
measurable asset or liability. Losses on the sale of receivables
are based on the carrying value of the assets sold less cash
received. Expenses and losses associated with such sales are
recognized as a component of interest expense and related
financing costs.

During fiscal 2003 and 2002, the Company did not
enter into any such transactions from continuing operations.

Stock based compensation

Employees of the Company participate in a number
of stock option plans whereby they receive rights over shares in
Marconi plc. The Company accounts for such employee share plans
under Accounting Principles Board Opinion (APB)
No. 25, Accounting for Stock Issued to Employees,
with any expense being matched by a credit to shareholders
equity as a capital contribution by Marconi plc. No compensation
cost has been recognized for all ordinary shares and share
options issued under fixed plans with a price equal to fair
market value. For fixed plans, the measurement date is the grant
date.

The Company has recognized compensation cost for
all ordinary shares and stock options issued with an exercise
price below fair market value at the grant date and for plans
subject to variable accounting. For variable plans, the
compensation cost is re-measured on the basis of current market
value of Marconi plc stock at the end of each reporting period.
For ordinary options, such expense is recognized over the
vesting period of the options. The Company recognizes
compensation expense for plans with performance conditions if
achievement of these conditions becomes probable.

The Company recognized compensation expense in
fiscal 2003 of approximately £14 million (2002,
£26 million and 2001, £7 million), related
to stock options issued below fair market value and those plans
which are variable. Had compensation cost for the employee share
plans been determined consistent with the fair value methodology
of SFAS 123, Accounting for Stock-Based
Compensation, the Companys net (loss)/income would
have been as follows:

|                                                                                                                             |                         |      |    |           |   |      |     |        |   |  |      |      | 
|---------------------------------------------------------------------------------------------------------------------------- | ----------------------- | ---- | -- | --------- | - | ---- | --- | ------ | - |  | ---- | ---- | 
|                                                                                                                             |                         |      |    | March 31, |   |     
|                                                                                                                             |                         | 2003 |    | 2002      |   | 2001
|(in millions, except per share data)                                                                                         |                         | £    |    | £         |   | £   
|                                                                                                                             |                         |     
|                                                                                                                             |                         |     
|Net (loss)/income:                                                                                                           |                         |      |    |           |   |      |     |        |   |  |      |     
|                                                                                                                             | As reported             |      |    | (1,167    | ) |      |     | (6,359 | ) |  |      | 194  | 
|Deduct: Total stock-based employee compensation
    determined under fair value based method, net of related tax
    effects |                         |      |   |           |   |      | (20 | )      |   |  | (164 | )   
|Add back: Total stock-based employee compensation
    determined under APB 25                                                |                         |      | 14 |           |   |      | 26  |        |   |  | 7    |     
|                                                                                                                             |                         |     
|                                                                                                                             | Pro forma (loss)/income |      |    | (1,153    | ) |      |     | (6,353 | ) |  |      | 37   | 
|                                                                                                                             |                         |     
|Pro forma (loss)/income per share:                                                                                           |                         |      |    |           |   |      |     |        |   |  |      |     
|                                                                                                                             | Basic                   |      |    | (0.40     | ) |      |     | (2.22  | ) |  |      | 0.01 | 
|                                                                                                                             |                         |     

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:

|                        |  |           |     |      |  |      |      |   |  |  |      |  
|----------------------- |  | --------- | --- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                        |  |          
|                        |  | March 31,
|                        |  | 2003      |     | 2002 |  | 2001
|                        |  |          
|                        |  |          
|Risk-free interest rate |  |           | n/a |      |  |      | 4.41 | % |  |  | 4.89 | %
|Expected life (years)   |  |           | n/a |      |  |      | 4.9  |   |  |  | 3.5  |  
|Assumed volatility      |  |           | n/a |      |  |      | 60.0 | % |  |  | 48.5 | %
|Expected dividends      |  |           |    |      |  |      |     |   |  |  | 0.05 |  

No stock options were granted during fiscal 2003.

F-17



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##### Table of Contents



Other comprehensive
income/(loss)

Comprehensive income/(loss) represents the net
income/(loss) for the period plus the results of certain
shareholders (deficit) equity changes that are not reflected in
the consolidated statements of operations.

The accumulated balances of other comprehensive
income are as follows:

|                                                         |  |                |      |             |  |                |      |            |  |               |     |   |  |  |      |   |  |  |      |  
|-------------------------------------------------------- |  | -------------- | ---- | ----------- |  | -------------- | ---- | ---------- |  | ------------- | --- | - |  |  | ---- | - |  |  | ---- | -
|                                                         |  |                |      |             |  | Net unrealized |      | Minimum    |  | Accumulated  
|                                                         |  | Net unrealized |      | Accumulated |  | gains/(losses) |      | pension    |  | other        
|                                                         |  | gains/(losses) |      | translation |  | on derivative  |      | liability  |  | comprehensive
|                                                         |  | on investments |      | adjustments |  | instruments    |      | adjustment |  | income/(loss)
|                                                         |  | £              |      | £           |  | £              |      | £          |  | £            
|                                                         |  |               
|                                                         |  |               
|As of March 31, 2000                                     |  |                | 100  |             |  |                | (244 | )          |  |               |    |   |  |  |     |   |  |  | (144 | )
|Movement for the year                                    |  |                | 117  |             |  |                | 248  |            |  |               |    |   |  |  |     |   |  |  | 365  |  
|                                                         |  |               
|As of March 31, 2001                                     |  |                | 217  |             |  |                | 4    |            |  |               |    |   |  |  |     |   |  |  | 221  |  
|Cumulative effect of change in accounting
    principles |  |                |     |             |  |                |     |            |  |               | (2  | ) |  |  |     |   |  |  | (2   | )
|Movement for the year                                    |  |                | (217 | )           |  |                | (68  | )          |  |               | (21 | ) |  |  |     |   |  |  | (306 | )
|                                                         |  |               
|As of March 31, 2002                                     |  |                |     |             |  |                | (64  | )          |  |               | (23 | ) |  |  |     |   |  |  | (87  | )
|Movement for the year                                    |  |                |     |             |  |                | 43   |            |  |               | 22  |   |  |  | (295 | ) |  |  | (230 | )
|                                                         |  |               
|As of March 31, 2003                                     |  |                |     |             |  |                | (21  | )          |  |               | (1  | ) |  |  | (295 | ) |  |  | (317 | )
|                                                         |  |               

Earnings per share

Earnings per share (EPS) are computed in
accordance with SFAS 128, Earnings per Share. Basic
EPS is computed by dividing consolidated net income by the
weighted average number of ordinary shares outstanding during
the period. Diluted EPS is computed by dividing consolidated net
income by the sum of the weighted average number of shares
outstanding and the weighted average number of potentially
dilutive common shares, based on the assumed exercise of
dilutive share options under the Companys stock option
plans. Such potentially dilutive common shares are excluded when
the effect would be to reduce a loss per share. During fiscal
2003, 2002 and 2001, there were no potentially dilutive common
shares as all share option plans related to shares of Marconi
plc.

On May 19, 2003 the Company cancelled the
existing ordinary shares in issue at March 31, 2003 and
issued 1 billion new ordinary shares in connection with the
Financial Restructuring. Refer to note 23, Subsequent
events, for further details.

Recently issued accounting pronouncements
not yet adopted

The United States Financial Accounting Standards
Board (FASB) has issued the following standards that have yet to
be adopted by the Company:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | SFAS 143, Accounting for Asset Retirement
    Obligations (SFAS 143), which requires that the present
    value of an asset retirement obligation be recorded as a
    liability in the period in which it incurs a legal obligation
    with the corresponding amount included in the basis of the asset
    and depreciated. SFAS 143 is effective for fiscal years
    beginning after June 15, 2002 and will be adopted by the
    Company with effect from April 1, 2003. The Company does
    not anticipate that SFAS 143 will have a significant impact
    on its financial position, cashflows and results of operations.
|
| |  | SFAS 145, Rescission of FASB Statements
    No. 4, 44 and 64, Amendment of FASB Statement No. 13,
    and Technical Corrections (SFAS 145), which impacts the
    reporting of gains and losses                                                                                                                                                                                                                                                                                                                                                                                                                                    

F-18



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##### Table of Contents



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | from extinguishment of debt and the reporting
    requirements for sale-leaseback transactions and certain lease
    modifications that have similar economic effects. SFAS 145
    is effective for fiscal years beginning after May 15, 2002.
    With the exception that the gain arising on the extinguishment
    of liabilities under the Financial Restructuring will not be
    reported as an extraordinary item, the Company does not
    anticipate that SFAS 145 will have a significant impact on its
    financial position, cash flows and results of operations.                                                                                                                                                                                                                                                                                                                     
|
| |  | SFAS 149, Amendment of Statement 133 on
    Derivative Instruments and Hedging Activities
    (SFAS 149), which amends and clarifies accounting for
    derivative instruments, including certain derivative instruments
    embedded in other contracts and for hedging activities under
    SFAS 133. SFAS 149 is generally effective for derivative
    instruments entered into or modified after June 30, 2003
    and for hedging relationships designated after June 30,
    2003. The Company is currently evaluating the impact of SFAS 149
    on its financial position, cash flows and results of
    operations.                                                                                                                                                                                                                                                                        
|
| |  | SFAS 150, Accounting for Certain
    Financial Instruments with Characteristics of both Liabilities
    and Equity (SFAS 150), which modifies the accounting for
    certain financial instruments that, under previous guidance,
    issuers could account for as equity. SFAS 150 requires that
    those instruments be classified as liabilities. SFAS 150 also
    requires disclosures about alternative ways of settling those
    instruments and the capital structure of entities, whose shares
    are all mandatorily redeemable. SFAS 150 is effective for
    financial instruments entered into or modified after
    May 31, 2003, and otherwise is effective at the beginning
    of the first interim period beginning after June 15, 2003.
    The Company is currently evaluating the impact of SFAS 150 on
    its financial position, cash flows and results of
    operations.
|
| |  | FASB Interpretation No. 46, Consolidation
    of Variable Interest Entities (FIN 46), which requires an
    entity to include the assets, liabilities and results of
    operations of a variable interest entity in its Consolidated
    Financial Statements, if it is the primary beneficiary of the
    variable interest entity. FIN 46 is effective immediately for
    all arrangements entered into after January 31, 2003. For
    arrangements entered into prior to January 31, 2003
    adoption is required at the beginning of the first interim or
    annual period after June 15, 2003. The Company does not
    anticipate that the adoption of FIN 46 will have a material
    impact on its financial position, cash flows and results of
    operations.                                                                                                                        
|
| |  | In November 2002, the Emerging Issues Task Force
    reached a final consensus related to Revenue Arrangements
    with Multiple Deliverables (EITF 00-21). The Task Force
    agreed the effective date for the consensus will be for all
    revenue arrangements entered into in fiscal periods beginning
    after June 15, 2003, with early adoption permitted. The
    Company will adopt EITF 00-21 for its fiscal year beginning
    April 1, 2004. The Company is currently evaluating the
    impact of EITF 00-21 on its financial position,
    cash flows and results of operations.                                                                                                                                                                                                                                                                                                    

Financial statement
reclassifications

Certain reclassifications have been made to 2002
and 2001 balances as well as segment information, in order to
conform to the 2003 presentation.

Non-statutory accounts

The accompanying financial statements do not
comprise statutory accounts within the meaning of
Section 240 of the Companies Act 1985. The Companys
statutory accounts for fiscal 2003 prepared in accordance with
generally accepted accounting principles in the United Kingdom
(U.K. GAAP) will be delivered to the Registrar of Companies for
England and Wales.

The auditors report on those accounts was
unqualified and did not contain a statement under
Section 237(2) or 237(3) of the Companies Act 1985.

F-19



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##### Table of Contents



3.   Balance sheet
information

|                                                    |                                      |           |     |      |       |  |       |      |       | 
|--------------------------------------------------- | ------------------------------------ | --------- | --- | ---- | ----- |  | ----- | ---- | ----- | 
|                                                    |                                      |          
|                                                    |                                      | March 31,
|                                                    |                                      | 2003      |     | 2002
|(in millions)                                       |                                      | £         |     | £   
|                                                    |                                      |          
|                                                    |                                      |          
|Accounts receivable, net:                           |                                      |           |     |      |       |  |       |     
|                                                    | Accounts receivable                  |           |     | 540  |       |  |       | 913  |      
|                                                    | Allowance for doubtful accounts      |           |     | (78  | )     |  |       | (167 | )    
|                                                    |                                      |          
|                                                    |                                      | Total     |     |      | 462   |  |       |      | 746   | 
|                                                    |                                      |          
|Inventories:                                        |                                      |           |     |      |       |  |       |     
|                                                    | Finished goods                       |           |     | 76   |       |  |       | 215  |      
|                                                    | Work-in-process                      |           |     | 69   |       |  |       | 148  |      
|                                                    | Raw materials                        |           |     | 89   |       |  |       | 167  |      
|                                                    |                                      |          
|                                                    |                                      | Total     |     |      | 234   |  |       |      | 530   | 
|                                                    |                                      |          
|Accrued expenses and other current
    liabilities: |                                      |           |     |      |       |  |       |     
|                                                    | Accrued income and other taxes       |           |     | 150  |       |  |       | 300  |      
|                                                    | Accrued expenses and deferred income |           |     | 182  |       |  |       | 765  |      
|                                                    | Other                                |           |     | 766  |       |  |       | 503  |      
|                                                    |                                      |          
|                                                    |                                      | Total     |     |      | 1,098 |  |       |      | 1,568 | 
|                                                    |                                      |          
|Property, plant and equipment, net:                 |                                      |           |     |      |       |  |       |     
|                                                    | Land                                 |           |     | 139  |       |  |       | 134  |      
|                                                    | Building and improvements            |           |     | 10   |       |  |       | 30   |      
|                                                    | Machinery and equipment              |           |     | 785  |       |  |       | 944  |      
|                                                    | Construction in progress             |           |     |     |       |  |       | 39   |      
|                                                    |                                      |          
|                                                    |                                      |           | 934 |      |       |  | 1,147 |     
|                                                    | Less: accumulated depreciation       |           |     | (671 | )     |  |       | (669 | )    
|                                                    |                                      |          
|                                                    |                                      | Total     |     |      | 263   |  |       |      | 478   | 
|                                                    |                                      |          

Depreciation expense for the fiscal 2003 was
£125 million (2002, £217 million and 2001,
£177 million). During fiscal 2003 the Company
capitalized £0.4 million (2002, £4 million
and 2001, £9 million) in interest expense related to
construction in progress.

During fiscal 2003 the Company disposed of land
and buildings with a net book value of £6 million for
sales proceeds of £17 million. The Company
subsequently leased back 40% of these land and buildings under a
10-year sale and leaseback agreement. The Company has a
continuing involvement in the land and buildings disposed, being
an interest in any future appreciation without risk of loss. The
Company is accounting for the 40% leased back as a
financing transaction.

During fiscal 2002 the Company disposed of land
and buildings with a net book value of £14 million for
sales proceeds of £21 million. The Company
subsequently leased these land and buildings under a 21-year
sale and leaseback agreement. The Company has a continuing
involvement in the land and buildings disposed, being an
interest in any future appreciation without risk of loss. The
Company is accounting for this transaction as a financing
transaction.

Total future lease payments under these
transactions are £38 million and the minimum amount
due for each of the next five years is £2.8 million.

During fiscal 2003 in conjunction with the
business restructuring and site rationalizations described in
note 5, Business restructuring charges, the Company
impaired property, plant and equipment by £69 million
(2002, £154 million).

F-20



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##### Table of Contents



4.   Debt and credit
facilities

Short-term debt

The Companys short-term borrowings consist
primarily of bank loans and overdrafts and are unsecured.

Under the Companys 1998 syndicated credit
agreement, a group of banks committed a maximum of
4.5 billion
(approximately £2.8 billion) at March 31, 2001 on
an unsecured, revolving basis until March 25, 2003.
Effective March 22, 2002, the undrawn portion of this
facility was cancelled and the facility was placed on demand.
Under the terms of this agreement, borrowings bear interest of
0.175% per annum over London inter-bank offered rate (LIBOR).

As of March 31, 2002, the average interest
rate on borrowings under the facility was 2.71% per annum (2001,
6.21%). On April 25, 2002, the Company agreed to increase
the interest rate on the syndicated facility to 2.25% per annum
over LIBOR effective from April 1, 2002. As of
March 31, 2003, the average interest rate, reflecting the
agreed increase, on borrowings under the facility was 6.36%. No
undrawn amounts were available to the Company under outstanding
credit facilities at March 31, 2003.

For further details on the impact of the
Financial Restructuring on the short-term borrowings and credit
facilities, refer to note 23, Subsequent events.

Long-term debt

|                                     |                      |           |        |       |  |  |       |       | 
|------------------------------------ | -------------------- | --------- | ------ | ----- |  |  | ----- | ----- | 
|                                     |                      |          
|                                     |                      | March 31,
|                                     |                      | 2003      |        | 2002 
|(in millions)                        |                      | £         |        | £    
|                                     |                      |          
|                                     |                      |          
|Term loans                           |                      |           | 2,221  |       |  |  | 2,227 |      
|Finance leases                       |                      |           |       |       |  |  | 9     |      
|                                     |                      |          
|                                     | Total obligations    |           |        | 2,221 |  |  |       | 2,236 | 
|Current maturities of long-term debt |                      |           | (2,191 | )     |  |  | (41   | )    
|                                     |                      |          
|                                     | Total long-term debt |           |        | 30    |  |  |       | 2,195 | 
|                                     |                      |          

On September 19, 2000, the Company issued
for cash consideration, two unsecured yankee bonds having an
aggregate principal amount of $1.8 billion (approximately
£1.3 billion). One bond is for $900 million
(approximately £630 million) with a coupon rate of
7.75% per annum, maturing on September 15, 2010. The other
bond is for $900 million (approximately
£630 million) with a coupon rate of 8.375% per annum,
maturing on September 15, 2030. On March 17, 2003 the
Company failed to meet a scheduled interest payment on these
bonds. As a result, as at March 31, 2003, these bonds were
repayable on demand.

On March 30, 2000, the Company issued for
cash consideration two unsecured euro bonds having an aggregate
principal amount of
1.5 billion
(approximately £927 million). One bond is for
500 million
(approximately £309 million) with a coupon rate of
5.625% per annum, maturing on March 30, 2005. The other
bond is for
1,000 million
(approximately £618 million) with a coupon rate of
6.375% per annum, maturing on March 30, 2010.

Both the yankee bonds and the euro bonds were
issued by the Company and are fully and unconditionally
guaranteed by Marconi plc up to the date of the Financial
Restructuring going effective. For further details on the impact
of the recently announced Financial Restructuring on the
long-term debt, refer to note 23, Subsequent events.

As of March 31, 2003, the Company had other
obligations of £20 million (2002,
£32 million) related to secured debenture loans.

F-21



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##### Table of Contents



Key covenants

The 1998 syndicated credit agreement includes
covenants and warranties and events of default. The agreement
does not contain any financial covenants, although it provides
that it is an event of default if there has been a material
adverse change in the financial condition of the Company taken
as a whole since the date of the latest annual accounts
delivered to the agent which has had or will have a material
adverse effect on the ability of Marconi Corporation plc to
comply with its payment obligations under this facility.

The following table sets forth the mandatory
reductions in principal under the terms of all long-term debt
agreements for each of the next five years based upon the
amounts outstanding at March 31, 2003:

|                                             |  |   |       | 
|-------------------------------------------- |  | - | ----- | 
|(in millions)                                |  | £
|                                             |  |  
|2004                                         |  |   | 2,191 | 
|2005                                         |  |   | 9     | 
|2006                                         |  |   | 4     | 
|2007                                         |  |   | 4     | 
|2008                                         |  |   | 3     | 
|Thereafter                                   |  |   | 10    | 
|                                             |  |   |       | 
|Long-term debt, including current maturities |  |   | 2,221 | 
|                                             |  |   |       | 

Short-term debt of approximately
£2,195 million is also repayable upon demand.

Under the terms of the Financial Restructuring,
the covenants and reductions have changed significantly. For
further details on the impact of the recently announced
Financial Restructuring on the long-term debt, refer to
note 23, Subsequent events.

5.   Business restructuring
charges

In September 2001, following the sudden and
significant downturn in trading in the global telecommunications
markets, the results of an operational review that had three
main objectives were announced. The original objectives were to
reorganize the group into two main reporting divisions; Core and
Capital, reduce group indebtedness from £4.4 billion
at August 31, 2001 to between £2.7 billion and
£3.2 billion by March 31, 2002 and reduce the
annual operating cost base. These objectives have now been
revised to reflect further operating cost base reductions during
fiscal 2004.

When management reviews the operating income
performance of the segments described in note 9, Segment
and related information disclosures, management uses U.K. GAAP
operating (loss)/profit before goodwill and intangible asset
amortization, in process research and development write-offs,
U.K. GAAP operating exceptional items, gains and losses on
business disposal and the impact of less than 50% owned
affiliates. This measure allocated to those segments does not
include business restructuring charges, which relate to the
reorganization of the business as a whole. A segmental
allocation of restructuring charges is impracticable.
Consequently, a segmental analysis has not been provided.

F-22



---



##### Table of Contents



The following tables show the activity by
statement of operations heading and the balances remaining in
other liabilities at March 31, 2003 and 2002 following the
implementation of actions required to achieve these objectives.

|                                                |  |            |     |         |  |                 |     |            |  |           |     |  |  |  |    |  |  |  |    | 
|----------------------------------------------- |  | ---------- | --- | ------- |  | --------------- | --- | ---------- |  | --------- | --- |  |  |  | -- |  |  |  | -- | 
|                                                |  |            |     |         |  |                 |     |           
|                                                |  |            |     | Charged |  | Utilized during |     |           
|                                                |  | Balance at |     | during  |  | fiscal 2003     |     | Balance at
|                                                |  | March 31,  |     | fiscal  |  | Net cash        |     | Non cash   |  | March 31,
|                                                |  | 2002       |     | 2003    |  | payments        |     | movement   |  | 2003     
|(in millions)                                   |  | £          |     | £       |  | £               |     | £          |  | £        
|                                                |  |           
|                                                |  |           
|Direct costs:                                   |  |            |     |         |  |                 |     |            |  |           |     |  |  |  |    |  |  |  |    | 
|Inventory write-downs and related costs         |  |            | 40  |         |  |                 |    |            |  |           | 20  |  |  |  | 20 |  |  |  |   | 
|Manufacturing outsourcing                       |  |            | 31  |         |  |                 | 21  |            |  |           | 21  |  |  |  | 23 |  |  |  | 8  | 
|Onerous contracts                               |  |            | 31  |         |  |                 | 5   |            |  |           | 30  |  |  |  |   |  |  |  | 6  | 
|                                                |  |           
|                                                |  |            | 102 |         |  |                 | 26  |            |  |           | 71  |  |  |  | 43 |  |  |  | 14 | 
|                                                |  |           
|Business restructuring costs:                   |  |            |     |         |  |                 |     |            |  |           |     |  |  |  |    |  |  |  |    | 
|Employee severance                              |  |            | 30  |         |  |                 | 128 |            |  |           | 148 |  |  |  |   |  |  |  | 10 | 
|Site rationalization                            |  |            | 40  |         |  |                 | 36  |            |  |           | 30  |  |  |  |   |  |  |  | 46 | 
|Contractual commitments and other restructuring |  |            | 13  |         |  |                 |    |            |  |           |    |  |  |  | 10 |  |  |  | 3  | 
|Systems implementation                          |  |            | 24  |         |  |                 | (7  | )          |  |           | 17  |  |  |  |   |  |  |  |   | 
|Advisor fees                                    |  |            |    |         |  |                 | 64  |            |  |           | 63  |  |  |  |   |  |  |  | 1  | 
|                                                |  |           
|                                                |  |            | 107 |         |  |                 | 221 |            |  |           | 258 |  |  |  | 10 |  |  |  | 60 | 
|                                                |  |           
|Total                                           |  |            | 209 |         |  |                 | 247 |            |  |           | 329 |  |  |  | 53 |  |  |  | 74 | 
|                                                |  |           

|                                                |  |         |       |                 |  |            |     |           |  |  |     |  |  |  |     | 
|----------------------------------------------- |  | ------- | ----- | --------------- |  | ---------- | --- | --------- |  |  | --- |  |  |  | --- | 
|                                                |  |         |       |                 |  |           
|                                                |  | Charged |       | Utilized during |  |           
|                                                |  | during  |       | fiscal 2002     |  | Balance at
|                                                |  | fiscal  |       | Net cash        |  | Non cash   |     | March 31,
|                                                |  | 2002    |       | payments        |  | movement   |     | 2002     
|(in millions)                                   |  | £       |       | £               |  | £          |     | £        
|                                                |  |        
|                                                |  |        
|Direct costs:                                   |  |         |       |                 |  |            |     |           |  |  |     |  |  |  |     | 
|Inventory write-downs and related costs         |  |         | 647   |                 |  |            | 51  |           |  |  | 556 |  |  |  | 40  | 
|Manufacturing outsourcing                       |  |         | 127   |                 |  |            | 77  |           |  |  | 19  |  |  |  | 31  | 
|Onerous contracts                               |  |         | 31    |                 |  |            |    |           |  |  |    |  |  |  | 31  | 
|                                                |  |        
|                                                |  |         | 805   |                 |  |            | 128 |           |  |  | 575 |  |  |  | 102 | 
|                                                |  |        
|Business restructuring costs:                   |  |         |       |                 |  |            |     |           |  |  |     |  |  |  |     | 
|Employee severance                              |  |         | 237   |                 |  |            | 207 |           |  |  |    |  |  |  | 30  | 
|Site rationalization                            |  |         | 40    |                 |  |            |    |           |  |  |    |  |  |  | 40  | 
|Contractual commitments and other restructuring |  |         | 46    |                 |  |            | 26  |           |  |  | 7   |  |  |  | 13  | 
|Systems implementation                          |  |         | 73    |                 |  |            | 49  |           |  |  |    |  |  |  | 24  | 
|                                                |  |        
|                                                |  |         | 396   |                 |  |            | 282 |           |  |  | 7   |  |  |  | 107 | 
|                                                |  |        
|Total                                           |  |         | 1,201 |                 |  |            | 410 |           |  |  | 582 |  |  |  | 209 | 
|                                                |  |        

Inventory write-downs and related
costs

In fiscal 2002 the inventory write-downs and
related costs charged to cost of sales in the year included
£556 million for obsolescence and slow-moving
provisions against a number of product lines, predominantly
optical networking products, and £91 million in
respect of supplier commitments. Of the £91 million
for supplier commitments, £51 million was paid out
during fiscal 2002. The remaining balance of
£40 million has been utilized during fiscal 2003.

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Manufacturing outsourcing

The charge of £21 million in respect of
manufacturing outsourcing in fiscal 2003 represents additional
net costs to Jabil Circuit Inc. arising in the year. Management
expect that the remaining balance will be paid out in fiscal
2004. In fiscal 2002 restructuring costs classified in cost of
sales includes a charge of £127 million representing
additional costs incurred as a consequence of the decision to
outsource certain manufacturing operations to Jabil Circuit Inc.
Under the terms of that agreement, the Company made payments of
£77 million during fiscal 2002.

Onerous contracts

The charge of £5 million in respect of
onerous contracts in fiscal 2003 represents certain liabilities
to which the Company is committed as a result of the operational
restructuring. This includes liabilities relating to equipment
leasing contracts and supply contracts under which we have
agreed to purchase minimum volumes of goods and services which
will offer no economic value to our business as a result of its
reduced size. Management expect that the remaining balance will
be paid out in fiscal 2004. A charge of £31 million
was recorded in fiscal 2002 in respect of these liabilities. No
amount was utilized during fiscal 2002.

Employee severance

As a consequence of the objective to reduce the
annual operating cost base, the Company recorded a charge of
£128 million during fiscal 2003 associated with
redundancy payments for approximately 7,500 employees.
Management expects that the remaining balance will be paid out
in fiscal 2004. In fiscal 2002, the Company recorded a charge of
£237 million to reflect the charges associated with
voluntary redundancy payments for approximately 10,000
employees. The Company made cash payments of
£207 million in fiscal 2002.

Site rationalization

The charge of £36 million in respect of
site rationalization in fiscal 2003 represents additional costs
associated with closing and consolidating various sites around
the world as part of the business restructuring. A charge of
£40 million was recorded in fiscal 2002. These site
closures and consolidations were all commenced prior to
December 15, 2002.

Contractual commitments and other
restructuring

During fiscal 2002 a charge of
£46 million was recorded in respect of other costs
associated with the restructuring program. Payments of
£26 million were made during fiscal 2002 and an
additional non-cash charge of £7 million recorded,
leaving a balance at March 31, 2002 of
£13 million. Of this balance, costs of
£10 million have been charged during fiscal 2003 and a
balance of £3 million remains at March 31, 2003.
Management expects these costs to be paid in fiscal 2004.

Systems implementation

During fiscal 2002 the Group planned to implement
a new global information technology system. In light of the
revised trading outlook and the continued focus on cost
reduction, the implementation was terminated. The
£73 million charge represents £43 million of
capitalised external consultancy costs associated with the
implementation, £24 million of hardware and software
costs expensed, and £6 million of other associated
costs of the project. Payments of £49 million were
made in fiscal 2002. During fiscal 2003, the Company revised its
previous estimate of the overall costs leading to the release of
£7 million from the amounts accrued in fiscal 2002.
Payments of £17 million were made in fiscal 2003.

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Advisor fees

The charge of £64 million in respect of
advisor fees represents charges from the Companys external
advisors with respect to services rendered in fiscal 2003
related to the Financial Restructuring. Payments of
£63 million have been made during fiscal 2003 and a
balance of £1 million remains at March 31, 2003.
Management expects these costs to be paid in fiscal 2004.
Additional amounts of approximately £39 million are
expected to be expensed as incurred during fiscal 2004.

6.   Goodwill

When management reviews the operating income
performance of the segments described in note 9, Segment
and related information disclosures, management uses the U.K.
GAAP operating (loss)/profit before goodwill and intangible
asset amortization, in process research and development
write-offs, U.K. GAAP operating exceptional items, gains and
losses on business disposal and the impact of less than 50%
owned affiliates. This measure allocated to those segments does
not include goodwill amortization charges. A segmental
allocation of goodwill is impracticable. Consequently, a
segmental analysis has not been provided.

The changes in the carrying amount of goodwill
for the year ended March 31, 2003, are as follows:

|                          |                        |      |       |              |   |       |        |      |   |  |       |        |  
|------------------------- | ---------------------- | ---- | ----- | ------------ | - | ----- | ------ | ---- | - |  | ----- | ------ | -
|                          |                        |      |       | Accumulated  |   |      
|                          |                        | Cost |       | amortization |   | Total
|(in millions)             |                        | £    |       | £            |   | £    
|                          |                        |     
|                          |                        |     
|Balance at April 1, 2001  |                        |      | 4,691 |              |   |       | (960   | )    |   |  | 3,731 |       
|                          | Goodwill acquired      |      |       | 34           |   |       |        |     |   |  |       | 34     |  
|                          | Goodwill disposed of   |      |       | (135         | ) |       |        | 57   |   |  |       | (78    | )
|                          | Amortization           |      |       |             |   |       |        | (393 | ) |  |       | (393   | )
|                          | Impairment             |      |       | (2,622       | ) |       |        |     |   |  |       | (2,622 | )
|                          | Translation adjustment |      |       | (65          | ) |       |        | 72   |   |  |       | 7      |  
|                          |                        |     
|Balance at April 1, 2002  |                        |      | 1,903 |              |   |       | (1,224 | )    |   |  | 679   |       
|                          | Goodwill disposed of   |      |       | (3           | ) |       |        | 1    |   |  |       | (2     | )
|                          | Translation adjustment |      |       | (20          | ) |       |        |     |   |  |       | (20    | )
|                          |                        |     
|Balance at March 31, 2003 |                        |      | 1,880 |              |   |       | (1,223 | )    |   |  | 657   |       
|                          |                        |     

In accordance with SFAS 142, goodwill is no
longer subject to amortization, rather, it is subject to at
least an annual assessment of impairment, applying a fair-value
based test. The Company completed the SFAS 142 transitional
impairment test during the second quarter of the fiscal year and
concluded that there was no impairment of recorded goodwill. The
assessment measured the amount by which the carrying amounts of
the goodwill and intangible assets exceeded the present value of
expected future cash flows from operations. Following a similar
review in fiscal 2002 goodwill was impaired by
£2,622 million. This amount is included in the caption
Impairment of long-lived assets in the consolidated
statement of operations and explained further in note 2,
Summary of significant accounting policies. There was no
impairment of goodwill in fiscal 2001. Amortization expense for
fiscal 2002 and 2001 was £393 million and
£605 million respectively.

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A reconciliation of net income and earnings per
common share for fiscal 2002 and 2001, as if SFAS 142 had
been adopted at the beginning of that year, follows:

|                                             |                   |           |        |       |   |      |        |       |   |  |     |      | 
|-------------------------------------------- | ----------------- | --------- | ------ | ----- | - | ---- | ------ | ----- | - |  | --- | ---- | 
|                                             |                   |          
|                                             |                   | March 31,
|                                             |                   | 2003      |        | 2002  |   | 2001
|(in millions)                                |                   | £         |        | £     |   | £   
|                                             |                   |          
|                                             |                   |          
|Reported net (loss)/income                   |                   |           | (1,167 | )     |   |      | (6,359 | )     |   |  | 194 |     
|Add back amortization of goodwill            |                   |           |       |       |   |      | 393    |       |   |  | 605 |     
|                                             |                   |          
|Adjusted net (loss)/income                   |                   |           | (1,167 | )     |   |      | (5,966 | )     |   |  | 799 |     
|                                             |                   |          
|Reported net (loss)/income per common share: |                   |           |        |       |   |      |        |       |   |  |     |     
|                                             | Basic and diluted |           |        | (0.41 | ) |      |        | (2.22 | ) |  |     | 0.07 | 
|                                             |                   |          
|Adjusted net (loss)/income per common share: |                   |           |        |       |   |      |        |       |   |  |     |     
|                                             | Basic and diluted |           |        | (0.41 | ) |      |        | (2.08 | ) |  |     | 0.28 | 
|                                             |                   |          

7.   Intangible
assets

Intangible assets subject to amortization, net of
impairment of £nil (2002, £1,192) consist of the
following:

|                              |  |           |     |              |  |      |      |              |  |  |     |  |  |  |      |  
|----------------------------- |  | --------- | --- | ------------ |  | ---- | ---- | ------------ |  |  | --- |  |  |  | ---- | -
|                              |  |          
|                              |  | March 31,
|                              |  |           |     |             
|                              |  | 2003      |     | 2002        
|                              |  |           |     | Accumulated  |  |      |      | Accumulated 
|                              |  | Cost      |     | amortization |  | Cost |      | amortization
|(in millions)                 |  | £         |     | £            |  | £    |      | £           
|                              |  |          
|                              |  |          
|Core developed technology     |  |           | 360 |              |  |      | (267 | )            |  |  | 360 |  |  |  | (225 | )
|Internally generated software |  |           | 5   |              |  |      | (3   | )            |  |  | 5   |  |  |  | (2   | )
|Trademarks                    |  |           | 1   |              |  |      |     |              |  |  | 1   |  |  |  |     |  
|Customer lists                |  |           | 6   |              |  |      | (1   | )            |  |  | 6   |  |  |  |     |  
|                              |  |          
|                              |  |           | 372 |              |  |      | (271 | )            |  |  | 372 |  |  |  | (227 | )
|                              |  |          

There was no impairment of intangible assets for
fiscal 2001.

Amortization of intangibles for fiscal 2003 was
£44 million (2002, £43 million and 2001,
£42 million). Intangible amortization expense based on
March 31, 2003 intangibles for the next five years is
expected to be:

|              |  |   |    | 
|------------- |  | - | -- | 
|(in millions) |  | £
|              |  |  
|              |  |  
|Fiscal 2004   |  |   | 44 | 
|Fiscal 2005   |  |   | 44 | 
|Fiscal 2006   |  |   | 12 | 
|Fiscal 2007   |  |   | 1  | 
|Fiscal 2008   |  |   |   | 

8.   Pension plans and other
post-retirement plans

Pension plans

The Company 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 (the Plan), a defined benefit plan for
employees in the United Kingdom. The assets of the Plan are held
separately from the assets of the Company, are administered by
trustees and are managed professionally.

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The benefits offered to a specific employee vary
based upon the location of and past business decisions made by a
specific business unit, as well as local statutory requirements.
Defined benefit pension plans, that generally provide benefits
to eligible individuals, after minimum service requirements are
met, are based on years of credit service and average earnings
of the employee. Defined contribution plans, that provide
benefits to eligible employees, are based on the value of
contributions paid into the applicable plan adjusted for
investment returns.

The Company 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.

Data with respect to benefit obligations,
excluding those related to discontinued operations, is as
follows:

|                                                                     |                                                |                  |       |                  |   |      |       |       |   |  |     |      |   |  |     |     |  
|-------------------------------------------------------------------- | ---------------------------------------------- | ---------------- | ----- | ---------------- | - | ---- | ----- | ----- | - |  | --- | ---- | - |  | --- | --- | -
|                                                                     |                                                |                  |       |                 
|                                                                     |                                                | Pension benefits |       | Pension benefits
|                                                                     |                                                | U.K. plans       |       | Overseas plans  
|                                                                     |                                                | 2003             |       | 2002             |   | 2003 |       | 2002 
|(in millions)                                                        |                                                | £                |       | £                |   | £    |       | £    
|                                                                     |                                                |                 
|                                                                     |                                                |                 
|Change in benefit obligations:                                       |                                                |                  |       |                  |   |      |       |       |   |  |     |      |   |  |     |    
|                                                                     | Benefit obligation at beginning of year        |                  |       | 2,393            |   |      |       | 2,471 |   |  |     | 215  |   |  |     | 271 |  
|                                                                     | Service cost                                   |                  |       | 26               |   |      |       | 34    |   |  |     | 7    |   |  |     | 4   |  
|                                                                     | Interest cost                                  |                  |       | 138              |   |      |       | 143   |   |  |     | 14   |   |  |     | 18  |  
|                                                                     | Plan participants contributions               |                  |       | 6                |   |      |       | 10    |   |  |     |     |   |  |     |    |  
|                                                                     | Actuarial loss/(gain)                          |                  |       | 64               |   |      |       | (91   | ) |  |     | 24   |   |  |     | 18  |  
|                                                                     | Benefits paid                                  |                  |       | (183             | ) |      |       | (174  | ) |  |     | (10  | ) |  |     | (12 | )
|                                                                     | Curtailment loss                               |                  |       |                 |   |      |       |      |   |  |     | 3    |   |  |     |    |  
|                                                                     | Settlement gain                                |                  |       |                 |   |      |       |      |   |  |     | (2   | ) |  |     |    |  
|                                                                     | Divestitures                                   |                  |       |                 |   |      |       |      |   |  |     |     |   |  |     | (81 | )
|                                                                     | Foreign currency exchange rate changes         |                  |       |                 |   |      |       |      |   |  |     | (6   | ) |  |     | (3  | )
|                                                                     |                                                |                 
|Benefit obligations at end of year                                   |                                                |                  | 2,444 |                  |   |      | 2,393 |       |   |  | 245 |      |   |  | 215 |    
|                                                                     |                                                |                 
|Change in plan assets:                                               |                                                |                  |       |                  |   |      |       |       |   |  |     |      |   |  |     |    
|                                                                     | Fair value of plan assets at beginning of year |                  |       | 2,372            |   |      |       | 2,491 |   |  |     | 178  |   |  |     | 278 |  
|                                                                     | Actual return on plan assets                   |                  |       | 19               |   |      |       | 24    |   |  |     | (17  | ) |  |     | (6  | )
|                                                                     | Employer contributions                         |                  |       | 23               |   |      |       | 21    |   |  |     |     |   |  |     |    |  
|                                                                     | Plan participants contributions               |                  |       | 6                |   |      |       | 10    |   |  |     |     |   |  |     |    |  
|                                                                     | Benefits paid                                  |                  |       | (183             | ) |      |       | (174  | ) |  |     | (10  | ) |  |     | (12 | )
|                                                                     | Divestitures                                   |                  |       |                 |   |      |       |      |   |  |     |     |   |  |     | (79 | )
|                                                                     | Foreign currency exchange rate changes         |                  |       |                 |   |      |       |      |   |  |     | (17  | ) |  |     | (3  | )
|                                                                     |                                                |                 
|Fair value of plan assets at end of year                             |                                                |                  | 2,237 |                  |   |      | 2,372 |       |   |  | 134 |      |   |  | 178 |    
|                                                                     |                                                |                 
|                                                                     | Under funded status                            |                  |       | (207             | ) |      |       | (21   | ) |  |     | (111 | ) |  |     | (37 | )
|                                                                     | Unrecognized net actuarial loss                |                  |       | 301              |   |      |       | 118   |   |  |     | 62   |   |  |     | 11  |  
|                                                                     | Unrecognized net transition obligation         |                  |       | 3                |   |      |       | 6     |   |  |     |     |   |  |     |    |  
|                                                                     |                                                |                 
|Net amount recognized                                                |                                                |                  | 97    |                  |   |      | 103   |       |   |  | (49 | )    |   |  | (26 | )  
|                                                                     |                                                |                 
|Amounts recognized in the consolidated balance
    sheet consist of: |                                                |                  |       |                  |   |      |       |       |   |  |     |      |   |  |     |    
|                                                                     | Prepaid benefit cost                           |                  |       |                 |   |      |       | 103   |   |  |     |     |   |  |     | 38  |  
|                                                                     | Accrued benefit liability                      |                  |       | (139             | ) |      |       |      |   |  |     | (108 | ) |  |     | (65 | )
|                                                                     | Accumulated other comprehensive income         |                  |       | 236              |   |      |       |      |   |  |     | 59   |   |  |     | 1   |  
|                                                                     |                                                |                 
|Net amount recognized                                                |                                                |                  | 97    |                  |   |      | 103   |       |   |  | (49 | )    |   |  | (26 | )  
|                                                                     |                                                |                 

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The actuarial assumptions used to develop the
periodic benefit cost and funded status were as follows:

|                              |                                       |                  |  |                  |  |      |  |      |  |      |  |      |  |  |  |     |  |  |  |     |  |  |  |     | 
|----------------------------- | ------------------------------------- | ---------------- |  | ---------------- |  | ---- |  | ---- |  | ---- |  | ---- |  |  |  | --- |  |  |  | --- |  |  |  | --- | 
|                              |                                       |                  |  |                 
|                              |                                       | Pension benefits |  | Pension benefits
|                              |                                       | U.K. plans       |  | Overseas plans  
|                              |                                       | 2003             |  | 2002             |  | 2001 |  | 2003 |  | 2002 |  | 2001
|(in millions)                 |                                       | %                |  | %                |  | %    |  | %    |  | %    |  | %   
|                              |                                       |                 
|                              |                                       |                 
|Weighted average assumptions: |                                       |                  |  |                  |  |      |  |      |  |      |  |      |  |  |  |     |  |  |  |     |  |  |  |    
|                              | Discount rate for pension expense     |                  |  | 5.3              |  |      |  | 6.0  |  |      |  | 6.0  |  |  |  | 6.7 |  |  |  | 7.5 |  |  |  | 7.5 | 
|                              | Discount rate for year end disclosure |                  |  | 5.3              |  |      |  | 6.0  |  |      |  | 6.0  |  |  |  | 6.0 |  |  |  | 6.9 |  |  |  | 7.5 | 
|                              | Expected return on plan assets        |                  |  | 5.7              |  |      |  | 6.0  |  |      |  | 7.5  |  |  |  | 8.5 |  |  |  | 8.5 |  |  |  | 9.5 | 
|                              | Rate of compensation increases        |                  |  | 4.5              |  |      |  | 4.8  |  |      |  | 5.0  |  |  |  | 4.4 |  |  |  | 4.2 |  |  |  | 5.1 | 
|                              | Rate of pension increases             |                  |  | 2.5              |  |      |  | 2.8  |  |      |  | 3.0  |  |  |  | 0.5 |  |  |  | 1.5 |  |  |  | 2.0 | 

The table below presents data with respect to net
periodic benefit expense/(income) excluding those related to
discontinued operations:

|                                                                   |                                                               |                  |    |                  |   |      |    |      |   |      |    |      |   |  |    |     |   |  |    |     |   |  |     |     |  
|------------------------------------------------------------------ | ------------------------------------------------------------- | ---------------- | -- | ---------------- | - | ---- | -- | ---- | - | ---- | -- | ---- | - |  | -- | --- | - |  | -- | --- | - |  | --- | --- | -
|                                                                   |                                                               |                  |    |                 
|                                                                   |                                                               | Pension benefits |    | Pension benefits
|                                                                   |                                                               | U.K. plans       |    | Overseas plans  
|                                                                   |                                                               | 2003             |    | 2002             |   | 2001 |    | 2003 |   | 2002 |    | 2001
|(in millions)                                                      |                                                               | £                |    | £                |   | £    |    | £    |   | £    |    | £   
|                                                                   |                                                               |                 
|                                                                   |                                                               |                 
|Components of net periodic benefit                                 |                                                               |                  |    |                  |   |      |    |      |   |      |    |      |   |  |    |     |   |  |    |     |   |  |     |    
|                                                                   | Expense/(income):                                             |                  |    |                  |   |      |    |      |   |      |    |      |   |  |    |     |   |  |    |     |   |  |     |     |  
|                                                                   | Service cost                                                  |                  |    | 26               |   |      |    | 34   |   |      |    | 37   |   |  |    | 7   |   |  |    | 4   |   |  |     | 4   |  
|                                                                   | Interest cost                                                 |                  |    | 138              |   |      |    | 143  |   |      |    | 133  |   |  |    | 14  |   |  |    | 18  |   |  |     | 19  |  
|                                                                   | Expected return on plan assets                                |                  |    | (138             | ) |      |    | (181 | ) |      |    | (179 | ) |  |    | (13 | ) |  |    | (25 | ) |  |     | (32 | )
|                                                                   | Amortization of unrecognized transition
    liability/(asset) |                  |    | 3                |   |      |    | 3    |   |      |    | 3    |   |  |    |    |   |  |    |    |   |  |     | (2  | )
|                                                                   | Amortization of prior service cost                            |                  |    |                 |   |      |    |     |   |      |    |     |   |  |    |    |   |  |    | 1   |   |  |     | 1   |  
|                                                                   | Amortization of actuarial gains                               |                  |    |                 |   |      |    |     |   |      |    |     |   |  |    |    |   |  |    | (1  | ) |  |     | (4  | )
|                                                                   |                                                               |                 
|Net periodic benefit expense/(income) of defined
    benefit plans |                                                               |                  | 29 |                  |   |      | (1 | )    |   |      | (6 | )    |   |  | 8  |     |   |  | (3 | )   |   |  | (14 | )  
|Amounts recognized in respect of discontinued
    operations       |                                                               |                  |   |                  |   |      |   |      |   |      |   |      |   |  |   |     |   |  | 9  |     |   |  |    |    
|Net curtailment loss                                               |                                                               |                  |   |                  |   |      |   |      |   |      |   |      |   |  | 3  |     |   |  |   |     |   |  | 2   |    
|                                                                   |                                                               |                 
|Net periodic benefit expense/(income)                              |                                                               |                  | 29 |                  |   |      | (1 | )    |   |      | (6 | )    |   |  | 11 |     |   |  | 6  |     |   |  | (12 | )  
|                                                                   |                                                               |                 

At March 31, 2003 the projected benefit
obligation, accumulated benefit obligation, and fair value of
plan assets for pension plans which have an accumulated benefit
obligation in excess of plan assets were
£2,689 million, £2,618 million, and
£2,371 million respectively (2002,
£134 million, £134 million, and
£60 million respectively).

Other post-retirement
benefits

At March 31, 2003 no active employees and
1,730 retired employees (2002, 186 and 1,809 respectively) of
companies in the United States of America and Canada were
entitled to health care benefits after retirement.

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All of the other post retirement plans are
unfunded. The benefit cost charges and provisions for the
liability are as follows:

|                                         |                                        |                 |     |      |   |  |     |    |  
|---------------------------------------- | -------------------------------------- | --------------- | --- | ---- | - |  | --- | -- | -
|                                         |                                        |                
|                                         |                                        | Post retirement
|                                         |                                        | benefits       
|                                         |                                        | March 31,      
|                                         |                                        | 2003            |     | 2002
|(in millions)                            |                                        | £               |     | £   
|                                         |                                        |                
|                                         |                                        |                
|Change in benefit obligations:           |                                        |                 |     |      |   |  |     |   
|Benefit obligations at beginning of year |                                        |                 | 38  |      |   |  | 40  |   
|                                         | Service cost                           |                 |     |     |   |  |     | 1  |  
|                                         | Interest cost                          |                 |     | 2    |   |  |     | 3  |  
|                                         | Plan amendments                        |                 |     | (1   | ) |  |     | (1 | )
|                                         | Actuarial loss                         |                 |     | 3    |   |  |     | 4  |  
|                                         | Business acquired                      |                 |     |     |   |  |     | (5 | )
|                                         | Curtailment gain                       |                 |     | (5   | ) |  |     |   |  
|                                         | Benefits paid                          |                 |     | (4   | ) |  |     | (4 | )
|                                         | Foreign currency exchange rate changes |                 |     | (4   | ) |  |     |   |  
|                                         |                                        |                
|Benefit obligations at end of year       |                                        |                 | 29  |      |   |  | 38  |   
|Funded status                            |                                        |                 | (29 | )    |   |  | (38 | ) 
|Unrecognized net actuarial gain          |                                        |                 | (9  | )    |   |  | (12 | ) 
|Unrecognized prior service cost          |                                        |                 | (3  | )    |   |  | (5  | ) 
|                                         |                                        |                
|Net accrued benefit cost                 |                                        |                 | (41 | )    |   |  | (55 | ) 
|                                         |                                        |                

Data with respect to net periodic benefit cost is
as follows:

|                                                                         |                          |                          |    |      |   |      |   |    |   |  |   |    |  
|------------------------------------------------------------------------ | ------------------------ | ------------------------ | -- | ---- | - | ---- | - | -- | - |  | - | -- | -
|                                                                         |                          |                         
|                                                                         |                          | Post retirement benefits
|                                                                         |                          | March 31,               
|                                                                         |                          | 2003                     |    | 2002 |   | 2001
|(in millions)                                                            |                          | £                        |    | £    |   | £   
|                                                                         |                          |                         
|                                                                         |                          |                         
|Components of net periodic benefit
    (income)/expense:                 |                          |                          |    |      |   |      |   |    |   |  |   |   
|                                                                         | Service cost             |                          |    |     |   |      |   | 1  |   |  |   | 1  |  
|                                                                         | Interest cost            |                          |    | 2    |   |      |   | 3  |   |  |   | 2  |  
|                                                                         | Amortization of net gain |                          |    | (1   | ) |      |   | (1 | ) |  |   | (1 | )
|                                                                         | Net curtailment gain     |                          |    | (5   | ) |      |   |   |   |  |   |   |  
|                                                                         |                          |                         
|Net periodic benefit (income)/expense of other
    post-retirement plans |                          |                          | (4 | )    |   |      | 3 |    |   |  | 2 |   
|                                                                         |                          |                         

Different assumptions were made in relation to
the cost of retiree health care benefits. For the majority of
plans, the assumptions were as follows:

In fiscal 2003, an annual rate of increase per
capita in the cost of retiree health care benefits of 12% for
2003 (decreasing gradually over the following years to 6% in
2012) was assumed for all employees and retirees. The annual
rate of increase in the cost of prescription drugs of 15% in
2003 (decreasing gradually over the following years to 6% in
2012) was assumed for all employees and retirees. In fiscal
2002, the annual rate of increase per capita in the cost of
retiree healthcare benefits (including prescription drugs) for
employees under age 65 was assumed to be 6% and for retirees
over 65 was assumed to be 7.5% for 2002 (decreasing over the
following years to 5% in 2005). In fiscal 2001, the rate for
employees under the age of 65 was assumed to be 7% and for
retirees over 65 was assumed to be 9% for 2001 (decreasing over
the following years to 5% in 2005).

An increase of one percentage point in such
assumed rates would have increased the benefit obligation at
March 31, 2003 by approximately £2 million and
the service and interest cost components of the net

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periodic benefit cost for the year then ended by
approximately £nil and £nil respectively. A decrease
of one percentage point in such assumed rates would have
decreased the benefit obligation at March 31, 2003 by
approximately £2 million and the service and interest
cost components of the net periodic benefit cost for the year
then ended by approximately £nil and £nil respectively.


Defined contribution plans

The U.S. subsidiaries of the Company 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. For fiscal 2003, the
matching contributions were £7 million (2002,
£14 million and 2001, £5 million).

9.   Segment and related
information disclosures

The Companys reportable segments have been
determined based upon the nature of the products and services
offered to its customers, are managed separately and are
comprised of the following:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Network Equipment segment 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, it supplies 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 and data traffic through a network.
|
| |  | The Network Services segment provides a broad
    range of support services to the communications industry
    worldwide tailored to suit customers needs. It supports
    both the Companys products and those of other network
    equipment manufacturers.                                                                                                                                                                                                                                                                                                                    
|
| |  | The Other Segment contains the Companys
    other investments and businesses not included in other segments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

Management refers to Network Equipment and
Network Services in aggregate as the Core division and Other as
the Capital division.

Discontinued segments

During fiscal 2002, the Company disposed of both
its Data Systems and Medical Systems businesses, and on
August 2, 2002, the Company announced the disposal of its
strategic communications business, a significant portion of the
Mobile segment. Effective March 31, 2002, these segments
were classified as discontinued operations as described further
in note 12, Discontinued operations.



| |   |                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Mobile Communications segment designed,
    developed, and integrated communications and information
    technologies into wireless communications systems for
    professional and military uses.
|
| |  | The Data Systems segment provided a broad range
    of marking and imaging equipment used in the identification,
    distribution, and tracking of food products, goods and printed
    matter.       
|
| |  | The Medical Systems segment manufactured and
    designed medical imaging equipment for both diagnostic and
    therapeutic uses.                                                                     

Segmental performance

Revenues and operating profits are measured on a
segmental basis in accordance with 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 post-retirement benefits, reorganization costs,
goodwill and employee share options.

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Capital employed is also reported under U.K.
GAAP. It is not practicable to identify the total capital
employed of network equipment and network services separately as
the same assets are, generally, used to generate sales in each
of these segments. The operating results of these segments are
separately reportable.

Management uses the U.K. GAAP operating
(loss)/profit before goodwill and intangible asset amortization,
in-process research and development write-offs, U.K. GAAP
exceptional items, gains and losses on business disposals and
the impact of 50% or less owned affiliates as its measure of
segment profitability. In the tables below, this measure is
referred to as segment operating (loss)/profit.

The following tables present the Companys
revenues, operating (loss)/income before exceptional items,
goodwill amortization and other items, and other financial data
from the Company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
(U.K. GAAP)

|                                             |  |          |       |               |  |             |      |   |  |  |     |  
|-------------------------------------------- |  | -------- | ----- | ------------- |  | ----------- | ---- | - |  |  | --- | -
|                                             |  |          |       | Segment       |  |            
|As of and for the year ended                 |  |          |       | operating     |  | Capital    
|March 31, 2003                               |  | Revenues |       | (loss)/profit |  | employed(3)
|(in millions)                                |  | £        |       | £             |  | £          
|                                             |  |         
|                                             |  |         
|Network equipment                            |  |          | 1,131 |               |  |             | (259 | ) |  |  |     |  
|                                             |  |          |       |               |  |             |      |   |  |  | 205 |  
|Network services                             |  |          | 743   |               |  |             | 52   |   |  |  |     |  
|Capital (net of intra segment revenue of £7) |  |          | 40    |               |  |             | (107 | ) |  |  | (27 | )
|Discontinued(1)                              |  |          | 88    |               |  |             | (2   | ) |  |  |    |  
|                                             |  |         
|Segment total  U.K. GAAP                    |  |          | 2,002 |               |  |             | (316 | ) |  |  | 178 |  
|                                             |  |         

|                                              |  |          |       |               |  |             |      |   |  |  |     | 
|--------------------------------------------- |  | -------- | ----- | ------------- |  | ----------- | ---- | - |  |  | --- | 
|                                              |  |          |       | Segment       |  |            
|As of and for the year ended                  |  |          |       | operating     |  | Capital    
|March 31, 2002                                |  | Revenues |       | (loss)/profit |  | employed(3)
|(in millions)                                 |  | £        |       | £             |  | £          
|                                              |  |         
|                                              |  |         
|Network equipment                             |  |          | 1,804 |               |  |             | (464 | ) |  |  |     | 
|                                              |  |          |       |               |  |             |      |   |  |  | 607 | 
|Network services                              |  |          | 969   |               |  |             | 35   |   |  |  |     | 
|Capital (net of intra segment revenue of £32) |  |          | 390   |               |  |             | (138 | ) |  |  | 122 | 
|Discontinued(1)                               |  |          | 1,404 |               |  |             | 104  |   |  |  | 196 | 
|                                              |  |         
|Segment total  U.K. GAAP                     |  |          | 4,567 |               |  |             | (463 | ) |  |  | 925 | 
|                                              |  |         

|                                              |  |          |       |           |  |             |     |   |  |  |       | 
|--------------------------------------------- |  | -------- | ----- | --------- |  | ----------- | --- | - |  |  | ----- | 
|                                              |  |          |       | Segment   |  |            
|As of and for the year ended                  |  |          |       | operating |  | Capital    
|March 31, 2001(2)                             |  | Revenues |       | profit    |  | employed(3)
|(in millions)                                 |  | £        |       | £         |  | £          
|                                              |  |         
|                                              |  |         
|Network equipment                             |  |          | 3,359 |           |  |             | 442 |   |  |  |       | 
|                                              |  |          |       |           |  |             |     |   |  |  | 1,977 | 
|Network services                              |  |          | 1,016 |           |  |             | 102 |   |  |  |       | 
|Capital (net of intra segment revenue of £55) |  |          | 540   |           |  |             | (14 | ) |  |  | 42    | 
|Discontinued(1)                               |  |          | 2,027 |           |  |             | 224 |   |  |  | 623   | 
|                                              |  |         
|Segment total  U.K. GAAP                     |  |          | 6,942 |           |  |             | 754 |   |  |  | 2,642 | 
|                                              |  |         



|    |                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | For fiscal 2003 the discontinued operations
    relates to mobile and for fiscal 2002 and 2001, the discontinued
    operations is related to data systems, medical systems and
    mobile.
|   
|(2) | For fiscal 2001 the segmental data has been
    restated for the effects of Financial Reporting Standard 17,
    Retirement Benefits issued by the U.K. Accounting
    Standards Board.    

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|    |                                                                                                                                                                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | Included in capital employed 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.

Analysis of revenue by product (U.K.
GAAP)

|                                                          |       |      |       |       |  |      |       |       |  |  |       |       |  | 
|--------------------------------------------------------- | ----- | ---- | ----- | ----- |  | ---- | ----- | ----- |  |  | ----- | ----- |  | 
|                                                          |       | 2003 |       | 2002  |  | 2001
|                                                          |       |      |       |       |  |     
|                                                          |       | £    |       | £     |  | £   
|                                                          |       |      |       |       |  |     
|Network Equipment:                                        |       |      |       |       |  |      |       |       |  |  |       |      
|Optical Networks                                          |       |      | 439   |       |  |      | 737   |       |  |  | 1,408 |      
|BBRS                                                      |       |      | 142   |       |  |      | 209   |       |  |  | 427   |      
|European Access(1)                                        |       |      | 258   |       |  |      | 361   |       |  |  |       |      
|North American Access(1)                                  |       |      | 95    |       |  |      | 121   |       |  |  | 1,524 |      
|Outside Plant & Power(1)                                  |       |      | 140   |       |  |      | 247   |       |  |  |       |      
|Other Network Equipment(1)                                |       |      | 57    |       |  |      | 129   |       |  |  |      |      
|                                                          |       |      |       |       |  |      |       |       |  |  |       |      
|                                                          | Total |      |       | 1,131 |  |      |       | 1,804 |  |  |       | 3,359 | 
|Network Services:                                         |       |      |       |       |  |      |       |       |  |  |       |      
|IC&M                                                      |       |      | 370   |       |  |      | 528   |       |  |  | 656   |      
|VAS                                                       |       |      | 373   |       |  |      | 441   |       |  |  | 360   |      
|                                                          |       |      |       |       |  |      |       |       |  |  |       |      
|                                                          | Total |      |       | 743   |  |      |       | 969   |  |  |       | 1,016 | 
|                                                          |       |      |       |       |  |      |       |       |  |  |       |      
|Total Network Equipment and
    Network Services revenues |       |      | 1,874 |       |  |      | 2,773 |       |  |  | 4,375 |      
|Total capital revenue                                     |       |      | 40    |       |  |      | 390   |       |  |  | 540   |      
|Total discontinued                                        |       |      | 88    |       |  |      | 1,404 |       |  |  | 2,027 |      
|                                                          |       |      |       |       |  |      |       |       |  |  |       |      
|Total revenues                                            |       |      | 2,002 |       |  |      | 4,567 |       |  |  | 6,942 |      
|                                                          |       |      |       |       |  |      |       |       |  |  |       |      



---



|    |                                                                                                                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In fiscal 2003, we realigned our Network
    Equipment businesses. As a result, comparative information for
    certain businesses is not available for fiscal 2001. For those
    businesses, changes from fiscal 2001 to fiscal 2002 are
    discussed below in the aggregate.

Reconciliation of U.K. GAAP segmental
information to U.S. GAAP

Revenue

|                                     |              |      |       |      |   |      |       |      |   |  |       |        |  
|------------------------------------ | ------------ | ---- | ----- | ---- | - | ---- | ----- | ---- | - |  | ----- | ------ | -
|                                     |              | 2003 |       | 2002 |   | 2001
|(in millions)                        |              | £    |       | £    |   | £   
|                                     |              |     
|                                     |              |     
|Revenue in accordance with U.K. GAAP |              |      | 2,002 |      |   |      | 4,567 |      |   |  | 6,942 |       
|Discontinued operations:             |              |      |       |      |   |      |       |      |   |  |       |       
|                                     | data systems |      |       |     |   |      |       | (175 | ) |  |       | (239   | )
|                                     | medical      |      |       |     |   |      |       | (584 | ) |  |       | (1,112 | )
|                                     | mobile       |      |       | (106 | ) |      |       | (355 | ) |  |       | (331   | )
|Joint ventures                       |              |      |      |      |   |      | (257  | )    |   |  | (289  | )     
|Long-term contract adjustment        |              |      |      |      |   |      | 50    |      |   |  | (50   | )     
|                                     |              |     
|Revenue in accordance with U.S. GAAP |              |      | 1,896 |      |   |      | 3,246 |      |   |  | 4,921 |       
|                                     |              |     

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Operating (loss)/income

|                                                                                                                                                           |                                                                                      |      |        |      |   |      |        |        |   |  |     |      |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------ | ---- | ------ | ---- | - | ---- | ------ | ------ | - |  | --- | ---- | -
|                                                                                                                                                           |                                                                                      | 2003 |        | 2002 |   | 2001
|(in millions)                                                                                                                                              |                                                                                      | £    |        | £    |   | £   
|                                                                                                                                                           |                                                                                      |     
|                                                                                                                                                           |                                                                                      |     
|Segmental operating (loss)/profit per U.K. GAAP                                                                                                            |                                                                                      |      | (316   | )    |   |      | (463   | )      |   |  | 754 |     
|                                                                                                                                                           | Amortization expense                                                                 |      |        | (104 | ) |      |        | (433   | ) |  |     | (673 | )
|                                                                                                                                                           | Share of associates operating (loss)/profit                                          |      |        | (89  | ) |      |        | (181   | ) |  |     | 8    |  
|                                                                                                                                                           | Operating exceptional items                                                          |      |        | (349 | ) |      |        | (5,216 | ) |  |     | (32  | )
|                                                                                                                                                           |                                                                                      |     
|U.K. GAAP operating (loss)/profit                                                                                                                          |                                                                                      |      | (858   | )    |   |      | (6,293 | )      |   |  | 57  |     
|                                                                                                                                                           | Joint ventures and associates operating
    loss/(profit)                            |      |        | 129  |   |      |        | 178    |   |  |     | (28  | )
|                                                                                                                                                           | U.K. GAAP non-operating exceptional items
    included in U.S. GAAP operating income |      |        |     |   |      |        |       |   |  |     | 39   |  
|                                                                                                                                                           | U.K. GAAP operating loss/(income) of discontinued
    operations                     |      |        | 70   |   |      |        | 35     |   |  |     | (129 | )
|U.S. GAAP adjustments:                                                                                                                                     |                                                                                      |      |        |      |   |      |        |        |   |  |     |     
|                                                                                                                                                           | Share option plans                                                                   |      |        | (14  | ) |      |        | (46    | ) |  |     | 9    |  
|                                                                                                                                                           | Long-term contract adjustment                                                        |      |        |     |   |      |        | 30     |   |  |     | (30  | )
|                                                                                                                                                           | Pension and other post-retirement benefits                                           |      |        | 11   |   |      |        | 41     |   |  |     | 69   |  
|                                                                                                                                                           | Goodwill and intangible asset amortization and
    impairment charges                |      |        | 37   |   |      |        | (298   | ) |  |     | (42  | )
|                                                                                                                                                           | Loss/(gain) on sale of businesses                                                    |      |        | 5    |   |      |        | (93    | ) |  |     |     |  
|                                                                                                                                                           | Restructuring costs                                                                  |      |        | 18   |   |      |        | (10    | ) |  |     |     |  
|                                                                                                                                                           | Other                                                                                |      |        | 3    |   |      |        | 35     |   |  |     | 3    |  
|                                                                                                                                                           |                                                                                      |     
|U.S. GAAP operating loss                                                                                                                                   |                                                                                      |      | (599   | )    |   |      | (6,421 | )      |   |  | (52 | )   
|                                                                                                                                                           | (Loss)/gain on sale of investments, net                                              |      |        | (45  | ) |      |        | 81     |   |  |     | 475  |  
|                                                                                                                                                           | Provision for related party receivables                                              |      |        | (299 | ) |      |        |       |   |  |     |     |  
|                                                                                                                                                           | Interest income                                                                      |      |        | 45   |   |      |        | 40     |   |  |     | 44   |  
|                                                                                                                                                           | Interest expense                                                                     |      |        | (365 | ) |      |        | (278   | ) |  |     | (195 | )
|                                                                                                                                                           |                                                                                      |     
|U.S. GAAP (loss)/income from continuing
    operations before income taxes, minority interests, cumulative
    effects of changes in accounting principles |                                                                                      |      | (1,263 | )    |   |      | (6,578 | )      |   |  | 272 |     
|                                                                                                                                                           |                                                                                      |     

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Capital employed/ total assets

|                                                           |                                                                             |      |        |        |   |  |       |        |  
|---------------------------------------------------------- | --------------------------------------------------------------------------- | ---- | ------ | ------ | - |  | ----- | ------ | -
|                                                           |                                                                             | 2003 |        | 2002  
|(in millions)                                              |                                                                             | £    |        | £     
|                                                           |                                                                             |     
|                                                           |                                                                             |     
|Total U.K. GAAP segment capital
    employed               |                                                                             |      | 178    |        |   |  | 925   |       
|Capital employed of fixed asset investments                |                                                                             |      | 47     |        |   |  | 197   |       
|Corporate capital employed not allocated to
    segments:  |                                                                             |      |        |        |   |  |       |       
|                                                           | Goodwill                                                                    |      |        | 597    |   |  |       | 877    |  
|                                                           | Net amount due to related parties                                           |      |        | (382   | ) |  |       | (64    | )
|                                                           | Tax                                                                         |      |        | (137   | ) |  |       | (290   | )
|                                                           | Net interest bearing assets and liabilities                                 |      |        | (3,174 | ) |  |       | (1,022 | )
|                                                           | Net assets of non trading entities                                          |      |        | 238    |   |  |       | 270    |  
|                                                           |                                                                             |     
|U.K. GAAP capital employed                                 |                                                                             |      | (2,633 | )      |   |  | 893   |       
|U.S. GAAP adjustments:                                     |                                                                             |      |        |        |   |  |       |       
|                                                           | Provisions for restructuring not included in U.K.
    GAAP capital employed |      |        | (394   | ) |  |       | (288   | )
|                                                           | Discontinued operations                                                     |      |        |       |   |  |       | 129    |  
|                                                           | Goodwill and intangible asset amortization and
    impairment charges       |      |        | 161    |   |  |       | 94     |  
|                                                           | Derivatives                                                                 |      |        | (68    | ) |  |       | (23    | )
|                                                           | Pensions and other post-retirement benefits                                 |      |        | (9     | ) |  |       | (206   | )
|                                                           | Other                                                                       |      |        | (11    | ) |  |       | (23    | )
|                                                           |                                                                             |     
|                                                           |                                                                             |      | (2,954 | )      |   |  | 576   |       
|Add back credit balances included in capital
    employed: |                                                                             |      |        |        |   |  |       |       
|                                                           | Accounts payable                                                            |      |        | 163    |   |  |       | 326    |  
|                                                           | Amounts payable to related parties                                          |      |        | 403    |   |  |       | 63     |  
|                                                           | Accrued expenses and other current liabilities                              |      |        | 1,098  |   |  |       | 1,568  |  
|                                                           | Net liabilities of discontinued operations                                  |      |        | 12     |   |  |       |       |  
|                                                           | Current portion of long term debt                                           |      |        | 2,191  |   |  |       | 41     |  
|                                                           | Short term borrowings                                                       |      |        | 2,195  |   |  |       | 2,338  |  
|                                                           |                                                                             |     
|Total U.S. GAAP assets                                     |                                                                             |      | 3,108  |        |   |  | 4,912 |       
|                                                           |                                                                             |     

U.K.  U.S. GAAP
adjustments

The following describes the significant U.K. GAAP
to U.S. GAAP adjustments as they relate to segment
information.



|  |                       
|- | ----------------------
| | Joint venture revenues

As required under U.K. GAAP, the segment revenue
total includes the Companys share of revenues earned by
joint ventures. Accordingly, the Companys share of joint
ventures revenue is deducted in reconciling from revenue as
reported under U.K. GAAP to the revenue recorded in the
U.S. GAAP consolidated financial statements.



|  |                                          
|- | -----------------------------------------
| | U.K. GAAP 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 an appropriate line item in arriving at operating
(loss)/profit.

For fiscal 2003 and 2002, the operating
exceptional items have been classified under business
restructuring charges, direct costs and long-lived asset
impairments in the consolidated statement of operations due to
the nature of the balances. For fiscal 2001, these items were
included in and relate to selling, general and administrative
expenses within the consolidated statement of operations.

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|  |                        
|- | -----------------------
| | Discontinued operations

U.K. GAAP requires disclosure as discontinued
operations any businesses ceased or disposed of before the
earlier of three months after the balance sheet date and the
approval date of the financial statements. Under U.S. GAAP,
discontinued operations also include those operations where
management has committed to a formal plan of disposal by the
balance sheet date. Under U.S. GAAP, the results of the
Mobile Communications, Medical Systems, Data Systems and MES
businesses have been presented as discontinued operations for
all years reported.



|  |                   
|- | ------------------
| | Share option plans

Under both U.K. GAAP and U.S. GAAP, share
option plans 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 as well as goodwill and amortization if such
options are issued in connection with a business combination.



|  |                              
|- | -----------------------------
| | Long-term contract adjustment

An agreement existed for the sale of equipment,
which has been installed and accepted by the customer. Under
U.K. GAAP, these types of arrangements qualify for long-term
contract accounting with revenue recorded based on work
performed under the contract. U.S. GAAP does not permit
revenue recognition in those instances where specific criteria
have not yet occurred, and where the obligation for the customer
to pay has not yet fallen due. Accordingly, adjustments arise
due to the timing differences for recognition under U.K. and
U.S. GAAP. At March 31, 2003 and 2002, there were no
cumulative differences in revenue recognized between U.K. and
U.S. GAAP.



|  |                                               
|- | ----------------------------------------------
| | Pension and other post-retirement
    benefits

Under both U.K. GAAP and U.S. GAAP pension
costs are provided for 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 obligation or prepayment. Furthermore, under
U.K. GAAP the notional interest cost associated with the pension
and post-retirement benefit obligation is classified as interest
expense, whereas under U.S. GAAP it is classified with
employee costs.



|  |                                                                      
|- | ---------------------------------------------------------------------
| | Goodwill and intangible asset amortization and
    impairment charges

Under both U.K. and U.S. GAAP, the purchase
price of a transaction accounted for as an acquisition is based
on the fair value of the consideration. Differences in the
carrying value of goodwill arise as the result of U.S. GAAP
differences in the net assets acquired, such as the treatment of
share options issued for acquisitions and deferred taxes. Such
differences in the calculation of goodwill resulted in
differences in amortization expense. Also, effective
April 1, 2002, goodwill is no longer amortized under
U.S. GAAP but continues to be amortised for U.K. GAAP.
Differences in the impairment loss recognized arise as a result
of the differences in the carrying value of the underlying
goodwill and net assets under U.K. GAAP and U.S. GAAP.



|  |                                  
|- | ---------------------------------
| | Loss/(gain) on sale of businesses

Differences in the gain or loss on the sale of a
business arise as a result of the differences in the carrying
value of the underlying net assets under U.K. GAAP and
U.S. GAAP.



|  |                   
|- | ------------------
| | Restructuringcosts

Under U.K. GAAP, provisions are recognized when
the Company has a present obligation as a result of a past
event, when it is probable that a transfer of economic benefits
will be required to settle the obligation, and when a reliable
estimate can be made of the amount of the obligation. Under
U.S. GAAP, a number of specific criteria must be met before
restructuring costs can be recognized as an expense.

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Among these criteria is the requirement that all
significant actions arising from the restructuring plan and
their completion dates must be identified by the balance sheet
date, and employees must be notified in order for termination
benefits to be accrued. Accordingly, adjustments arise due to
the timing differences for recognition under U.K. and
U.S. GAAP.




|  |            
|- | -----------
| | Derivatives

Under U.S. GAAP, the carrying amount of
certain hedged items are adjusted for gains or losses
attributable to the hedged risk. This unrealized gain is offset
by changes in the fair value of the derivative. Additionally, on
the sale or early termination of the hedged items, gains and
losses are immediately reclassified to other (income)/expense.
Under U.K. GAAP, these gains and losses are amortized until
the date of termination.

Major customers

At March 31, 2003, the Company had one
customer that accounted for 17% (2002, 12% and 2001, 17%) of
revenue.

Revenue by geography
(U.S. GAAP)

Revenue to unaffiliated customers by geographic
region is as follows:

|                                     |                                          |                      |     |       |  |      |       |       |  |  |       |       | 
|------------------------------------ | ---------------------------------------- | -------------------- | --- | ----- |  | ---- | ----- | ----- |  |  | ----- | ----- | 
|                                     |                                          |                     
|                                     |                                          | Year ended March 31,
|                                     |                                          | 2003                 |     | 2002  |  | 2001
|(in millions)                        |                                          | £                    |     | £     |  | £   
|                                     |                                          |                     
|                                     |                                          |                     
|Revenue by territory of destination: |                                          |                      |     |       |  |      |       |       |  |  |       |      
|United Kingdom                       |                                          |                      | 500 |       |  |      | 837   |       |  |  | 1,418 |      
|Italy                                |                                          |                      | 156 |       |  |      | 201   |       |  |  | 197   |      
|Other                                |                                          |                      | 512 |       |  |      | 757   |       |  |  | 1,170 |      
|                                     |                                          |                     
|                                     | Total Europe, Middle East, Africa (EMEA) |                      |     | 1,168 |  |      |       | 1,795 |  |  |       | 2,785 | 
|                                     |                                          |                     
|United States                        |                                          |                      | 519 |       |  |      | 1,064 |       |  |  | 1,560 |      
|Central and Latin America (CALA)     |                                          |                      | 62  |       |  |      | 118   |       |  |  | 229   |      
|Other                                |                                          |                      | 15  |       |  |      | 39    |       |  |  | 16    |      
|                                     |                                          |                     
|                                     | Total the Americas                       |                      |     | 596   |  |      |       | 1,221 |  |  |       | 1,805 | 
|                                     |                                          |                     
|Asia Pacific (APAC)                  |                                          |                      | 132 |       |  |      | 230   |       |  |  | 331   |      
|                                     |                                          |                     
|                                     | Total external revenue                   |                      |     | 1,896 |  |      |       | 3,246 |  |  |       | 4,921 | 
|                                     |                                          |                     

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|                                 |                                          |                      |     |       |  |      |       |       |  |  |       |       | 
|-------------------------------- | ---------------------------------------- | -------------------- | --- | ----- |  | ---- | ----- | ----- |  |  | ----- | ----- | 
|                                 |                                          |                     
|                                 |                                          | Year ended March 31,
|                                 |                                          | 2003                 |     | 2002  |  | 2001
|(in millions)                    |                                          | £                    |     | £     |  | £   
|                                 |                                          |                     
|                                 |                                          |                     
|Revenue by territory of origin:  |                                          |                      |     |       |  |      |       |       |  |  |       |      
|United Kingdom                   |                                          |                      | 692 |       |  |      | 1,058 |       |  |  | 1,918 |      
|Italy                            |                                          |                      | 230 |       |  |      | 299   |       |  |  | 401   |      
|Other                            |                                          |                      | 219 |       |  |      | 449   |       |  |  | 666   |      
|                                 |                                          |                     
|                                 | Total Europe, Middle East, Africa (EMEA) |                      |     | 1,141 |  |      |       | 1,806 |  |  |       | 2,985 | 
|                                 |                                          |                     
|United States                    |                                          |                      | 534 |       |  |      | 1,009 |       |  |  | 1,500 |      
|Central and Latin America (CALA) |                                          |                      | 57  |       |  |      | 188   |       |  |  | 174   |      
|Other                            |                                          |                      | 18  |       |  |      | 42    |       |  |  | 48    |      
|                                 |                                          |                     
|                                 | Total the Americas                       |                      |     | 609   |  |      |       | 1,239 |  |  |       | 1,722 | 
|                                 |                                          |                     
|Asia Pacific (APAC)              |                                          |                      | 146 |       |  |      | 201   |       |  |  | 214   |      
|                                 |                                          |                     
|                                 | Total external revenue                   |                      |     | 1,896 |  |      |       | 3,246 |  |  |       | 4,921 | 
|                                 |                                          |                     

No other individual country contributed more than
10% of revenue in any of the years reported.

Revenue by product
(U.S. GAAP)

Revenue by product is as follows:

|                   |                                             |                      |       |       |  |      |       |       |  |  |       |       | 
|------------------ | ------------------------------------------- | -------------------- | ----- | ----- |  | ---- | ----- | ----- |  |  | ----- | ----- | 
|                   |                                             |                     
|                   |                                             | Year ended March 31,
|                   |                                             | 2003                 |       | 2002  |  | 2001
|(in millions)      |                                             | £                    |       | £     |  | £   
|                   |                                             |                     
|                   |                                             |                     
|                   | Optical networks                            |                      |       | 439   |  |      |       | 787   |  |  |       | 1,358 | 
|                   | Access systems                              |                      |       | 493   |  |      |       | 729   |  |  |       | 1,372 | 
|                   | Broadband routing and switching             |                      |       | 142   |  |      |       | 209   |  |  |       | 427   | 
|                   | Other network equipment                     |                      |       | 57    |  |      |       | 87    |  |  |       | 111   | 
|                   |                                             |                     
|Network Equipment  |                                             |                      | 1,131 |       |  |      | 1,812 |       |  |  | 3,268 |      
|                   |                                             |                     
|                   | Value-added services                        |                      |       | 373   |  |      |       | 441   |  |  |       | 360   | 
|                   | Installation, commissioning and maintenance |                      |       | 370   |  |      |       | 528   |  |  |       | 656   | 
|                   |                                             |                     
|Network Services   |                                             |                      | 743   |       |  |      | 969   |       |  |  | 1,016 |      
|                   |                                             |                     
|                   | Total Core revenues                         |                      |       | 1,874 |  |      |       | 2,781 |  |  |       | 4,284 | 
|Capital businesses |                                             |                      | 22    |       |  |      | 465   |       |  |  | 637   |      
|                   |                                             |                     
|                   | Total external revenue                      |                      |       | 1,896 |  |      |       | 3,246 |  |  |       | 4,921 | 
|                   |                                             |                     

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Long-lived assets

Within capital employed, the balance sheet
measure reviewed by the chief operating decision maker, the only
long-lived assets included are property, plant and equipment and
other non-current assets.

Expenditure by sector on property, plant and
equipment is as follows:

|                        |       |                      |    |      |  |      |     |     |  |  |     |     | 
|----------------------- | ----- | -------------------- | -- | ---- |  | ---- | --- | --- |  |  | --- | --- | 
|                        |       |                     
|                        |       | Year ended March 31,
|                        |       | 2003                 |    | 2002 |  | 2001
|(in millions)           |       | £                    |    | £    |  | £   
|                        |       |                     
|                        |       |                     
|Network Equipment       |       |                      |    |      |  |      |     |     |  |  |     |    
|                        |       |                      | 34 |      |  |      | 168 |     |  |  | 283 |    
|Network Services        |       |                      |    |      |  |      |     |     |  |  |     |    
|Capital                 |       |                      | 1  |      |  |      | 159 |     |  |  | 236 |    
|                        |       |                     
|                        | Total |                      |    | 35   |  |      |     | 327 |  |  |     | 519 | 
|Discontinued operations |       |                      | 8  |      |  |      | 35  |     |  |  | 68  |    
|                        |       |                     
|                        | Total |                      |    | 43   |  |      |     | 362 |  |  |     | 587 | 
|                        |       |                     

The geographical split of property, plant and
equipment and goodwill and intangibles is as follows:

|               |  |                      |       |      |  |      |       |  |  |  |       | 
|-------------- |  | -------------------- | ----- | ---- |  | ---- | ----- |  |  |  | ----- | 
|               |  |                     
|               |  | Year ended March 31,
|               |  | 2003                 |       | 2002 |  | 2001
|(in millions)  |  | £                    |       | £    |  | £   
|               |  |                     
|               |  |                     
|United Kingdom |  |                      | 567   |      |  |      | 638   |  |  |  | 1,192 | 
|United States  |  |                      | 249   |      |  |      | 354   |  |  |  | 4,668 | 
|Italy          |  |                      | 48    |      |  |      | 59    |  |  |  | 68    | 
|Other          |  |                      | 157   |      |  |      | 251   |  |  |  | 333   | 
|               |  |                     
|Total          |  |                      | 1,021 |      |  |      | 1,302 |  |  |  | 6,261 | 
|               |  |                     

Long-lived assets within other countries are not
individually material for any fiscal year presented.

10. Commitments and
contingencies

Legal proceedings

The Company is not and have not been engaged in,
nor, have pending, 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 these
consolidated financial statements, a significant effect on the
financial position as a whole, except as set out below. Where a
liquidated sum is claimed, a de minimis figure has been applied
in determining which claims may have a significant effect. The
figures given are the full amounts claimed by the claimants in
each case, which may be much greater than the amounts the
claimants realistically believe they can recover. The Company
intends to defend claims vigorously. While the Company believes
there are meritorious defenses, the duration and outcome of the
litigation are not predictable at this point.

Claims against us or group
companies

The following represents the largest outstanding
claims made against the group:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Marconi Corporation plc, FORE Systems Inc., or
    FORE Systems, and 13 persons who were then directors and/or
    senior executives of FORE Systems are defendants in a
    consolidated class action lawsuit filed in the United States
    District Court for the Western District of Pennsylvania on
    behalf of the public shareholders of FORE Systems, other than
    defendants and their respective affiliates. The action alleges
    that Marconi Corporation plc violated federal securities
    law in relation to Marconi Corporation plcs tender offer
    for FORE Systems shares, FORE Systems grant of share

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | options to certain of the individual defendants
    and the treatment afforded the individual defendants share
    options in that tender offer and in the merger agreement between
    Marconi Corporation plc and FORE Systems. Millionerrors
    Investment Club is the representative of the named plaintiff
    class. The Complaint seeks unspecified damages, counsel and
    expert fees, other costs of the claim and other unspecified
    relief. Plaintiffs lawyers have stated that their damage
    claims would total $450 million. On August 21, 2002
    the District Court granted summary judgment in favor of
    defendants on all claims. On September 23, 2002, the
    plaintiffs filed a notice of appeal. The appeal would be
    expected to take approximately one year. The appeal has been
    stayed and the case remanded to the district court to consider a
    settlement agreement reached among the parties. The settlement
    is subject to court approval that will be sought within the next
    30 days, but may not be granted for several months, after
    notice and hearing.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | 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 class of
    persons, other than defendants and their respective affiliates,
    who purchased FORE Systems securities during the period
    July 19, 1996 to April 1, 1997, inclusive. Robert K.
    Bell is the first named plaintiff class representative. The
    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 April 1, 1997
    preliminary release of FORE Systems projected results of
    operations for the year ended March 31, 1997. The
    plaintiffs also allege that FORE Systems financial
    statements for the quarters ended June 30,
    September 30 and December 31, 1996 improperly
    recognized revenues on sales to certain customers. These alleged
    misrepresentations are said to constitute violations of the
    anti-fraud provisions of Section 10(b) of the U.S.
    Securities Exchange Act of 1934 and, as to the individual
    defendants, of Section 20(a) of the U.S. Securities
    Exchange Act of 1934. The plaintiffs consolidated
    complaint seeks unspecified damages, counsel and expert fees and
    other costs of suit and other unspecified relief. The defendants
    have denied all allegations of wrongdoing. Discovery has
    concluded, and both plaintiffs and defendants have filed their
    respective pre-trial statements. The plaintiffs damages
    expert had initially estimated damages at $792 million,
    then $865 million and then $724 million. By order dated
    August 2, 2002, the court granted the defendants
    motion in limine to exclude testimony from the
    plaintiffs damages expert. At the same time, the court
    denied a motion to exclude testimony from the plaintiffs
    liability expert and discussed a proofs of claim procedure
    which, if liability were found, would follow a liability trial.
    The court also certified the damages issue for an interlocutory
    appeal to the U.S. Court of Appeals for the Third Circuit. The
    plaintiffs did not appeal the courts decision. The parties
    have agreed to a settlement in principle, which, if concluded,
    will result in the group not making a payment to the plaintiff
    class. The settlement is currently being documented and then
    will be subject to court approval, which will take several
    months.
|
| |  | FORE Systems is a defendant in a lawsuit filed by
    Bell Communications Research, Inc., now known as Telcordia
    Technologies Inc., or Telcordia, on October 14, 1998 in the
    United States District Court for the District of Delaware. Upon
    filing the case, Telcordia, a patent holder, alleged that FORE
    Systems infringed four patents owned by Telcordia, and sought
    unspecified damages for past infringement and an injunction
    against future infringement. FORE Systems denied infringement
    and asserted the affirmative defenses of invalidity,
    unenforceability, laches, equitable estoppel, implied license,
    misuse and unclean hands. In addition, FORE Systems
    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, negligent misrepresentation and common law unfair
    business practices and competition. Prior to trial, Telcordia
    dismissed with prejudice its claims for infringement of two of
    the four asserted patents, and FORE Systems dismissed with
    prejudice its counterclaims for reformation of contract based on
    fraud, breach of the covenant of good faith and fair dealing,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

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| |  |                                                                                                                                 
| |  | --------------------------------------------------------------------------------------------------------------------------------
| |  | negligent misrepresentation and common law unfair
    business practices and competition. Discovery in this case has
    closed.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Telcordia maintained its claims for infringement
    on the remaining two patents. The district court conducted a
    claim construction hearing in late August 2000 and subsequently
    entered an order construing the claims of the two remaining
    patents in suit. Telcordia, taking the position that it could
    not, given the courts patent claim construction, prevail
    on its claims of infringement at trial, moved the district court
    to enter an order finding that FORE Systems had not infringed
    the two remaining patents in suit so that the case would be
    procedurally postured for appeal. FORE Systems subsequently
    moved the district court to require that Telcordia identify
    which of the construed patent claim elements it contended were
    in error and precluded Telcordia from proving infringement.
    Telcordia identified some claim elements, and, on
    September 21, 2001, the district court entered a final
    judgment of non-infringement on the two remaining patents.
|
| | Telcordia filed notice of appeal on
    October 19, 2001, and filed its opening brief on
    March 18, 2002. FORE Systems opening brief was filed
    on May 28, 2002. Telcordia filed its reply on July 23,
    2002, and FORE filed its reply on August 9, 2002. Oral
    argument in the appeal took place on February 3, 2003. In
    its decision, announced on March 27, 2003, the
    U.S. Court of Appeals for the Federal Circuit unanimously
    affirmed the district courts judgment on one of the two
    patents, and on the other patent, by a majority decision,
    remanded the case back to district court for further proceedings.                                                                                                                                                                                                                                                                                                                                                                                       



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | FORE Systems is a defendant in a second lawsuit
    filed by Telcordia, a patent holder, on June 8, 1999 in the
    United States District Court for the District of Delaware.
    Telcordias second lawsuit alleges that FORE Systems has
    infringed two additional Telcordia 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.
    FORE Systems has also asserted a counterclaim seeking damages
    for Telcordias infringement of a FORE Systems patent. The
    case was scheduled for trial in November 2000. However, all
    proceedings have been stayed pending the outcome of the
    proceedings in the first lawsuit described above, and discovery
    in this second case has not yet been completed.                                                                                                                                                                                                                                             
|
| |  | Systems Management Specialists, Inc., or SMS, is
    a defendant in an arbitration brought by Esprit de Corp, or
    Esprit, in April 2002. This action relates to two outsourcing
    agreements entered into by Esprit and SMS in 1995 and 1999;
    Esprit alleges that SMS breached its obligations under the
    agreement and is seeking at least $8 million. The pleadings
    portion and discovery phase between SMS and Esprit had commenced
    and the arbitration hearing will be conducted in Los Angeles,
    California, U.S.A. Initially, the parties had agreed to conduct
    the arbitration hearing during a two-week period in May, 2003,
    with discovery and briefing to take place before that time.
    However, this has been delayed and the hearing is now scheduled
    to commence on September 15, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | Marconi Corporation plc and Marconi Commerce
    Systems Inc., or MCSI and Marconi plc and MCSI are defendants in
    an action brought by a former employee, Larry Anthony Gillus, or
    Gillus. The complaint is that Gillus suffered racial
    discrimination and subsequent retaliatory action whilst employed
    by Gilbarco, subsequently known as MCSI, which has now been sold
    to subsidiaries of Danaher Corporation plc. A second claim has
    been brought against Marconi plc and MCSI for retaliation and
    intentional infliction of emotional distress alleged to have
    occurred after he brought the original action. In the second
    action filed in 2000, there is a motion pending to add a breach
    of employment contract claim and injunctive relief. Counsel for
    both parties have agreed that if Marconi plc is the correct
    defendant and not Marconi Corporation plc, this charge can be
    made. Gillus counsel has stated that he is seeking a total
    of $19 million in respect of both claims. The claims have
    been selected for a mediated settlement conference. Potential
    liabilities in respect of the claim against Marconi Corporation
    plc were compromised pursuant to our Financial Restructuring.

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Marconi Corporation plc, Marconi plc, Marconi
    Inc. and Marconi Data Systems Inc. are defendants in an action
    brought by a former employee, Thomas Edeus, or Edeus. The
    complaint asserts three causes of action; firstly that Edeus was
    unlawfully deprived of benefits to which he was entitled under
    Marconi Data Systems Incs United States severance plan;
    secondly for failure to provide Edeus with a summary plan
    description relating to the severance plan; and thirdly for age
    discrimination in employment. The plaintiff has purported to
    have made out claims in various specified amounts totaling over
    $901,000, some of which may be in the alternative, and also
    unspecified punitive damages, liquidated damages and front and
    back pay, making the impact of this claim on the group difficult
    to access. An answer and affirmative defenses have been filed on
    behalf of all defendants. On June 5, 2003, the court
    entered an order providing as follows: Plaintiff having
    advised the court that one or more defendants [sic] are in
    Bankruptcy, this action is placed on the courts suspense
    calendar pending disposition of the bankruptcy case. Plaintiff
    is directed to file and notice for hearing a motion to reinstate
    upon disposition of the bankruptcy proceedings. Potential
    liabilities in respect of the claim against Marconi Corporation
    plc were compromised pursuant to our Financial Restructuring.
|
| |  | On October 4, 2000, Alcatel SA and Alcatel
    CIT, or Alcatel, both French companies, filed a claim against
    Marconi plc, Marconi Communications Limited and Marconi
    Communications S.p.A alleging infringement of two patents held
    by Alcatel group companies. Alcatel and Marconi Corporation plc
    entered into a mutual patent cross license agreement effective
    April 1, 2002 in respect of both companies patent
    portfolios, which calls for a series of payments by Marconi plc.
    The amount of these payments has no significant effect on the
    financial position or profitability of the group. This settled
    all claims brought by Alcatel. The cross license applies to
    patents and patent applications of Marconi plc and Alcatel filed
    prior to April 1, 2002. The cross license expires on
    March 31, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Stringfellow and Plessey Precision Metals are
    defendants in an action brought in the Superior Court of
    California in May 1998. A toxic tort claim was filed by several
    thousand residents of Riverside County who live adjacent to the
    Stringfellow Acid Pits Waste Disposal Site. There are currently
    several hundred plaintiffs. The claim is still in its early
    stages and therefore, no estimate of Plesseys potential
    liability is currently available. Plessey was a minor generator
    of hazardous materials on the site compared to others involved,
    however. A case management order was entered into in early 2001
    and the case is still in the early discovery stage. The
    defendants are seeking dismissal on grounds of statutes of
    limitation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Inglis Limited and English Electric Company
    Limited, or English Electric are defendants in an action brought
    by Manitoba Hydro. In the early 1960s, Manitoba Hydro contracted
    with Inglis Limited to design and manufacture, amongst other
    equipment, three turbines for the hydro electric plant at Grand
    Rapids in the United States. Inglis Limited worked closely with
    English Electric, who prepared certain aspects of the turbine
    design. One of the turbines exploded in March 1992. Manitoba
    Hydro is suing Inglis Limited for negligence and breach of
    contract in the design and manufacture of the turbines, and
    English Electric for negligence in relation to the design. In
    June 1998 Manitoba Hydro were granted leave to commence an
    action against English Electric and Inglis Limited and
    proceedings are progressing, the documentary disclosure phase
    having been largely completed and examination for discovery of
    witnesses being partly undertaken. Manitoba Hydro has pleaded,
    in broad terms, around 35 million Canadian dollars,
    approximately £14 million. This sum is exclusive of
    interest which could approximately double this figure as the
    explosion took place 10 years ago. This amount assumes
    100 percent liability on the part of English Electric,
    which is denied.                                                                                                                                        
|
| |  | Datang Telecom Technology Co. Ltd, Optical
    Communication Branch, or Datang, has indicated that it may bring
    a claim against Chengdu Marconi Communications Ltd, or Chengdu.
    On August 24, 2000 Chengdu Marconi Communications Ltd
    entered into an Original Equipment Manufacture agreement with
    Datang. Datang has approximately U.S.$5.2 million on
    account payable to Chengdu Marconi Communications Ltd but has
    not paid as it claims that it has been                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | unable to sell U.S.$7 to 9 million of
    products purchased from Chengdu Marconi Communications Ltd due
    to their quality. Datang has indicated that it will not pay the
    outstanding sums and may bring court proceedings against Chengdu
    Marconi Communications Ltd in China. The value of such a claim
    might be in the region of U.S.$7 to 9 million, the value of
    the products that Datang claims it has been unable to sell, but
    could potentially be for U.S.$18 million, the value of the
    entire contract.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | On March 26, 2002 Railtrack Telecom Services
    Limited, or RTSL, now known as RT Group Telecom Services
    Limited, a joint venture partner, served a claim against Marconi
    Corporation plc in respect of its failure to pay in February
    2002 an amount of £20 million plus daily interest in
    an amount of £3,287 in respect of the purported exercise by
    RTSL of a contractual option to put 1,324,054 ordinary shares in
    Easynet Group plc on to Marconi Corporation plc. Marconi
    Corporation plc had, prior to receipt of the claim, indicated
    its intention to claim or counterclaim against RTSL in respect
    of its acts, omissions, misrepresentations and breaches of its
    obligations to Marconi Corporation plc arising out of or in
    respect of certain agreements and transactions relating to
    ipsaris Limited and Ultramast Limited, a joint venture company
    in which RTSL and Marconi Corporation plc each held
    50 percent of the shares. Marconi Corporation plc then
    raised its counterclaims as a complete defense and advised RTSL
    that the amount of Marconi Corporation plcs claims against
    RTSL was greater than the claim that RTSL had brought against
    Marconi Corporation plc. RTSL applied for a summary judgment
    hearing which took place on July 15, 2002, on the grounds
    that Marconi Corporation plcs claims had no real prospect
    of success. The court did not grant summary judgment in favor of
    RTSL, recognizing that Marconi Corporation might have a valid
    counterclaim that could be set off against amounts due under the
    option. However, the court did order that Marconi Corporation
    plc pay the disputed £20 million plus interest into
    court, reflecting the courts concerns about whether the
    counterclaim by Marconi Corporation plc would ultimately succeed
    and also the fact that RTSL was entitled to put the Easynet
    Group plc shares on Marconi Corporation plc, and that it would
    be unfair for Marconi Corporation plc to acquire the shares
    without making any payment. Marconi Corporation plc paid the
    required sum into court. A settlement of all outstanding
    litigation was reached with RTSL, subject to court approval of a
    capital reduction in Ultramast Limited. The court approved the
    capital reduction on February 21, 2003.
|
| |  | Marconi Communications Limited, or MCL has
    settled claims which were brought by Alstom Transport Limited,
    or Alstom, a sub-contractor, in an arbitration brought under
    International Chamber of Commerce rules in respect of a
    sub-contract that Alstom entered into with MCL on May 26,
    1995 for the supply of certain communications equipment and
    systems for installation on the Northern Line of Londons
    underground system. Alstom requested the arbitration on
    May 25, 2001. MCL submitted a full defense. Certain
    preliminary matters were heard and an initial hearing into the
    substance of the claim took place. In a related action, Alstom
    Transport Ltd and three other Alstom subsidiaries issued
    proceedings in the English courts in September 2001 in relation
    to alleged misrepresentations or breach of warranties made by
    MCL as to the costs of operating the communications equipment
    and systems to be installed pursuant to this sub-contract.
    Settlement was reached in relation to both these claims on
    December 20, 2002. MCL will provide further products and
    services to Alstom pursuant to a revised supply contract and a
    new maintenance contract was entered into as of January 6,
    2003. Marconi Corporation plcs obligations pursuant to
    these new contracts are guaranteed by Marconi Communications
    Holdings Limited and are the subject of collateralized
    performance bonds to a value of £2.5 million and
    £1 million respectively for the supply and maintenance
    contracts. The arbitration has also been discontinued.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Marconi Corporation plc was the defendant in an
    action brought by DrKW Finance Ltd, or DrKW which has now been
    settled. The claim was for £12,289,860 plus interest due or
    scheduled to become due under a payment plan agreement between
    Oracle Corporation U.K. Ltd, or Oracle, and Marconi Corporation
    plc. Oracle assigned the relevant agreement, a software licensing                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | agreement, to DrKW. On October 11, 2002 DrKW
    obtained summary judgment for the full amount claimed plus
    interest. On the same day Marconi Corporation agreed a
    settlement of the claim with DrKW and DrKW agreed not to enforce
    the judgment. Marconi Corporation plc has complied with its
    settlement obligations and has no further liability in respect
    of this claim.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | There is an outstanding tax dispute between the
    Indian tax authorities and Marconi Corporation plc, English
    Electric and Associated Electrical Industries Limited, or AEI.
    In 1989/90, as part of the reorganization of the groups
    European operations, Marconi Corporation plc, English Electric
    and AEI transferred their shareholdings in The General Electric
    Company of India Limited, or GEC India, The English Electric
    Company of India Limited, or EE India, and GEC Power Engineering
    Services of India Limited, or GEP India, to a Dutch company, GEC
    Alsthom NV, or Alsthom. The Indian tax authorities claim that
    this transfer gives rise to an Indian capital gains tax charge
    for each of Marconi Corporation plc, English Electric and AEI,
    although this is one of the issues in dispute. An advance Indian
    capital gains tax payment had to be made before the Indian
    authorities would issue a no-objection certificate, which was
    required before the transfer could proceed. This advance payment
    was based on the value of GEC India, EE India and GEP India at
    the date of the no-objection certificate. The Indian tax
    authorities have, however, assessed Marconi Corporation plc,
    English Electric and AEI to tax on the basis of the value of GEC
    India, EE India and GEP India at the date of the actual
    transfer, which could give rise to a tax liability of up to
    £11 million, of which £3 million relates to
    Marconi Corporation plc. Marconi Corporation plc, English
    Electric and AEI are disputing this liability and the basis of
    valuation in the Indian courts and in pursuance of interim
    orders of the Indian Court have deposited approximately
    £3 million with the Indian tax authorities.                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | Marconi plc and four of its former officers are
    defendants in a consolidated class action lawsuit pending in the
    United States District Court for the Western District of
    Pennsylvania brought on behalf of a putative class of all
    persons, other than defendants and their respective affiliates,
    who purchased American depository receipts or are United States
    residents and purchased common stock of Marconi plc between
    April 10, 2001 and July 5, 2001, inclusive. Plaintiffs
    allege that, during this period, Marconi plc and the individual
    defendants falsely reassured investors that revenues would rise
    during the year and that its geographic and business mix left it
    relatively immune to the economic downturn affecting its
    competitors. Plaintiffs further allege that on July 4, 2001
    defendants belatedly disclosed that tougher trading conditions
    in the quarter ended June 30, 2001 indicated that
    Marconi plcs sales and operating profits for its
    fiscal year ended March 31, 2002 would fall significantly
    from the levels previously estimated. Defendants alleged
    misrepresentations are said to violate the anti-fraud provisions
    of Section 10(b) of the U.S. Securities Exchange Act of
    1934 and, as to the individual defendants, Section 20(a) of
    the U.S. Securities Exchange Act of 1934. Plaintiffs seek class
    certification, an award of unspecified damages, counsel and
    expert fees and other costs of suit and other unspecified
    relief. All defendants filed a motion to dismiss the lawsuit,
    which by opinion and order dated September 18, 2002, was
    granted in part and denied in part. The Court ruled that it had
    no jurisdiction over claims of holders of Marconi plc
    ordinary shares not residents of the United States, but does
    have jurisdiction over claims of American resident owners of
    ordinary shares and owners of ADRs. The parties have agreed to a
    settlement in principle, which, if concluded, would result in
    the group not making a payment to the claimants. The settlement
    is currently being documented and then will be subject to court
    approval, which will take several months.
|
| |  | Marconi plc was the defendant in an action
    commenced by Salomon Brothers International Limited, or SBIL,
    for £15.9 million, plus interest and costs. The claim
    was related to a guarantee granted by Marconi plc to SBIL in
    respect of certain equity swap transactions entered into between
    SBIL and Bedell Cristin Trustees Limited, or Bedell Cristin, as
    trustees of the Marconi Employee Trust. The intention of the
    equity swap transactions was to hedge the exposure of the
    Marconi group to the Marconi plc share price inherent in Marconi
    employee share options. The                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

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| |  |                                                                                                        
| |  | -------------------------------------------------------------------------------------------------------
| |  | equity swap transactions were governed by an ISDA
    master agreement between SBIL and Bedell Cristin.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On March 26, 2002, SBIL served notice on
    Bedell Cristin purporting to terminate the equity swap
    transactions on the grounds of an alleged event of default in
    relation to Marconi plc. On April 8, 2002, SBIL served a
    demand on Marconi plc under its guarantee for payment of an
    early termination amount that it had calculated to represent its
    loss in relation to the equity swap transactions. Marconi plc
    declined to recognize the validity of the early termination of
    the equity swap transactions or the demand under its guarantee.
    On April 19, 2002 SBIL filed a claim form on Marconi plc.
    Marconi plc served a defence to this claim form.
|
| | This litigation was discontinued in accordance in
    accordance with a settlement entered into in connection with our
    restructuring.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

Claims brought by the Company

The following represent the largest outstanding
claims made on behalf of the group:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Marconi Communications Inc., or MCI, is the
    claimant in two actions against Vidar SMS Co., Ltd, or Vidar, a
    company with its principal place of business in Taiwan. In May
    2000, MCI brought an International Chamber of Commerce
    arbitration proceeding against Vidar in connection with
    Vidars breaches of an Engineering Services Agreement
    between Vidar and a Marconi-acquired company, RELTEC
    Corporation. In August 2002, the arbitration tribunal awarded
    MCI $25,879,544 under its breach of warranty claims, $5,604,270
    for prejudgment interest, and $156,702 for costs, for a total
    award of $31,640,516. Vidar may claim that it has no assets to
    satisfy this judgment.                                                                                                                                                                                                                                                                                                                                                    
|
| |  | A second action was brought by MCI against Vidar
    in May 2000 in the United States Court for the Northern District
    of Texas for fraud, negligent misrepresentation, Texas common
    law indemnity and California equitable indemnity, all relating
    to Vidars wrongful acts in connection with various
    business relationships between the parties. On October 30,
    2002, the U.S. District Court entered default judgment against
    Vidar on all claims and assessed MCIs actual damages at
    $72,402,065 plus prejudgment interest on this amount at the rate
    of 10 percent per annum. Vidar filed a petition for
    reorganization in the Taipei (Taiwan) District Court in 2001 and
    may claim that it has no assets to satisfy the judgments
    referred to above. However, the Taipei District Court dismissed
    Vidars petition on January 28, 2002 based on its lack
    of viability for reorganization and the Taiwan High Court
    dismissed Vidars appeal of the lower courts ruling
    on March 25, 2002 based on the same reason.

Third party guarantees

The Company has entered into agreements that
contain features, which meet the definition of a guarantee under
FIN 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, including Indirect Guarantees of
Indebtedness of Others.FIN 45 defines a guarantee to
be a contract that contingently requires the Company to make
payments (either in cash, financial instruments, other assets,
common shares of the Company or through the provision of
services) to a third party based on changes in an underlying
economic characteristic (such as interest rates or market value)
that is related to an asset, a liability or an equity security
of the other party. FIN 45 requires that upon issuance of a
guarantee, the guarantor must disclose and recognize a liability
for the fair value of the obligation it assumes under that
guarantee. The initial recognition and measurement requirement
of FIN 45 is effective for guarantees issued or modified
after December 31, 2002. As of March 31, 2003, the
fair value of the Companys guarantees that were issued or
modified after December 31, 2002 were not material.

The Company has the following major types of
guarantees that are subject to the disclosure requirements of
FIN 45.

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Financial and other
guarantees

Marconi Corporation plc and various of its
subsidiaries have undertaken, in the normal course of business,
to provide support to the joint ventures of the Company, to meet
their liabilities. These undertakings contain financial
guarantees. A payment under these undertakings would be required
in the event of any of the joint ventures being unable to pay
its liabilities. Payment of this funding would be required if
requested by the joint ventures in accordance with the funding
agreements. The potential amount of future payments which the
Company may be required to make under these guarantees is
£10 million.

Other guarantees relate primarily to financial
standby letters of credit, irrevocable undertakings to guarantee
payment of a specified financial obligation. The maximum
potential amount of future payments which may be required to be
made by the Company under these guarantees is
£61 million.

Purchase commitments

In the ordinary course of business the Company
enters into contracts for capital expenditures as set out below:

|              |  |                     |   |      |  |      |   |  |  |  |    | 
|------------- |  | ------------------- | - | ---- |  | ---- | - |  |  |  | -- | 
|              |  |                    
|              |  | Capital expenditure
|              |  | commitments        
|              |  | 2003                |   | 2002 |  | 2001
|(in millions) |  | £                   |   | £    |  | £   
|              |  |                    
|              |  |                    
|At March 31   |  |                     | 4 |      |  |      | 3 |  |  |  | 87 | 
|              |  |                    

Leases

The Company leases certain facilities and
equipment under operating leases, many of which contain renewal
options and escalation clauses. Total rental expense for fiscal
2003 was £34 million (2002, £43 million and
2001, £42 million).

At March 31, 2003, 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) |       | £         |    | £     |  | £    
|              |       |          
|              |       |          
|Fiscal 2004   |       |           | 15 |       |  |       | 4 |    |  |  | 19 |    
|2005          |       |           | 17 |       |  |       | 4 |    |  |  | 21 |    
|2006          |       |           | 15 |       |  |       | 1 |    |  |  | 16 |    
|2007          |       |           | 13 |       |  |       | 1 |    |  |  | 14 |    
|2008          |       |           | 11 |       |  |       |  |    |  |  | 11 |    
|Thereafter    |       |           | 47 |       |  |       |  |    |  |  | 47 |    
|              |       |          
|              | Total |           |    | 118   |  |       |   | 10 |  |  |    | 128 | 
|              |       |          

11. Business combinations

The Company made no acquisitions during fiscal
2003. The following table presents information about
acquisitions by the Company during fiscal 2002 and 2001. All of
these acquisitions were accounted for under the purchase method
of accounting.

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The aggregate impact of the acquisitions in
fiscal 2002 and fiscal 2001 was not material to net sales, net
loss, or basic earnings per share.

|            |                   |             |      |          |  |          |     |            |  |             |     |             |  |                                |     |            |  |             |     |    |  |  |     |     |  |  |   |  |  |  |     |  |  |  |      |  | 
|----------- | ----------------- | ----------- | ---- | -------- |  | -------- | --- | ---------- |  | ----------- | --- | ----------- |  | ------------------------------ | --- | ---------- |  | ----------- | --- | -- |  |  | --- | --- |  |  | - |  |  |  | --- |  |  |  | ---- |  | 
|            |                   |             |      |          |  |          |     |            |  |             |     |             |  |                               
|            |                   |             |      |          |  |          |     |            |  |             |     |             |  | Amortization period (in years)
|            |                   | Acquisition |      | Purchase |  |          |     | Existing   |  | Other       |     | IPRD        |  |                                |     | Existing   |  |            
|            |                   | date        |      | price    |  | Goodwill |     | technology |  | intangibles |     | (after tax) |  | Goodwill*                      |     | technology |  | Other      
|            |                   |             |      | £        |  | £        |     | £          |  | £           |     |             |  |                                |     |            |  | intangibles
|            |                   |            
|            |                   |            
|Fiscal 2002 |                   |             |      |          |  |          |     |            |  |             |     |             |  |                                |     |            |  |             |     |    |  |  |     |     |  |  |   |  |  |  |     |  |  |  |      | 
|Northwood   |                   |             | 5/01 |          |  |          | 19  |            |  |             | 16  |             |  |                                | 2   |            |  |             | 1   |    |  |  | n/a |     |  |  | 7 |  |  |  | 4   |  |  |  | 5    | 
|Telit       |                   |             | 4/01 |          |  |          | 11  |            |  |             | 13  |             |  |                                | 1   |            |  |             | 1   |    |  |  | n/a |     |  |  | 7 |  |  |  | 4   |  |  |  | 5    | 
|Other       |                   |             |      |          |  |          | 3   |            |  |             | 5   |             |  |                                | n/a |            |  |             | n/a |    |  |  | n/a |     |  |  | 7 |  |  |  | n/a |  |  |  | n/a  | 
|            |                   |             |      |          |  |          |     |            |  |             |     |             |  |                                |     |            |  |            
|            | Fiscal 2002 Total |             |      |          |  |          |     | 33         |  |             |     | 34          |  |                                |     | 3          |  |             |     | 2  |  |  |     | n/a |  |  |   |  |  |  |     |  |  |  |      |  | 
|            |                   |             |      |          |  |          |     |            |  |             |     |             |  |                                |     |            |  |            
|Fiscal 2001 |                   |             |      |          |  |          |     |            |  |             |     |             |  |                                |     |            |  |             |     |    |  |  |     |     |  |  |   |  |  |  |     |  |  |  |      | 
|Metapath    |                   |             | 6/00 |          |  |          | 500 |            |  |             | 400 |             |  |                                | 21  |            |  |             | 20  |    |  |  | 28  |     |  |  | 7 |  |  |  | 4   |  |  |  | 5-10 | 
|Mariposa    |                   |             | 6/00 |          |  |          | 200 |            |  |             | 161 |             |  |                                | 10  |            |  |             | 4   |    |  |  | 4   |     |  |  | 7 |  |  |  | 5   |  |  |  | 5-10 | 
|Other       |                   |             |      |          |  |          | 300 |            |  |             | 268 |             |  |                                | 64  |            |  |             | 35  |    |  |  | n/a |     |  |  | 7 |  |  |  | 7   |  |  |  | 7    | 
|            |                   |             |      |          |  |          |     |            |  |             |     |             |  |                                |     |            |  |            
|            | Fiscal 2001 Total |             |      |          |  |          |     | 1,000      |  |             |     | 829         |  |                                |     | 95         |  |             |     | 59 |  |  |     | 32  |  |  |   |  |  |  |     |  |  |  |      |  | 
|            |                   |             |      |          |  |          |     |            |  |             |     |             |  |                                |     |            |  |            



|  |                                                                                                
|- | -----------------------------------------------------------------------------------------------
|* | Amortization of goodwill ceased effective
    April 1, 2002 following the adoption of SFAS 142.

Northwood is a leading provider of radio planning
and engineering software.

Telit is a company involved in the development of
products for the public mobile network infrastructure. Following
an impairment review in fiscal 2002, an impairment charge of
approximately £13 million was recognized against
goodwill and other intangible assets of Telit, and included
within the (loss)/income from discontinued operations. As a
result, the remaining net book value of the goodwill and
intangible assets associated with Telit at March 31, 2002
was £nil and this was included in the net assets of
discontinued operations at March 31, 2002.

In addition, reductions to goodwill and other
intangibles arising in respect of prior-year acquisitions
totalling £20 million were recorded in fiscal 2002,
which related primarily to purchase price adjustments made
during 2002.

Metapath Software International, Inc. (Metapath)
is a global provider of business and operational support systems
(OSS) software used by the wireless telecommunications industry
to launch and support mobile voice and data services. Following
an impairment review in fiscal 2002, an impairment charge of
approximately £336 million was recognized against
goodwill and other intangible assets of Metapath. The remaining
net book value of the goodwill and intangible assets associated
with Metapath at March 31, 2002 was £18 million.

Mariposa Technology, Inc. (Mariposa) is a leading
provider of integrated access devices (IADs) for carrier-managed
services, virtual private networks and private enterprise
networks. Following an impairment review in fiscal 2002, an
impairment charge of approximately £151 million was
recognized against goodwill and other intangible assets of
Mariposa. The remaining net book value of the goodwill and
intangible assets associated with Mariposa at March 31,
2002 was £nil.

An impairment charge of approximately
£168 million was recognized against goodwill and other
intangible assets recorded in respect of other acquisitions made
in fiscal 2001. Following the impairment charge, the remaining
net book value of goodwill and intangible assets relating to
these other acquisitions was £39 million.

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 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

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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 revenues were based on a weighted-average cost of capital
relative to each acquisition 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 development work completed to date
and the likelihood of achieving technological feasibility and
market acceptance.

Fiscal 2003

The Company made no acquisitions during fiscal
2003.

Fiscal 2002

No in-process research and development was
identified in respect of fiscal 2002 acquisitions, as none of
the acquisitions had significant products that had not reached
technological feasibility.

Fiscal 2001

During fiscal 2001, the Company recorded a
£32 million charge in respect of purchased in-process
research and development using the techniques described above,
based on information available at the time of acquisition.

|                                      |  |        |    |          |  |          |    |  |  |  |       | 
|------------------------------------- |  | ------ | -- | -------- |  | -------- | -- |  |  |  | ----- | 
|                                      |  |        |    |          |  | Discount
|                                      |  |        |    | Overall  |  | factor  
|                                      |  | IPR&D  |    | progress |  | applied 
|                                      |  | charge |    | %        |  | %       
|(in millions, except %)               |  | £      |    |          |  |         
|                                      |  |       
|                                      |  |       
|Mariposa Technologies Inc.            |  |        | 4  |          |  |          | 40 |  |  |  | 22    | 
|Metapath Software International, Inc. |  |        | 28 |          |  |          | 21 |  |  |  | 18-25 | 
|                                      |  |        |    |          |  |          |    |  |  |  |       | 
|                                      |  |        | 32 |          |  |          |    |  |  |  |       | 
|                                      |  |        |    |          |  |          |    |  |  |  |       | 

12. Discontinued operations

During fiscal 2002 the Company established a
formal plan for the disposal of the various businesses
comprising the mobile segment. The strategic communication
business, which represents the majority of the segment, was sold
to Finmeccanica S.p.A for approximately £387 million
in August 2002. The proceeds were received in the form of cash
and debt assumed by Finmeccanica S.p.A. On February 5,
2002, the Company completed the sale of its data systems
business for net cash proceeds of £283 million.

On October 19, 2001, the Company completed
the sale of its medical systems business for net cash proceeds
of £729 million.

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Accordingly, the results of these businesses have
been shown as discontinued operations for all years presented. A
summary of operating results of the medical, data systems and
mobile segments is presented below:

|                                                            |  |                      |     |      |  |      |       |   |  |  |       |  
|----------------------------------------------------------- |  | -------------------- | --- | ---- |  | ---- | ----- | - |  |  | ----- | -
|                                                            |  |                     
|                                                            |  | Year ended March 31,
|                                                            |  | 2003                 |     | 2002 |  | 2001
|(in millions)                                               |  | £                    |     | £    |  | £   
|                                                            |  |                     
|                                                            |  |                     
|Revenues                                                    |  |                      | 106 |      |  |      | 1,114 |   |  |  | 1,682 |  
|Operating (loss)/income                                     |  |                      | (70 | )    |  |      | (35   | ) |  |  | 123   |  
|Income/(loss) before income taxes and minority
    interest |  |                      | (71 | )    |  |      | (28   | ) |  |  | 116   |  
|Income tax provision and minority interest                  |  |                      | (3  | )    |  |      | (36   | ) |  |  | (57   | )
|Net income/(loss) from discontinued operations              |  |                      | (74 | )    |  |      | (64   | ) |  |  | 59    |  

Net assets of discontinued operations are as
follows:

|                                                        |                                                |                           |     |      |    |  |     |     |     | 
|------------------------------------------------------- | ---------------------------------------------- | ------------------------- | --- | ---- | -- |  | --- | --- | --- | 
|                                                        |                                                |                          
|                                                        |                                                | March 31,                
|                                                        |                                                | 2003                      |     | 2002
|(in millions)                                           |                                                | £                         |     | £   
|                                                        |                                                |                          
|                                                        |                                                |                          
|Assets:                                                 |                                                |                           |     |      |    |  |     |    
|                                                        | Cash and cash equivalents                      |                           |     | 2    |    |  |     | 73  |    
|                                                        | Accounts receivable                            |                           |     | 2    |    |  |     | 234 |    
|                                                        | Inventories                                    |                           |     |     |    |  |     | 190 |    
|                                                        | Prepaid expense and other current assets       |                           |     |     |    |  |     | 65  |    
|                                                        |                                                |                          
|                                                        |                                                | Total current assets      |     |      | 4  |  |     |     | 562 | 
|                                                        | Property, plant and equipment, net             |                           |     |     |    |  |     | 63  |    
|                                                        | Goodwill and intangibles, net                  |                           |     |     |    |  |     | 123 |    
|                                                        | Other non-current assets                       |                           |     |     |    |  |     | 67  |    
|                                                        |                                                |                          
|                                                        | Total assets                                   |                           |     | 4    |    |  |     | 815 |    
|                                                        |                                                |                          
|Liabilities:                                            |                                                |                           |     |      |    |  |     |    
|                                                        | Accounts payable                               |                           |     | 10   |    |  |     | 186 |    
|                                                        | Short-term borrowings                          |                           |     |     |    |  |     | 57  |    
|                                                        | Accrued expenses and other current liabilities |                           |     | 6    |    |  |     | 161 |    
|                                                        |                                                |                          
|                                                        |                                                | Total current liabilities |     |      | 16 |  |     |     | 404 | 
|                                                        | Long-term debt                                 |                           |     |     |    |  |     | 15  |    
|                                                        | Other liabilities                              |                           |     |     |    |  |     | 68  |    
|                                                        | Minority interests                             |                           |     |     |    |  |     | 3   |    
|                                                        |                                                |                          
|                                                        |                                                | Total liabilities         |     |      | 16 |  |     |     | 490 | 
|                                                        |                                                |                          
|Net (liabilities)/assets of discontinued
    operations |                                                |                           | (12 | )    |    |  | 325 |    
|                                                        |                                                |                          

13. Investments in affiliates

Fiscal 2003

At March 31, 2003, the Company had two
investments, which it accounted for using the equity method,
Easynet Group plc (Easynet) and Confirmant. At March 31,
2002 Ultramast was also accounted for using the equity method.

In February 2003, the Company completed the
disposition of Ultramast through a capital reduction and settled
all litigation associated with Ultramast. As a result, the
Company acquired an additional 1.3 million ordinary shares
in Easynet, which increased its equity holding to 72.7% and its
holding of voting shares to 51.6%. Under the articles of
association of Easynet and the Companys Relationship

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Agreement with Easynet, the Companys voting
rights are limited to 49.9%. Accordingly, despite ownership of a
majority-voting shareholder, the Company determined that it did
not control Easynet in the period and the Company continues to
account for its investment in Easynet using the equity method of
accounting. In addition to the Easynet shares, the Company also
received cash proceeds of £41 million reflecting a
gain on disposal of £14 million.


As at December 31, 2002, Easynet has net
liabilities under U.S. GAAP of approximately
£39 million. Consequently, the Company discontinued
recording its share of the losses of Easynet because it has no
commitment to provide further funding to Easynet.

Fiscal 2002

In March 2002, the Company disposed of its 50%
stake in General Domestic Appliances Holdings Limited (GDA) for
cash consideration of £113 million, recognizing a
profit of £35 million on the transaction. At
March 31, 2001, the Company held a 50% share of GDA for
which it accounted under the equity method. At this time, there
was no difference between the carrying value and the underlying
equity in net assets of GDA. GDA was not listed so a market
value cannot be provided.

In July 2001, the Company sold its interest in
ipsaris (a subsidiary) and received a 71.9% equity holding in
and a 49.9% holding in the voting shares in Easynet. As the
Company had 22% of board representation, no unilateral rights or
vetoes, and no involvement in day-to-day operations, the Company
determined that control did not exist, but that significant
influence did exist, and therefore accounted for its investment
using the equity method. The consideration was determined based
on the fair value of the shares received of
£217 million and a loss on disposal of
£185 million was recorded.

Easynet has a December 31 year-end. As
it is a company listed on The London Stock Exchange, no interim
period results are available. Therefore the results from the
date of acquisition to December 31 have been used to record
the equity share of Easynet results. No material events occurred
in the intervening period.

In June 2001, the Company disposed of its
remaining stake in Alstom SA, a publicly traded company which
specializes in the contracting of infrastructure construction
projects for power generation, power transmission and
distribution and railway transportation, for cash consideration
of £235 million, recording a gain on disposal of
£214 million.

In April 2001, the Company invested
£65 million in a 50% equity stake in Ultramast
Limited, a joint venture with Railtrack Telecom Services
Limited. The Company has determined that it does not exercise
control, but that significant influence does exist, and has
therefore accounted for its investment using the equity method.

Dividends received from equity investments for
fiscal year 2003 were £nil (2002, £29 million,
2001, £80 million).

Fiscal 2001

In February 2001, the Company sold approximately
76% of its approximate 24% ownership in Alstom SA in a
private placement for proceeds of £631 million. As a
result, the investment ceased to be accounted for under the
equity method. The carrying value at the time of the sale was
£95 million based on the most recently available
U.S. GAAP financial statements for Alstom at
September 30, 2000 and related foreign exchange
adjustments, resulting in a gain on sale of
£536 million. At March 31, 2001, the investment
has been treated as an available-for-sale investment, with
changes in market value shown in unrealized gains and losses
within shareholders equity.

In February 2001 the Company sold its 25%
interest in Xcert International for proceeds of
£15 million, recognizing a loss on disposal of
£6 million.

In June 2000, Atlantic Telecom Group plc
(Atlantic), in which the Company originally acquired a 27%
stake, issued shares to acquire First Telecom Group plc, and the
Companys shareholding in Atlantic

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was diluted to 19.7%. As a result of the
acquisition and subsequent board reorganization, the Company
ceased to participate in day-to-day decision making at the
company and Atlantic was not technologically dependent upon the
Company. The Company also ceased to have the right to appoint
more than 20% of the board of Atlantic. Based on this, the
Company deemed it appropriate as at March 31, 2001 to
reclassify the investment as an available-for-sale trade
investment, with changes in market value shown in unrealized
gains and losses, net of tax, within shareholders equity.
During fiscal 2002, the value of this investment was written
down to £nil, following Atlantic being placed into
administration.


In December 2000, the Company sold its 50%
interest in Comstar for proceeds of £43 million,
recognising a profit on disposal of £19 million.

Summarized financial information for
investment in affiliates as follows:

|                   |                         |           |     |      |  |  |     |     | 
|------------------ | ----------------------- | --------- | --- | ---- |  |  | --- | --- | 
|                   |                         |          
|                   |                         | March 31,
|                   |                         | 2003      |     | 2002
|(in millions)      |                         | £         |     | £   
|                   |                         |          
|                   |                         |          
|Balance sheet data |                         |           |     |      |  |  |     |    
|                   | Current assets          |           |     | 139  |  |  |     | 294 | 
|                   | Non-current assets      |           |     | 81   |  |  |     | 129 | 
|                   |                         |          
|Total assets       |                         |           | 220 |      |  |  | 423 |    
|                   |                         |          
|                   | Current liabilities     |           |     | 94   |  |  |     | 120 | 
|                   | Non-current liabilities |           |     | 118  |  |  |     | 119 | 
|                   |                         |          
|Total liabilities  |                         |           | 212 |      |  |  | 239 |    
|                   |                         |          

|                             |  |                             |     |      |  |      |      |   |  |  |     | 
|---------------------------- |  | --------------------------- | --- | ---- |  | ---- | ---- | - |  |  | --- | 
|                             |  |                            
|                             |  | Fiscal year ended March 31,
|                             |  | 2003                        |     | 2002 |  | 2001
|(in millions)                |  | £                           |     | £    |  | £   
|                             |  |                            
|                             |  |                            
|Statement of operations data |  |                             |     |      |  |      |      |   |  |  |     | 
|Revenues                     |  |                             | 89  |      |  |      | 291  |   |  |  | 270 | 
|Operating (loss)/income      |  |                             | (74 | )    |  |      | (276 | ) |  |  | 16  | 
|Net (loss)/income            |  |                             | (81 | )    |  |      | (240 | ) |  |  | 10  | 

14. Investment in securities

All marketable securities are classified as
available-for-sale and reported at fair value as follows:

|                |                   |          |  |            |  |            |  |            |  |  |  |   |  |  |  |    | 
|--------------- | ----------------- | -------- |  | ---------- |  | ---------- |  | ---------- |  |  |  | - |  |  |  | -- | 
|                |                   |          |  | Gross      |  | Gross      |  |           
|                |                   | Carrying |  | unrealized |  | unrealized |  | Estimated 
|                |                   | value    |  | gains      |  | losses     |  | fair value
|(in millions)   |                   | £        |  | £          |  | £          |  | £         
|                |                   |         
|                |                   |         
|March 31, 2003: |                   |          |  |            |  |            |  |            |  |  |  |   |  |  |  |   
|                | Equity securities |          |  | 16         |  |            |  |           |  |  |  |  |  |  |  | 16 | 
|                |                   |         
|March 31, 2002: |                   |          |  |            |  |            |  |            |  |  |  |   |  |  |  |   
|                | Equity securities |          |  | 53         |  |            |  |           |  |  |  |  |  |  |  | 53 | 
|                |                   |         

During fiscal 2003, an impairment charge of
£38 million (2002, £nil, and 2001, £nil) was
recorded in the statement of operations related to declines in
value of equity securities judged to be other than temporary.

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Proceeds from the sale of investment in
securities were £289 million and
£638 million for fiscal 2002 and 2001, respectively.
The Company realized gains on the sales of these investments in
the amount of £41 million and £20 million
for fiscal 2002 and 2001 respectively.

15. Shareholders equity

Holders of ordinary shares in Marconi Corporation
plc 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
pre-emptive 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. See note 23, Subsequent
events, for changes in Marconi Corporation plcs ordinary
shares post March 31, 2003.

16. Employee stock option plans

Employees of the Company participate in a number
of stock option plans whereby they receive rights over shares in
Marconi plc, the ultimate parent company of the Company
throughout the three years ended March 31, 2003. The
Company accounts for these employee stock option plans under APB
25 with any expense being matched by a credit to
shareholders equity as a capital contribution by Marconi
plc.

Plc has nine plans under which it grants options:
the GEC Employee 1992 Savings-Related Share Option Plan, the GEC
1984 Managers Share Option Plan, the GEC 1997 Executive
Share Option Plan, the Marconi 1999 Stock Option Plan, the
Marconi U.K. Sharesave Plan, the Marconi International Sharesave
Plan, the Marconi Launch Share Plan, the Marconi Long Term
Incentive Plan and the Marconi Phantom Option Plan.

In addition, during fiscal 2002, Marconi plc
granted options in ADRs of Marconi plc under the Marconi
Employee Stock Purchase Plan for the Companys employees in
North America.

As of March 31, 2003, Marconi plc has
granted options under the following eight plans in respect of
the acquisitions of Reltec, Mariposa, MSI and Northwood
Technologies; the 1998 Equity Participation Plan of Reltec
Corporation, the amended and restated 1995 Stock Purchase and
Option Plan for employees of Reltec Holdings Inc., and
subsidiaries, the MSI 1995 Stock Option Plan, the MSI 1999 Stock
Option Plan, the MSIH Stock Option Plan, the Mariposa
Technology, Inc. 1998 Employee Incentive Plan and the Marconi
Restricted Share Plan.

Under the terms of the stock option plans,
employees have been granted rights to purchase ordinary shares
and/or phantom options. The terms of the grant vary and each of
the main plans is described below.

Savings related plans

The Marconi U.K. Sharesave Plan

All employees of participating U.K. companies in
the Company including full-time executive directors are eligible
to participate in the U.K. sharesave plan. Under this plan,
participants are granted options to purchase shares with an
exercise price not less than 80% of the market value of a
Marconi plc 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. The savings contracts
typically expire on the third or fifth anniversary of the date
of grant. The plan is compensatory and compensation expense is
recorded over the vesting period. At March 31, 2003,
2,295,287 Marconi plc shares were outstanding to be purchased
under the plan. Additional shares available for grant are
governed by total dilution limits applicable to several plans.

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The
Marconi International Sharesave Plan

The international sharesave plan, at the
discretion of the board of directors of Marconi plc permits
employees of the Company 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 contracts 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.

The
Marconi International Sharesave Plan  Italian
Appendix

All employees and executive directors whose
remuneration is subject to taxation in Italy are eligible to
participate in the Italian Appendix of the International
Sharesave Plan. Under the Italian Appendix of the International
Sharesave Plan, participants can exercise options to purchase
shares with an exercise price not less than the market value of
a Marconi plc ordinary share averaged over the 30 trading days
immediately before the date of grant. Upon exercise,
participants will be gifted such number of additional shares as
can be purchased on the market with 10% of their total
accumulated savings and interest. 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 the Italian Lira/Euro
equivalent of £250 per month in aggregate. At
March 31, 2003, 1,340,174 Marconi plc shares were
outstanding to be purchased under the plan.

The
Marconi Employee Stock Purchase Plan for Employees in North
America

All employees of participating U.S. and Canadian
companies are eligible to participate in the Stock Purchase
Plan. Employees may purchase shares with after-tax payroll
deductions at the end of an Offering Period, at a price not less
than 85% of the lower of the closing price of a share on the
Offering Date and the closing price of a share on the Purchase
Date (as defined in the rules of the Plan). No employee may
purchase shares pursuant to the Stock Purchase Plan at a rate
which exceeds U.S.$25,000 in any calendar year or such lower
limit as Marconi plc may specify from time to time. This plan is
non-compensatory in nature.

Non-savings related plans

The
Marconi 1999 Share Option Plan

All employees and full-time executive directors
are eligible to be granted options under the option plan at the
discretion of the remuneration committee. Options granted prior
to July 2001 to participants will not normally be exercisable
unless our earnings per share over a period of at least three
financial years have exceeded the growth in the U.K. Retail
Price Index by at least an average of 3% per year. Options
granted after July 2001 will become exercisable over periods and
subject to conditions defined by the remuneration committee.
Options granted under the plan in November 2001 become
progressively exercisable over four years and are subject to
conditions related to reduction in Marconi plcs
consolidated net debt and Marconi plc total shareholder return
being better than that of the company at the fiftieth percentile
of FTSE 100 companies. Options entitle the option holder to
acquire Marconi plc ordinary shares at a price per share
determined by the remuneration committee, which shall not be
less than the market value of a Marconi plc share shortly before
the date of grant.

The Company applies variable plan accounting for
grants under this scheme and will recognize compensation cost if
achievement of the performance conditions become probable. At
March 31, 2003, 96,145,820 Marconi plc shares were
outstanding. Additional shares available for grant are governed
by total dilution limits applicable to several plans.

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The
Marconi Long Term Incentive Plan

Under the long term incentive plan (LTIP),
participants 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 ordinary shares of Marconi plc without
payment based on corporate performance of the business in which
they work and of the Company as a whole over that period. The
annual award is limited to a maximum value of 50% of base
salary. 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 of the Company, directors
of Marconi plc and executive directors of Marconi plc are
eligible to participate in the long-term incentive plan, at the
discretion of the remuneration committee of the board of
directors of Marconi plc. No newly issued shares may be used to
satisfy options under this plan. The Company applies variable
plan accounting for grants under this plan and recognizes
compensation cost when achievement of the performance conditions
becomes probable. No new shares were granted during the year. At
March 31, 2003, 617,963 Marconi plc shares were outstanding.

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, the
Company has operated the phantom option plan and made awards by
reference to Marconi plc 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 plc 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 plc 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 plc ordinary share at the time the phantom option is
granted) and market value of a Marconi plc ordinary share on the
date of exercise. The Company may give notice to participants
that it elects to substitute options to acquire real Marconi plc
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 the
Company and will receive Marconi plc ordinary shares. Options
are normally exercisable between the third and tenth
anniversaries of grant. The Company recognizes compensation
expense measured at the end of each period as the amount by
which the quoted market value of a Marconi plc 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 Systems options as part of
those business combinations, the fair value of those options was
treated as part of the respective purchase prices. Such phantom
options continue to be governed by the relevant Reltec or Fore
Systems plans under which they were originally granted. At
March 31, 2003, 55,688,165 Marconi plc shares were
outstanding.

Marconi
Restricted Share Plan

The Restricted Share Plan was introduced to
enable the Company to award share based incentives to employees
of companies which the Company acquires. The Remuneration
Committee has discretion to make awards of restricted stock,
which entitle the employee to call for shares at £nil cost
once the stock has vested. The stock will vest either at certain
specified times or subject to the satisfaction of performance
conditions. In practice the performance conditions imposed
generally relate to specific integration targets or business
goals of the acquired company. Once the restrictions have ended
or the conditions been met, the restricted share vests and will
either be automatically released (in the case of

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U.S. employees) or can be called for by the
employee (in all other jurisdictions). The Company applies
variable plan accounting for grants under this plan, and
compensation expense is recorded over the vesting period. At
March 31, 2003, 1,793,970 Marconi plc shares were
outstanding.


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 plc ordinary shares, which would be
exercisable provided that two conditions are met. The first
condition is that the market price of a Marconi plc 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 Company applies
variable plan accounting for grants under this plan and will
account for the compensation expense if the first condition is
met. At March 31, 2003 30,818,385 Marconi plc shares were
outstanding to be purchased under the plan. Additional shares
available for grant are governed by total dilution limits
applicable to several plans.

The
Marconi Associated Companies Share Option Plan

The associated companies option plan enables
options to be granted to executives of companies in which the
Company has 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. No
options have been granted under this plan.



| |                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Metapath Software Corporation Amended and
    Restated 1995 Stock Option Plan, the Metapath Software
    International, Inc. Amended and Restated 1999 Stock Option Plan,
    and the Mobile Systems International Holdings Limited Share
    Option Plan.

Each of these option plans had been in place over
MSI shares prior to the acquisition by the Company in June 2000.
Following the acquisition, MSI option holders who would become
employees of the Company exchanged options over MSI shares for
options over Marconi plc shares. Following the exchange the
option holder was kept in the same economic position as before
the exchange through an adjustment to the exercise price and an
increase in the number of shares under option. The option holder
was given a choice to retain their options with their existing
vesting schedule, or to elect to accept an amended vesting
schedule (vesting one third of their options on each of the
first, second and third anniversaries of the acquisition)
together with an award of restricted stock over the same number
of shares as they had shares under option. Compensation expense
is recognized on the shares that were unvested at the
acquisition date (based on the intrinsic value of the shares as
of the acquisition date) over the vesting period. The fair value
of all shares issued at the date of acquisition, less the amount
allocated to compensation expense, has been recorded as a cost
of the acquisition. Certain arrangements under the Marconi
Restricted Share Plan, the Marconi 1999 Stock Option Plan, the
MSI 1995 Plan and the MSIH Plan were modified subsequent to
acquisition. As a result, the modified arrangements became
subject to variable accounting. At March 31, 2003,
3,225,015 Marconi plc shares were outstanding.

Mariposa
Technology, Inc. 1998 Employee Incentive Plan

Prior to the acquisition by the Company in
October 2000, options had been granted under The Mariposa
Technology, Inc, 1998 Employee Incentive Plan over Mariposa
Technology, Inc, shares. Following the acquisition, option
holders who would become employees of the Company exchanged
options over Mariposa Technology, Inc, shares for options over
Marconi plc shares. Following the exchange the option holder was
kept in the same economic position as before the exchange
through an adjustment to the exercise price and an increase in
the number of shares under option. Compensation expense is
recognized on the shares that were unvested at the acquisition
date (based on the intrinsic value of the shares as of the
acquisition date) over the vesting period. The fair value of all
shares issued at the date of acquisition, less the amount
allocated to compensation expense, has been recorded as a cost
of the acquisition. At March 31, 2003, 320,684 shares were
outstanding.

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Existing
GEC share option plans

Options plans similar to the Marconi 1999 Stock
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 1984 Managers Scheme (1984 Scheme). There was a
variable plan known as the 1997 Executive Scheme (1997 Scheme).
During fiscal 2000, option holders who would remain employees of
the Company, were able to exchange options over GEC shares for
options over Marconi plc shares. Following the exchange 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. The exchange resulted in no change in measurement date
for either the 1992 Savings-Related Scheme or the 1984 Scheme.
As performance conditions in respect of the 1997 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. Option holders in the
three plans who would not remain employees of the Company were
able to exercise their options. At March 31, 2003,
1,985,076 Marconi plc shares were available to be purchased
under the 1992 Savings-Related Scheme; 621,628 Marconi plc
shares were outstanding under the 1984 Scheme; and 7,824,494
Marconi plc shares were outstanding under the 1997 scheme.



| |                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The 1998 Equity Participation Plan of Reltec
    Corporation, the Amended and Restated 1995 Stock Purchase and
    Option Plan for Employees of Reltec Holdings, Inc. and
    Subsidiaries

During fiscal 2002, options originally granted
under the Marconi Phantom Option Plan, governed by the rules of
these plans, were converted to options over Marconi plc shares,
governed by the rules of these plans, and continue to be
accounted for as variable options under APB 25.

The
Northwood Technologies Inc. Stock Option Plan

Prior to the acquisition by the Company in
October 2002, Northwood Technologies Inc (Northwood) granted
options under the Northwood Technologies Inc. stock option plan
over Northwood shares. Following the acquisition by the Company,
option holders who would become employees of the Company
exchanged options over Northwood shares for options over to
70,536 Marconi plc shares. Following the exchange, the
option-holder was kept in the same economic position as before
the exchange through an adjustment to the exercise price and an
increase in the number of shares under option. Compensation
expense is recognized on the shares that were unvested at the
acquisition date (based on the intrinsic value of the shares as
of the acquisition date) over the vesting period. The fair value
of all share issued at the date of acquisition, less the amount
allocated to compensation expense, has been recorded as a cost
of the acquisition. At March 31, 2003, 65,827 were
outstanding.

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##### Table of Contents



Option activity under the non savings-related
plans is as follows:

|                            |                                                    |            |             |             |   |  |      |      | 
|--------------------------- | -------------------------------------------------- | ---------- | ----------- | ----------- | - |  | ---- | ---- | 
|                            |                                                    |            |             | Weighted   
|                            |                                                    | Number of  |             | average    
|                            |                                                    | Marconi    |             | exercise   
|                            |                                                    | plc shares |             | price      
|                            |                                                    |           
|                            |                                                    |           
|Outstanding, March 31, 2000 |                                                    |            | 149,956,050 |             |   |  | 4.40 |     
|                            | Granted (weighted average fair value of
    £0.85) |            |             | 83,337,421  |   |  |      | 5.62 | 
|                            | Lapsed                                             |            |             | (11,237,767 | ) |  |      | 3.86 | 
|                            | Exercised                                          |            |             | (8,600,307  | ) |  |      | 3.58 | 
|                            |                                                    |            |             |             |   |  |      |     
|Outstanding, March 31, 2001 |                                                    |            | 213,455,397 |             |   |  | 4.98 |     
|                            | Granted (weighted average fair value of
    £0.22) |            |             | 87,502,652  |   |  |      | 0.35 | 
|                            | Lapsed                                             |            |             | (35,672,282 | ) |  |      | 6.50 | 
|                            | Exercised                                          |            |             | (7,087,202  | ) |  |      | 0.64 | 
|                            |                                                    |            |             |             |   |  |      |     
|Outstanding March 31, 2002  |                                                    |            | 258,198,565 |             |   |  | 3.32 |     
|                            | Granted                                            |            |             |            |   |  |      |     | 
|                            | Lapsed                                             |            |             | (58,148,518 | ) |  |      | 4.12 | 
|                            | Exercised                                          |            |             | (2,928,096  | ) |  |      | 0.47 | 
|                            |                                                    |            |             |             |   |  |      |     
|Outstanding March 31, 2003  |                                                    |            | 197,121,951 |             |   |  | 3.24 |     
|                            |                                                    |            |             |             |   |  |      |     

All options were granted with an exercise price
equal to the market value of shares as of date of grant, with
the exception of those granted for acquisitions and the LTIP as
noted above.

Of the total number of non-savings related
options outstanding at March 31, 2003, 70,157,746 will be
settled, if exercised, in either cash or shares purchased in the
market, and would not be dilutive in Marconi plc if exercised.
The outstanding options related to The Launch Plan and the
Marconi 1999 Stock Option Plan of 126,964,205 will be satisfied
by newly issued shares and would be dilutive in Marconi plc if
exercised. Additional information regarding all options
outstanding as of March 31, 2003 are noted in the table
below:

|             |  |                           |             |                  |  |           |      |             |  |           |      |  |  |  |            |  |  |  |      | 
|------------ |  | ------------------------- | ----------- | ---------------- |  | --------- | ---- | ----------- |  | --------- | ---- |  |  |  | ---------- |  |  |  | ---- | 
|             |  |                           |             |                  |  |           |      |            
|             |  |                           |             | Total options   
|             |  | Total options outstanding |             | exercisable     
|             |  |                           |             | Weighted average |  | Weighted  |      |             |  | Weighted 
|Range of     |  | Total                     |             | remaining        |  | average   |      |             |  | average  
|exercise     |  | number                    |             | contractual      |  | exercise  |      | Number      |  | exercise 
|prices (£)   |  | outstanding               |             | life (years)     |  | price (£) |      | exercisable |  | price (£)
|             |  |                          
|             |  |                          
|nil          |  |                           | 34,015,318  |                  |  |           | 3.35 |             |  |           | nil  |  |  |  |           |  |  |  |     | 
|0.03  0.2   |  |                           | 292,375     |                  |  |           | 2.36 |             |  |           | 0.17 |  |  |  | 292,375    |  |  |  | 0.17 | 
|0.35  0.80  |  |                           | 71,260,568  |                  |  |           | 3.66 |             |  |           | 0.35 |  |  |  | 2,481,684  |  |  |  | 0.49 | 
|1.22  2.66  |  |                           | 4,539,030   |                  |  |           | 4.23 |             |  |           | 2.12 |  |  |  | 4,153,186  |  |  |  | 2.09 | 
|2.73  4.72  |  |                           | 8,793,799   |                  |  |           | 4.96 |             |  |           | 3.53 |  |  |  | 8,776,361  |  |  |  | 3.53 | 
|4.76  6.76  |  |                           | 30,638,124  |                  |  |           | 6.89 |             |  |           | 5.81 |  |  |  | 22,137,625 |  |  |  | 5.61 | 
|6.85  12.50 |  |                           | 47,582,737  |                  |  |           | 6.89 |             |  |           | 8.28 |  |  |  | 39,341,542 |  |  |  | 8.22 | 
|             |  |                           |             |                  |  |           |      |             |  |           |      |  |  |  |            |  |  |  |      | 
|nil  12.50  |  |                           | 197,121,951 |                  |  |           | 4.96 |             |  |           | 3.24 |  |  |  | 77,182,773 |  |  |  | 6.33 | 
|             |  |                           |             |                  |  |           |      |             |  |           |      |  |  |  |            |  |  |  |      | 

Future grants

As a result of the Financial Restructuring the
Company is reviewing its stock-based incentive plans with a view
to ensuring that appropriate incentives are in place. See
note 23, Subsequent events.

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##### Table of Contents



17. Fair values of financial
instruments

The carrying amounts and fair values of material
financial instruments at March 31, 2003 and 2002 are as
follows:

|                                 |  |          |      |        |  |          |      |        |  |  |       |   |  |  |      |  
|-------------------------------- |  | -------- | ---- | ------ |  | -------- | ---- | ------ |  |  | ----- | - |  |  | ---- | -
|                                 |  |          |      |       
|                                 |  | 2003     |      | 2002  
|                                 |  | Carrying |      | Fair   |  | Carrying |      | Fair  
|                                 |  | amounts  |      | values |  | amounts  |      | values
|(in millions)                    |  | £        |      | £      |  | £        |      | £     
|                                 |  |         
|                                 |  |         
|Marketable securities            |  |          | 16   |        |  |          | 16   |        |  |  | 53    |   |  |  | 53   |  
|Total long-term debt*            |  |          | 30   |        |  |          | 30   |        |  |  | 2,195 |   |  |  | 680  |  
|Obligations under finance leases |  |          |     |        |  |          |     |        |  |  | 9     |   |  |  | 9    |  
|Interest rate swap agreements    |  |          |     |        |  |          |     |        |  |  | (1    | ) |  |  | (1   | )
|Equity forward contracts         |  |          | (158 | )      |  |          | (158 | )      |  |  | (375  | ) |  |  | (375 | )

* excluding current maturities of long-term
debt.

The following methods and assumptions were used
in estimating the fair values of financial instruments:

Equity forward contracts

At March 31, 2003 the carrying value and
fair value of the equity forward contracts was
£158 million. As a result of the Financial
Restructuring which was concluded on May 19, 2003, an
agreement was reached and these equity forward contracts were
settled for £35 million. See note 2, Summary of
significant accounting policies for further discussion of these
equity forward contracts.

Cash and cash equivalents, receivables,
payables, accrued liabilities and short-term
borrowings

The carrying values of cash and cash equivalents,
receivables, payables, accrued liabilities and short-term
borrowings approximate their fair values due to the short-term
nature of the instruments.

Marketable securities, long-term debt and
finance leases

The fair value of marketable securities has been
determined using quoted market prices. The fair value of finance
leases and long-term debt, including current portion, has been
determined by discounting projected future cash flows, using
reference rates taken from the debt markets at which similar
loans would be made to borrowers with similar credit ratings and
for the same maturities. In the case of the Marconi Corporation
plc bonds, which are guaranteed by Marconi plc, a fair value was
derived from traded market prices.

Interest rate swaps

Marconi Corporation plc has entered into
receive-variable, 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. Marconi Corporation plc has also entered into
receive-fixed, pay-fixed agreements to reduce fair value risk on
its fixed rate bonds. The following table summarizes the
notional amounts outstanding and weighted average interest data,
based on variable rates in effect at March 31, 2003 and
2002, for these swaps that expire between 2005 and 2010. At
March 31, 2003, there were no such interest rate swap
agreements outstanding.

F-57



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##### Table of Contents



|                                   |                      |                   |  |      |  |  |  |      |  
|---------------------------------- | -------------------- | ----------------- |  | ---- |  |  |  | ---- | -
|                                   |                      |                  
|                                   |                      | Fiscal year ended
|                                   |                      | March 31,        
|                                   |                      | 2003              |  | 2002
|(in millions, except percentages)  |                      | £                 |  | £   
|                                   |                      |                  
|                                   |                      |                  
|Receive-variable, pay-fixed swaps: |                      |                   |  |      |  |  |  |     
|                                   | Notional amount      |                   |  |     |  |  |  | 772  |  
|                                   | Average receive rate |                   |  |     |  |  |  | 5.97 | %
|                                   | Average pay rate     |                   |  |     |  |  |  | 2.06 | %
|Pay-variable, receive-fixed swaps: |                      |                   |  |      |  |  |  |     
|                                   | Notional amount      |                   |  |     |  |  |  | 306  |  
|                                   | Average receive rate |                   |  |     |  |  |  | 5.63 | %
|                                   | Average pay rate     |                   |  |     |  |  |  | 3.75 | %

18. Valuation and qualifying
accounts

|                                |  |           |     |            |  |               |     |             |  |           |    |   |  |  |      |   |  |  |     | 
|------------------------------- |  | --------- | --- | ---------- |  | ------------- | --- | ----------- |  | --------- | -- | - |  |  | ---- | - |  |  | --- | 
|                                |  |           |     |            |  | Effect of     |     |             |  |          
|                                |  | March 31, |     | Additions  |  | exchange rate |     |             |  | March 31,
|                                |  | 2002      |     | /(release) |  | changes       |     | Utilization |  | 2003     
|Description                     |  | £         |     | £          |  | £             |     | £           |  | £        
|                                |  |          
|                                |  |          
|Allowance for doubtful accounts |  |           | 167 |            |  |               | (10 | )           |  |           | (7 | ) |  |  | (72  | ) |  |  | 78  | 
|Warranty reserve*               |  |           | 29  |            |  |               | 49  | (1)         |  |           | (1 | ) |  |  | (34  | ) |  |  | 43  | 
|                                |  |          
|Total                           |  |           | 196 |            |  |               | 39  |             |  |           | (8 | ) |  |  | (106 | ) |  |  | 121 | 
|                                |  |          



| |     |                                                                                                                                                                        
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | The addition of £49 million in fiscal
    2003 includes a £12 million change in liability in
    respect of the estimated pre-existing warranties at
    April 1, 2002.

|                                |  |           |    |           |  |                |     |               |  |             |    |           |  |  |   |  |  |  |      |   |  |  |     | 
|------------------------------- |  | --------- | -- | --------- |  | -------------- | --- | ------------- |  | ----------- | -- | --------- |  |  | - |  |  |  | ---- | - |  |  | --- | 
|                                |  |           |    |           |  | Net effect of  |     | Effect of     |  |             |    |          
|                                |  | March 31, |    |           |  | acquisitions   |     | exchange rate |  |             |    | March 31,
|                                |  | 2001      |    | Additions |  | less disposals |     | changes       |  | Utilization |    | 2002     
|Description                     |  | £         |    | £         |  | £              |     | £             |  | £           |    | £        
|                                |  |          
|                                |  |          
|Allowance for doubtful accounts |  |           | 64 |           |  |                | 175 |               |  |             | (3 | )         |  |  |  |  |  |  | (69  | ) |  |  | 167 | 
|Warranty reserve*               |  |           | 34 |           |  |                | 43  |               |  |             | (2 | )         |  |  |  |  |  |  | (46  | ) |  |  | 29  | 
|                                |  |          
|Total                           |  |           | 98 |           |  |                | 218 |               |  |             | (5 | )         |  |  |  |  |  |  | (115 | ) |  |  | 196 | 
|                                |  |          

|                                |  |           |    |           |  |                |    |               |  |             |    |           |  |  |   |  |  |  |     |   |  |  |    | 
|------------------------------- |  | --------- | -- | --------- |  | -------------- | -- | ------------- |  | ----------- | -- | --------- |  |  | - |  |  |  | --- | - |  |  | -- | 
|                                |  |           |    |           |  | Net effect of  |    | Effect of     |  |             |    |          
|                                |  | March 31, |    |           |  | acquisitions   |    | exchange rate |  |             |    | March 31,
|                                |  | 2000      |    | Additions |  | less disposals |    | changes       |  | Utilization |    | 2001     
|Description                     |  | £         |    | £         |  | £              |    | £             |  | £           |    | £        
|                                |  |          
|                                |  |          
|Allowance for doubtful accounts |  |           | 20 |           |  |                | 48 |               |  |             | 12 |           |  |  | 3 |  |  |  | (19 | ) |  |  | 64 | 
|Warranty reserve*               |  |           | 43 |           |  |                | 46 |               |  |             | (5 | )         |  |  | 1 |  |  |  | (51 | ) |  |  | 34 | 
|                                |  |          
|Total                           |  |           | 63 |           |  |                | 94 |               |  |             | 7  |           |  |  | 4 |  |  |  | (70 | ) |  |  | 98 | 
|                                |  |          



| |   |                                                                          
| | - | -------------------------------------------------------------------------
| | * | These amounts are included in accounts payable
    and other liabilities.

In light of the declining market and economic
trends the Company was experiencing, a provision against bad and
doubtful debts of £150 million was charged during
fiscal 2002. Of this amount, £10 million was
reassessed and released to the profit and loss account in fiscal
2003.

F-58



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19. Earnings per share

The following table reconciles net (loss)/income
available for ordinary shareholders and the weighted average
ordinary shares outstanding for basic earnings per ordinary
share for the periods:

|                                          |                                              |      |        |           |   |      |        |         |   |  |     |         | 
|----------------------------------------- | -------------------------------------------- | ---- | ------ | --------- | - | ---- | ------ | ------- | - |  | --- | ------- | 
|                                          |                                              |      |        | March 31, |   |     
|                                          |                                              | 2003 |        | 2002      |   | 2001
|(in millions, except for per share data)  |                                              | £    |        | £         |   | £   
|                                          |                                              |     
|                                          |                                              |     
|Net (loss)/income                         |                                              |      | (1,167 | )         |   |      | (6,359 | )       |   |  | 194 |        
|                                          |                                              |     
|Basic (loss)/earnings per ordinary share: |                                              |      |        |           |   |      |        |         |   |  |     |        
|                                          | Weighted average ordinary shares outstanding |      |        | 2,866.3   |   |      |        | 2,789.6 |   |  |     | 2,763.1 | 
|                                          |                                              |     
|                                          | Basic (loss)/earnings per ordinary share     |      |        | (0.41     | ) |      |        | (2.28   | ) |  |     | 0.07    | 
|                                          |                                              |     

There are no potentially dilutive securities. As
described in note 16, Employee stock option plans, all
options were granted over Marconi plc shares and not those of
the Company.

20. Income taxes

The geographic analysis of (loss)/income from
continuing operations before income taxes, minority interests
and cumulative changes in accounting principles are as follows:

|                   |  |           |        |      |  |      |        |   |  |  |      |  
|------------------ |  | --------- | ------ | ---- |  | ---- | ------ | - |  |  | ---- | -
|                   |  |          
|                   |  | March 31,
|                   |  | 2003      |        | 2002 |  | 2001
|(in millions)      |  | £         |        | £    |  | £   
|                   |  |          
|                   |  |          
|United Kingdom     |  |           | (1,033 | )    |  |      | (469   | ) |  |  | 601  |  
|Non-United Kingdom |  |           | (230   | )    |  |      | (6,109 | ) |  |  | (329 | )
|                   |  |          
|Total              |  |           | (1,263 | )    |  |      | (6,578 | ) |  |  | 272  |  
|                   |  |          

Income tax benefit/(provision) includes:

|                      |                    |                      |  |      |     |      |  |     |     |   |  |      |      |  
|--------------------- | ------------------ | -------------------- |  | ---- | --- | ---- |  | --- | --- | - |  | ---- | ---- | -
|                      |                    |                     
|                      |                    | March 31,           
|                      |                    | 2003                 |  | 2002 |     | 2001
|(in millions)         |                    | £                    |  | £    |     | £   
|                      |                    |                     
|                      |                    |                     
|Current income taxes  |                    |                      |  |      |     |      |  |     |     |   |  |     
|                      | United Kingdom     |                      |  | 155  |     |      |  | 18  |     |   |  | (145 | )   
|                      | Non-United Kingdom |                      |  | 32   |     |      |  | (25 | )   |   |  | (43  | )   
|                      |                    |                     
|                      |                    | Total current taxes  |  |      | 187 |      |  |     | (7  | ) |  |      | (188 | )
|Deferred income taxes |                    |                      |  |      |     |      |  |     |     |   |  |     
|                      | United Kingdom     |                      |  | 29   |     |      |  | 96  |     |   |  | 33   |     
|                      | Non-United Kingdom |                      |  | (7   | )   |      |  | 382 |     |   |  | 138  |     
|                      |                    |                     
|                      |                    | Total deferred taxes |  |      | 22  |      |  |     | 478 |   |  |      | 171  |  
|                      |                    |                     
|                      |                    | Total income taxes   |  |      | 209 |      |  |     | 471 |   |  |      | (17  | )
|                      |                    |                     

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The differences between the Companys tax on
profit on ordinary activities, and the statutory income tax rate
in the United Kingdom are as follows:

|                                                                    |  |           |      |      |  |      |        |   |  |  |      |  
|------------------------------------------------------------------- |  | --------- | ---- | ---- |  | ---- | ------ | - |  |  | ---- | -
|                                                                    |  |          
|                                                                    |  | March 31,
|                                                                    |  | 2003      |      | 2002 |  | 2001
|(in millions)                                                       |  | £         |      | £    |  | £   
|                                                                    |  |          
|                                                                    |  |          
|Taxes computed at the statutory rate: (30% 2003,
    2002 and 2001) |  |           | (379 | )    |  |      | (1,973 | ) |  |  | 82   |  
|Non-deductible intangible amortization and
    impairment charge    |  |           |     |      |  |      | 1,276  |   |  |  | 93   |  
|Non-U.K. tax rate differences                                       |  |           | (9   | )    |  |      | (177   | ) |  |  | (33  | )
|Non-deductible/(non-taxable) items                                  |  |           | 138  |      |  |      | (230   | ) |  |  | (160 | )
|Changes in reinvestment position                                    |  |           |     |      |  |      | (63    | ) |  |  | 39   |  
|Valuation allowances on losses and other assets                     |  |           | 38   |      |  |      | 715    |   |  |  |     |  
|Other, net                                                          |  |           | 3    |      |  |      | (19    | ) |  |  | (4   | )
|                                                                    |  |          
|Income tax (benefit)/provision                                      |  |           | (209 | )    |  |      | (471   | ) |  |  | 17   |  
|                                                                    |  |          
|Effective tax rate                                                  |  |           | 16.5 | %    |  |      | 7.2    | % |  |  | 6.3  | %

Deferred income tax assets/(liabilities) in the
balance sheet are as follows:

|                             |                                         |           |      |      |   |  |      |     |  
|---------------------------- | --------------------------------------- | --------- | ---- | ---- | - |  | ---- | --- | -
|                             |                                         |          
|                             |                                         | March 31,
|                             |                                         | 2003      |      | 2002
|(in millions)                |                                         | £         |      | £   
|                             |                                         |          
|                             |                                         |          
|Net deferred tax assets      |                                         |           |      |      |   |  |      |    
|                             | Net operating losses                    |           |      | 670  |   |  |      | 640 |  
|                             | Provisions and other expenses           |           |      | 90   |   |  |      | 105 |  
|                             | SFAS 133                                |           |      | 21   |   |  |      |    |  
|                             | Pension and post-retirement benefits    |           |      | 93   |   |  |      | 10  |  
|                             | Investment write-downs                  |           |      | 3    |   |  |      | 20  |  
|                             |                                         |          
|Sub total                    |                                         |           | 877  |      |   |  | 775  |    
|Valuation allowance          |                                         |           | (841 | )    |   |  | (715 | )  
|Sub total                    |                                         |           | 36   |      |   |  | 60   |    
|                             |                                         |           |      |      |   |  |      |    
|Net deferred tax liabilities |                                         |           |      |      |   |  |      |    
|                             | Property and equipment                  |           |      | (8   | ) |  |      | (20 | )
|                             | Intangible assets (other than goodwill) |           |      | (33  | ) |  |      | (45 | )
|                             |                                         |          
|Sub total                    |                                         |           | (41  | )    |   |  | (65  | )  
|                             |                                         |          
|Total                        |                                         |           | (5   | )    |   |  | (5   | )  
|                             |                                         |          

As of March 31, 2003 the net deferred income
tax liability of £5 million (2002,
£5 million) was presented in the balance sheet based
on tax jurisdiction as required by SFAS 109, Accounting
for Income Taxes, as a non-current deferred tax liability of
£5 million (2002, £5 million).

As of March 31, 2003 approximately
£2.3 billion of net operating losses were available to
be carried forward. A full valuation allowance has been recorded
against the deferred tax asset in relation to such losses in
2003 and 2002 due to the fact that it is more likely than not
that such assets will not be realized. If unused,
£615 million will expire between 2007 and 2023. The
remainder of £1.6 billion does not expire.

Although the Company has in excess of
£2 billion of net operating tax losses as of
March 31, 2003, these may be unavailable to cover earlier
years that are open for or under tax audit. In addition, in some
jurisdictions the loss carry forwards will be forfeit (this
applies to the U.S.) or could be restricted (this may apply to
Germany and the U.K.) following the Companys Financial
Restructuring. There will be ongoing tax cash costs, therefore,
where losses are unavailable.

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No deferred tax assets have been provided for the
undistributed losses to the extent that they are permanently
reinvested in the Companys non-U.K. operations.

The tax on discontinued operations and on the
disposal of discontinued operations is £nil.

21. Related party transactions

The Company and its subsidiaries have sales and
purchases during the year with equity investments, joint
ventures and associates, which are not consolidated, during
fiscal 2003, 2002 and 2001. All transactions are in the ordinary
course of business. The primary transactions between the Company
and related parties are summarized as follows:

|                         |  |                           |   |         |  |         |     |       |  |  |   |  |  |  |    | 
|------------------------ |  | ------------------------- | - | ------- |  | ------- | --- | ----- |  |  | - |  |  |  | -- | 
|                         |  |                          
|                         |  | Year ended March 31, 2003
|                         |  | Marconi                   |   | Ancrane |  |        
|                         |  | plc                       |   | Limited |  | MMFG(1) |     | Other
|(in millions)            |  | £                         |   | £       |  | £       |     | £    
|                         |  |                          
|Statement of operations: |  |                           |   |         |  |         |     |       |  |  |   |  |  |  |    | 
|Net sales                |  |                           |  |         |  |         |    |       |  |  |  |  |  |  | 30 | 
|Purchases                |  |                           |  |         |  |         |    |       |  |  |  |  |  |  |   | 
|Balance sheet:           |  |                           |   |         |  |         |     |       |  |  |   |  |  |  |    | 
|Trade receivables        |  |                           |  |         |  |         |    |       |  |  |  |  |  |  | 26 | 
|Trade payables           |  |                           |  |         |  |         |    |       |  |  |  |  |  |  | 9  | 
|Other receivables        |  |                           |  |         |  |         |    |       |  |  |  |  |  |  |   | 
|Other payables           |  |                           |  |         |  |         | 403 |       |  |  |  |  |  |  |   | 

|                         |  |                           |     |         |  |         |    |       |  |  |    |  |  |  |    | 
|------------------------ |  | ------------------------- | --- | ------- |  | ------- | -- | ----- |  |  | -- |  |  |  | -- | 
|                         |  |                          
|                         |  | Year ended March 31, 2002
|                         |  | Marconi                   |     | Ancrane |  |        
|                         |  | plc                       |     | Limited |  | MMFG(1) |    | Other
|(in millions)            |  | £                         |     | £       |  | £       |    | £    
|                         |  |                          
|Statement of operations: |  |                           |     |         |  |         |    |       |  |  |    |  |  |  |    | 
|Net sales                |  |                           |    |         |  |         |   |       |  |  | 25 |  |  |  | 40 | 
|Purchases                |  |                           |    |         |  |         |   |       |  |  | 1  |  |  |  | 14 | 
|Balance sheet:           |  |                           |     |         |  |         |    |       |  |  |    |  |  |  |    | 
|Trade receivables        |  |                           |    |         |  |         |   |       |  |  |   |  |  |  | 26 | 
|Trade payables           |  |                           |    |         |  |         |   |       |  |  |   |  |  |  | 9  | 
|Other receivables        |  |                           | 207 |         |  |         |   |       |  |  |   |  |  |  |   | 
|Other payables           |  |                           | 275 |         |  |         | 12 |       |  |  |   |  |  |  |   | 

|                         |  |                           |     |         |  |         |   |       |  |  |    |  |  |  |    | 
|------------------------ |  | ------------------------- | --- | ------- |  | ------- | - | ----- |  |  | -- |  |  |  | -- | 
|                         |  |                          
|                         |  | Year ended March 31, 2001
|                         |  | Marconi                   |     | Ancrane |  |        
|                         |  | plc                       |     | Limited |  | MMFG(1) |   | Other
|(in millions)            |  | £                         |     | £       |  | £       |   | £    
|                         |  |                          
|Statement of operations: |  |                           |     |         |  |         |   |       |  |  |    |  |  |  |    | 
|Net sales                |  |                           |    |         |  |         |  |       |  |  | 90 |  |  |  | 59 | 
|Purchases                |  |                           |    |         |  |         |  |       |  |  | 1  |  |  |  | 1  | 
|Balance sheet:           |  |                           |     |         |  |         |   |       |  |  |    |  |  |  |    | 
|Trade receivables        |  |                           |    |         |  |         |  |       |  |  | 25 |  |  |  | 28 | 
|Trade payable            |  |                           |    |         |  |         |  |       |  |  | 1  |  |  |  | 9  | 
|Other receivables        |  |                           | 52  |         |  |         |  |       |  |  |   |  |  |  |   | 
|Other payables           |  |                           | 248 |         |  |         |  |       |  |  |   |  |  |  |   | 



| |     |                                                                                
| | --- | -------------------------------------------------------------------------------
| | (1) | MMFG  Marconi Medical Financial Group
    (formerly known as Picker Financial)

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All the contracts and other arrangements are with
Atlantic Telecommunications Limited/ GaMMa, Alstom and the joint
ventures described below which management believe have been on
arms-length terms. We may enter into arrangements with
these companies in the future, which management believe will be
on arms-length terms.

Atlantic Telecommunications Limited/
GaMMa

The Company owned 19.7% of Atlantic
Telecommunications Limited (Atlantic). Atlantic went into
administration on October 5, 2001. GaMMa acquired certain
assets from Atlantic in bankruptcy. The Company received a 14.3%
beneficial holding in GaMMa in December 2001, in consideration
of the waiver of retention of title claims against certain
assets of Atlantic, the grant of software licenses and
procurement of the assignment of the indefeasible right of use
terms granted by Easynet. Under the terms of the agreement with
GaMMa, the Company will receive warrants equating to 1.7% of the
authorized share capital of GaMMa.

Marconi plc

Until the completion of the Financial
Restructuring on May 19, 2003 Marconi plc was the parent of
the Company. The Company had the following transactions with
Marconi plc which are reflected in the accompanying consolidated
financial statements.

Stock-based
compensation:

As discussed in note 16, Employee stock
option plans, employees in the Company participated in a number
of stock option plans whereby they received rights over shares
in Marconi plc. As discussed in note 2, Summary of
significant accounting policies, the financial statements
reflect an expense of £14 million,
£26 million and £7 million in fiscal 2003,
2002 and 2001 respectively in relation to these plans.

Equity
forward contracts:

As discussed in note 2, Summary of
significant accounting policies, Marconi plc charged the Company
for movements in the fair value of various equity forward
contracts that were taken out to economically hedge the stock
based compensation plans. The financial statements reflect an
expense of £nil, £335 million (of which
£240 million was reported as the cumulative effect of
accounting change) and £nil in fiscal 2003, 2002 and 2001
respectively in relation to these contracts.

In connection with and to facilitate the
Financial Restructuring, the Company entered into a number of
intra-group restructuring arrangements with other group
companies and Marconi plc. The two primary agreements over the
Scheme Implementation Deed and the Statement and Waiver
Agreement.

Scheme Implementation Deed

The Company, Marconi plc, E-A Continental
Limited, Ancrane Limited, Marconi Nominees Limited, British
Sealed Beams Limited and various other group companies entered
into the scheme implementation deed on March 27, 2003. The
primary purpose of the scheme implementation deed was to ensure
that legally binding arrangements were in place to govern the
rights and obligations between the Company and Marconi plc in
implementing our restructuring.

Non-voting
undertakings

Ancrane Limited, a subsidiary of Marconi plc, had
various claims against the Company and Marconi plc. Ancrane
Limited undertook not to attend or vote or to use any other
rights or powers available to it as a creditor at any of the
scheme of arrangement meetings at which it was entitled to
attend and vote. Ancrane Limited also undertook not to take any
steps to canvass, solicit or entice any other person, firm or
company to attend and/or vote on its behalf at any of those
meetings. These arrangements did not

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however prevent Ancrane Limited from submitting a
claim or under either or both of the Company scheme of
arrangement and the Marconi plc scheme of arrangement.


The Company had a claim against Marconi plc and
undertook not to attend or vote at the Marconi plc scheme of
arrangement meeting nor submit a form of proxy with respect to
its claim. This did not, however, prevent the Company from
submitting a claim under the Marconi plc scheme of arrangement.

Certain other group companies and British Sealed
Beams Limited had various claims against the Company and Marconi
plc and therefore also undertook not to attend or vote at the
scheme of arrangement meetings or use any other rights or powers
available to them as a scheme of arrangement creditor to attend
or vote at any of the scheme of arrangement meetings at which
they were entitled to attend and vote.

Ancrane
Limited/E-A Continental arrangements

E-A Continental Limited, a subsidiary of the
Company, owed Marconi plc approximately £219 million
and had a receivable of approximately £363 million due
from the Company. Pursuant to a deed of assignment entered into
on March 27, 2003 between the Company, Marconi plc and E-A
Continental Limited, the Company agreed to the assignment by E-A
Continental Limited to Marconi plc of its £363 million
receivable. The assignment of the £363 million
receivable was in consideration for the release by Marconi plc
of the £219 million owed to Marconi plc by E-A
Continental Limited and the transfer by E-A Continental Limited
to Marconi plc of the balance of approximately £2,000,000
held on account with HSBC. On March 27, 2003, a deed of
assignment was entered into between the Company, Marconi plc and
Ancrane Limited under which Marconi plc agreed to the assignment
of the £363 million receivable to Ancrane Limited in
consideration for the issue to Marconi plc by Ancrane Limited of
a share at a premium equal to the market value of the
£363 million receivable.

Ancrane Limited re-registered as an unlimited
company pursuant to section 49 of the U.K. Companies Act on
March 25, 2003. Ancrane Limited reduced its share capital,
including for this purpose its share premium account, to
£100 to enable it to make a repayment of capital in specie
to Marconi plc of its interest in all of its assets, save for
£100 and the benefit of a specific covenant by the Company,
and made a repayment of such capital in specie to Marconi plc.

Approvals

The Companys shareholders, Marconi plc and
Marconi Nominees Limited, agreed to vote in favor of all
shareholder resolutions which were in the reasonable opinion of
the Company Board, necessary or desirable to give effect to the
Company scheme of arrangement, and to consent in writing to each
and every variation of the rights attached to their respective
shareholdings in Marconi Corporation plc as may be involved in
the passing and implementation of such shareholder resolutions
and to take such actions as necessary to implement the
restructuring and so as not to frustrate, delay or interfere
with the performance, approval or implementation of the
Financial Restructuring.



|  |                     
|- | --------------------
| | BAE Deed of Novation

In 1999, the Company, which was, at the time,
named The General Electric Company, plc, separated its
international aerospace, naval shipbuilding, defence electronics
and defence systems business and sold it to BAE. The original
transaction agreement and payment deed were entered into between
the Company and BAE and subsequently novated from the Company to
Marconi plc. All other transaction documentation in relation to
the sale was entered into by Marconi plc.

The Company and Marconi plc agreed to novate the
transaction agreement, payment deed and various other agreements
from Marconi plc back to the Company with effect from the date
of the effectiveness of the Companys scheme of
arrangement. Both the Company and Marconi plc agreed to use all
reasonable endeavours to procure that BAE entered into the
novation.

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In addition, Marconi plc, the Company and BAE
agreed that no amount should be paid by Marconi plc or the
Company to BAE in relation to certain claims made by the parties
under the BAE merger agreements and that the Company would
reduce any amounts which may be payable to it in the future by
BAE under the BAE merger agreements by U.S.$18,600,000.



|  |                  
|- | -----------------
| | Service Contracts

The Company agreed to procure that nine specified
employees of the Company would enter into new service agreements
in a specified form so that the new terms and conditions will
take effect on the date of the effectiveness of the
Companys scheme of arrangement.

|  |                       
|- | ----------------------
|  |                       
| | Finmeccanica
Guarantee

Under a share purchase agreement dated
August 2, 2002, Marconi (Bruton Street) Limited sold all of
the shares in Mobile, the Italian holding company for the
strategic communications business, to Finmeccanica S.p.A. A
parent company guarantee in favour of Finmeccanica S.p.A was
required to be given as part of the share sale, the Finmeccanica
guarantee. Marconi plc was therefore party to the share purchase
agreement, as guarantor, pursuant to which, among other things,
it guaranteed the performance by Marconi (Bruton Street) Limited
of its obligations under the share purchase agreement and the
related transaction documents, including a tax covenant, a
transitional services agreement, a custody deed and a disclosure
letter.

Finmeccanica S.p.A, the Company and Marconi plc
entered into a deed of novation and amendment, the Finmeccanica
guarantee deed of novation, under which, with effect from
May 19, 2003, the Finmeccanica guarantee and all other
remaining obligations of Marconi plc under the share purchase
agreement would be novated from Marconi plc to the Company. As a
result of that novation, the Company became the guarantor of
Marconi (Bruton Street) Limiteds obligations under the
share purchase agreement and related transaction documentation,
and assumed all other obligations of Marconi plc under the share
purchase agreement, and Marconi plc was released from all of its
obligations under the Finmeccanica guarantee and the share
purchase agreement. The Companys obligations under the
share purchase agreement, including the Finmeccanica guarantee,
were excluded obligations for the purposes of the Company scheme
of arrangement.



|  |                 
|- | ----------------
| | Lemelson Licence

Under an agreement between Marconi plc and
Lemelson Medical, Education and Research Foundation, Limited
Partnership, the Lemelson Foundation Partnership, dated
December 1, 1999, Lemelson Foundation Partnership granted
to Marconi plc for itself and the benefit of its subsidiaries a
non-exclusive licence for certain licensed patents relating
principally to bar coding, the Lemelson agreement.

The Company and Marconi plc agreed to novate the
existing Lemelson agreement to the Company and agreed to use all
reasonable endeavours to procure that Lemelson Foundation
Partnership entered into the novation.



|  |           
|- | ----------
| | Litigation

In the event that either the Company or Marconi
plc becomes aware of anything which is likely to give rise to a
claim or threat of litigation to it or the other entity, it
shall inform the other of the relevant information as soon as
possible and shall assist, so far as reasonably practicable, in
investigating and defending the claim. In addition, the Company
is entitled to require Marconi plc to take such steps and
proceedings as the Company believes is necessary to defend such
proceedings and Marconi plc shall not admit any liability or
agree any compromise of such actions without the Companys
prior written consent.

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|  |             
|- | ------------
| | Marconi Name

The Company agreed with effect from May 19,
2003 to license the Marconi name to Marconi plc for an initial
period of twelve months. The licence is non-exclusive,
non-transferable and royalty free. Marconi plc has
covenanted to use the name solely as its corporate name and not
for any other purpose.

Marconi plc agreed that it will propose a
resolution to its shareholders to change its company name at
each and every general meeting convened for the transaction of
business until such resolution is passed.

The licence terminates immediately upon the
occurrence of certain events, for example any breach of the
licence or an order for Marconi plcs winding-up,
administration or dissolution being made or a liquidator,
trustee in bankruptcy or receiver being appointed for Marconi
plc.



|  |    
|- | ---
| | Tax

The Company agreed to surrender up to a maximum
of £200 million of group relief to Ancrane Limited and
Marconi plc.

Marconi plc also undertook to enter into an
election with the Company and companies in our group, the effect
of which was the surrender of capital losses of approximately
£15 billion to companies in our group by Marconi plc.
The Company agreed to make payments to Marconi plc as and when
it or a subsidiary chooses to use these losses or one of the
transferees of the losses is sold out of the group with
unutilised capital losses.

The Company agreed to pay corporation tax on
behalf of Marconi plc and Ancrane Limited to the extent that it
arises in their accounting periods commencing April 1, 2003
in respect of foreign exchange movements in relation to the
Notes and an inter-company loan to Highrose Limited.



|  |              
|- | -------------
| | Highrose Debt

Ancrane Limited and Marconi plc have agreed, with
effect from May 19, 2003, to release Highrose Limited, a
subsidiary of the Company, from its obligation to repay an
inter-company loan of approximately £24 million to
Ancrane Limited.



|  |                            
|- | ---------------------------
| | Intercompany Trade Balances

At the date of the scheme implementation deed,
Marconi plc was owed intra-group trade receivables from five
Company subsidiaries in an aggregate amount of £5,540,623.
Marconi plc assigned the benefit of these intra-group trade
receivables to the Company in consideration for the Company
reducing the balance of £165,748,102 due to it from Marconi
plc by an amount of £19,160,663.



|  |                                
|- | -------------------------------
| | Counter Indemnities and Waivers

The Company agreed to indemnify Marconi plc for
any claims, including related costs, against Marconi plc from
Communications Limited arising as a result of any payment made
by Communications Limited in settling Marconi plcs
obligations under the contracts and termination of employment of
Robert Meakin and Stephen Hare.

The Company also agreed to meet certain costs and
expenses of various professional advisers in relation to our
Financial Restructuring, and irrevocably and unconditionally
waived any right of counter indemnity or right of reimbursement
or other claim against Marconi plc in relation thereto, whether
arising under contract, operation of law or otherwise.



|  |                              
|- | -----------------------------
| | ESOP Escrow Agreement Release

Following payment by the Company of all payments
pursuant to the ESOP settlement agreement, Marconi plc agreed to
unconditionally and irrevocably release all of its claims
against its subsidiaries to the extent that they relate to the
ESOP derivative transactions. Upon such release by Marconi plc,
the

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Company unconditionally and irrevocably released
any claims that it had against Marconi plc arising from the
Companys funding of Bedell Cristin Trustees in respect of
cash collateral calls from the ESOP derivatives banks.




|  |                    
|- | -------------------
| | Marconi plc Waivers

Each company within the new Marconi Corporation
plc group irrevocably and unconditionally agreed to waive and
release each company within our group from any claim it may have
against our group companies which arises out of any matter or
circumstance existing on or before May 19, 2003 other than
any claim set out in the statement and waiver agreement that is
expressed to continue, notwithstanding the terms of that
agreement, and any other claim intended to be excluded by the
terms of either scheme of arrangement or contemplated by the
scheme implementation deed or the transactions contemplated by
the scheme implementation deed.

Marconi plc agreed that the distribution of
consideration to its creditors in respect of any guarantee or
indemnity given by Marconi plc of any other group company in
connection with the schemes of arrangement, including Marconi
plcs guarantee of the Company Bonds that were outstanding
prior to being compromised pursuant to the Financial
Restructuring, will not give rise to any counter indemnity or
right of reimbursement or other claim by Marconi plc against the
relevant group company.



|  |                     
|- | --------------------
| | Statement and Waiver

Each of the Company and Marconi plc and certain
other group companies agreed to enter into the statement and
waiver of inter-company balances agreement disclosed below.



|  |                            
|- | ---------------------------
| | Marconi plc Scheme Expenses

The Company agreed to procure the issue of a
letter of credit, under its performance bonding facility, in an
amount of £2 million in favor of the supervisors of
the Marconi plc scheme of arrangement from time to time for them
to draw on in relation to any ongoing costs. The Company has
agreed to waive any right to reimbursement against Marconi plc
arising as a result of any payment made by the Company as a
result of any drawings by the supervisors under such letter of
credit. In the event that the Company is unable to procure the
issue of the letter of credit, it has undertaken to provide the
sum of £2 million for the supervisors for drawing in
relation to any ongoing costs on similar terms to those set out
in the scheme implementation deed and the performance bonding
facility agreement in relation to the letter of credit.

Statement and Waiver
Agreement

To effect a clean up of existing inter-company
claims owed to or by the Company and Marconi plc, the Company
and Marconi plc entered into a statement and waiver of
intercompany balances agreement with some other group companies.
The effect of the statement and waiver agreement was to preserve
all known and stated claims existing between (a) the
Company or Marconi plc and (b) the participating group
companies, and to waive all other claims which arose by
reference to circumstances existing prior to our Financial
Restructuring. Under the statement and waiver agreement the
following intra-group claims were preserved as between
(a) the Company and Marconi plc and (b) the
participating group companies:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | disclosed intra-group loan balances in existence
    as at December 31, 2002 plus interest accrued at such
    applicable commercial rate of interest as agreed between the
    parties to the respective loan;                                                                                                                                                                                       
|
| |  | any intra-group loan made on or after
    January 1, 2003 in the ordinary and usual course of
    business or with certain previously agreed creditor consent,
    including interest accrued at such applicable commercial rate of
    interest as agreed between the parties to the respective loan;                                                                                                
|
| |  | any trading and current account liabilities in
    existence as at March 31, 2002, in the case of any
    participating group company which is a trading or an active
    non-trading company, or September 30, 2002, in the case of
    any dormant participating group company. These liabilities are
    determined by reference to the management accounts upon which
    the audited consolidated

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | financial accounts of Marconi plc, as at
    March 31, 2002 or September 30, 2002, as applicable,
    were prepared;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | any trading and current account liabilities
    incurred in the ordinary and usual course of business after
    March 31, 2002 between (a) the Company and/or Marconi
    plc and (b) any participating group company which is a
    trading or an active non-trading company;                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | any counter indemnity or equivalent reimbursement
    obligation, which is written or is implied by law and whether or
    not contingent, arising under any financial guarantee or
    indemnity, which is written or is implied by law, and is:
    (a) in favour of any third party which is not a member of
    the group, including the issuer of any performance bond, bank
    guarantee or similar instrument, and (b) in respect of any
    contractual obligations of the provider of the counter indemnity
    or equivalent; provided that where any payment has been made
    under such a guarantee or indemnity on or before March 31,
    2002, the resultant counter indemnity shall not be preserved;                
|
| |  | any counter indemnity or equivalent reimbursement
    obligation, which is written or is implied by law and whether or
    not contingent, arising under any written non-financial
    guarantee or indemnity, which is written or implied by law, and
    is: (a) in favour of any person which is not a member of
    the group, and (b) in respect of any contractual or implied
    by law obligations of the provider of the counter indemnity or
    equivalent and (c) disclosed in a schedule to the statement
    and waiver agreement; provided that where any payment has been
    made under such a guarantee or indemnity on or before
    March 31, 2002, the resultant counter indemnity shall not
    be preserved; and
|
| |  | any other claims specified in the agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

All other claims of the Company or Marconi plc
against each participating group company and all other claims of
each participating group companies against the Company or
Marconi plc were released after our the Financial Restructuring.
The statement and waiver agreement does not affect claims that
arise out of or in relation to any matter or circumstance
arising after the Financial Restructuring.

Alstom

The Company owned approximately 24% of Alstom
until February 2001, when it disposed of 18% through a public
offering of shares. Upon the initial public offering of Alstom
in 1998, prior to which we had a 50% stake in GEC Alstom, as it
was called prior to the initial public offering, the Company
entered into a transitional services agreement providing for the
termination of existing group services provided by the Company
to Alstom except that the Company 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, and as a result, among others, the Company no
longer provide insurance services to Alstom. The Company does
however, have an ongoing maintenance contract and provide some
supply works on Alstoms Northern Line. From time to time
in the ordinary course of business, the Company supplies
products or services to Alstom and Alstom supplies products or
services to the Company. In June 2001, the Company disposed of
its remaining interest in Alstom.

CosmoCom

As of June 18, 2003, Marconi Capital Limited
owned 5.7% of CosmoCom, Inc. CosmoCom, Inc. develops and deploys
call center products and services. Marconi Communications
International Limited, or MCIL, entered into a Value Added
Reseller Agreement with CosmoCom, Inc. on March 3, 2000, as
amended by Amendment No. 1, dated September 8, 2000,
the VAR, whereby would act as a reseller of certain CosmoCom,
Inc. products. Subject to other terms of the VAR, including the
termination provisions contained therein, MCIL was required to
purchase products and/or services of $12,000,000 over
approximately a three year period. On or about October 29,
2001, MCIL advised CosmoCom, Inc. that it was terminating the
VAR, and is making no further purchases at this time. During the
term of the VAR,

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purchased approximately $1.5 million of
products and/or services. MCIL and CosmoCom are currently
involved in litigation wherein each party asserts that the other
party has breached the VAR.


Marconi (Malaysia) SDN BHD

Marconi Communications S.p.A. owns a 30%
shareholding in Marconi (Malaysia) SDN BHD, a business that
sells and installs telecommunications equipment. During the
fiscal year ended March 31, 2003, the Company supplied
network equipment products totaling £23.1 million to
Marconi (Malaysia) SDN BHD, at arms-length terms.

Ultramast

The Company formed a joint venture company with
Railtrack Telecom Services Limited, or RTSL, on April 26,
2001 to support the deployment of next generation broadband
wireless networks. The Company and RTSL each had a
50 percent interest in the joint venture company until
February 2003 when the Company settled litigation with RTSL and
RTSL assumed full control of Ultramast. Albany Partnership Ltd.,
or APT, a wholly owned subsidiary of the Company, has a
consultancy agreement with Ultramast to provide it with
telecommunications consultancy services to design, construct and
maintain masts for the next generation networks. Ultramast also
has an agreement with ipsaris Limited under which ipsaris is
nominated as the preferred supplier for connectivity for the
telecommunications network.

Confirmant

Confirmant is a 50-50 joint venture between
Marconi Corporation plc and Oxford Glyco Sciences (U.K.)
Limited, a wholly owned subsidiary of Oxford Glyco Sciences plc.
Confirmant was formed in June 2001 for the purpose of completing
and then offering for subscription a proteomic database and for
providing managed hosting services to the biotech sector.
Although the Companys outstanding contracts with
Confirmant have not been formally cancelled, all members of the
Confirmant board of directors have acknowledged that they are de
facto cancelled and, therefore, the Company has no remaining
liability under those contracts.

Easynet Group plc

In February 2002, the Company were obliged to
acquire by a put option 1,324,054 ordinary shares in Easynet for
£20 million. The Company disputed the legal basis of
the put option and entered into litigation with Railtrack Group.
In February 2003, the litigation with Railtrack Group was
settled and the Company became beneficial owners of the
1,324,054 Easynet ordinary shares under the put option.
Consequently, the £20 million and related impairment
have been reflected in equity in loss of affiliates. The put
option increased the equity holding to 72.7% and the holding of
voting shares to 51.6%. However, under the articles of
association of Easynet and a relationship agreement with
Easynet, the voting rights in Easynet are limited to 49.9%.
Accordingly, Easynet applied in April 2003 to the U.K. Listing
Authority to cancel the 1,324,054 ordinary shares and non-voting
convertible shares have been issued to the Company in exchange.
Since the Company were not able to exercise control over Easynet
at anytime, the Company have continued to account for Easynet
using the equity method of accounting.

No significant transactions with directors or
other executive officers of the Company have occurred during
fiscal 2003 and 2002. Sir Alan Rudge, a non-executive director
of the Company and non-executive chairman of MSI (acquired in
2001), held a substantial number of share options in MSI. At
completion, he received approximately $5.3 million from MSI
in respect of the cancellation of his options. Sir Alan Rudge
did not participate in that part of any board meeting which
considered the acquisition of MSI, nor did he receive any board
papers related thereto.

During fiscal 2001, the Company made sales of
equipment and services to Atlantic totalling
£26.5 million. These sales formed part of the
consideration of £113 million given in exchange for
shares in Atlantic which were recorded as an equity investment
in fiscal 2000.

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22. Subsidiary company and equity
investee information

The following table provides information on the
principal subsidiary undertakings and other associated
companies, that the Company considers will likely have a
significant impact on the assessment of the assets and
liabilities, the financial position and/or the profits and
losses of the Company to March 31, 2003. Except where
stated otherwise, each of these companies is wholly owned by a
member of the Company and the share capital is fully paid.

|                               |                                                                         |                   |                                                                                                                            
|------------------------------ | ----------------------------------------------------------------------- | ----------------- | ---------------------------------------------------------------------------------------------------------------------------
|Name                           |                                                                         | Registered Office
|                               |                                                                         |                  
|Network Equipment and Services |                                                                         |                  
|                               | Marconi Communications Limited                                          |                   | New Century Park, PO Box 53, Coventry
    CV3 1HJ, England                                                                 
|                               | Marconi Communications S.p.A                                            |                   | Via Ludovico Calda 5, 16153 Genoa, Italy                                                                                   
|                               | Marconi Communications, Inc.                                            |                   | c/o The Corporation Trust Company, Corporation
    Trust Center, 1209 Orange Street, Wilmington, Delaware, 19801,
    U.S.A
|                               | Marconi Communications GmbH                                             |                   | Gerberstrasse 33, D 71522 Backnang, Germany                                                                                
|Capital                        |                                                                         |                  
|                               | Marconi Mobile S.p.A.(1)                                                |                   | Via A. Negrone 1/A, 16153 Genoa, Italy                                                                                     
|Other Associated Companies     |                                                                         |                  
|                               | Easynet Group plc (72.7% group equity share;
    49.9% voting share)(2) |                   | 44-46 Whitfield Street, London W1T 2RJ,
    England                                                                        



| |     |                                                                                                                                           
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Marconi Mobile S.p.A. was sold as part of the
    disposal of Marconi Mobile Holdings S.p.A. to Finmeccanica
    S.p.A. on August 2, 2002.
|
| | (2) | See note 13, Investments in affiliates.                                                                                                   

23. Subsequent events

Financial Restructuring

On May 19, 2003, Marconi Corporation plc and
its former parent holding company, Marconi plc, concluded a
Financial Restructuring. The Financial Restructuring was
effected through two separate schemes of arrangement
under the U.K. Companies Act 1985. A scheme of arrangement is a
procedure under English law through which a company may enter
into a voluntary compromise or arrangement with one or more
classes of its creditors to effect a Financial Restructuring of
its financial obligations. One scheme of arrangement involved
all of the creditors of the Company, other than certain excepted
categories of creditors but including the syndicate banks and
bondholders to whom our primary financial indebtedness was owed.
The second scheme of arrangement involved creditors of Marconi
plc, the Companys former parent holding company. In
connection with our Financial Restructuring the existing share
capital of Marconi Corporation plc was converted to
non-voting deferred shares, and subsequently cancelled through a
capital reduction. As a result, Marconi Corporation plc became
the new parent holding company of the group, replacing Marconi
plc, and Marconi plc ceased to be the beneficial owner of the
Company.

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As part of the Financial Restructuring, the
Company entered into an agreement with Marconi plc to reassign
and waive some intra group balances. In addition, the Company
has provided for amounts due to it from Marconi plc, which are
to be schemed.

The Companys Financial Restructuring
covered approximately £4.8 billion of creditors
claims comprising £4.0 billion of syndicated bank debt
and our externally held U.S. dollar and euro denominated
bonds and £800 million of related party debt. In
exchange for the cancellation of their claims against Marconi
Corporation plc on May 19, 2003 the Company distributed to
the creditors covered by our scheme of arrangement:



| |   |                                                                                                                                                                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Cash:£340 million in cash;                                                                                                                                                                                                                                                                                                                                        
|
| |  | Senior
    Notes:U.S.$717,139,584 (approximately
    £437 million) in aggregate principal amount of new
    guaranteed senior secured notes due April 2008 issued by the
    Company, with interest payable quarterly in cash at a rate of 8%
    per annum;                                                                                                      
|
| |  | Junior
    Notes:U.S.$486,881,472 (approximately
    £297 million) in aggregate principal amount of new
    guaranteed junior secured notes due October 2008 issued by the
    Company, with interest payable quarterly in cash at a rate of
    10% per annum or, at our option, in kind, by issuing additional
    junior notes, at a rate of 12% per annum; and
|
| |  | Marconi
    Corporation plc Shares:995 million ordinary shares,
    representing 99.5% of the Companys issued ordinary share
    capital on May 19, 2003.                                                                                                                                                                                                        

In addition, on May 19, 2003, the Company
issued 5 million ordinary shares, representing 0.5% of the
Companys issued ordinary share capital on May 19,
2003, and warrants, exercisable at £1.50 per share, to
subscribe for up to 50 million additional ordinary shares,
equal to 5% of our issued ordinary share capital on May 19,
2003, to shareholders of Marconi plc. In connection with the
Financial Restructuring the Company listed its ordinary shares
on the London Stock Exchange and established an American
Depository Receipt (ADR) program in respect of those
shares.

In connection with the Financial Restructuring,
the ordinary shares of Marconi plc were delisted from the London
Stock Exchange. While Marconi plcs ordinary shares remain
outstanding, all of Marconi plcs remaining assets, other
than assets necessary to fund the cost of administering its
scheme of arrangement, will be distributed to Marconi plcs
creditors over time in accordance with its scheme of
arrangement. Management expects that Marconi plc will be
liquidated or dissolved in the future following the completion
of those distributions.

The Company expects to recognize a gain upon
extinguishment of its liabilities under the terms of the
Financial Restructuring of approximately £3.2 billion
of which £2.7 billion will be recorded in the
consolidated statement of operations and £0.5 billion
will be recorded in shareholders equity. The following
unaudited pro forma data illustrates the impact that the
Financial Restructuring would have had on the consolidated
statement of operations for fiscal 2003 as if the Financial
Restructuring had been completed on April 1, 2002 and on
the consolidated balance sheet as if the Financial Restructuring
had been completed on March 31, 2003.

The unaudited pro forma financial information
illustrates the effect of the Financial Restructuring on the
statement of operations and consolidated balance sheet as if the
Financial Restructuring had been completed at April 1, 2002
and March 31, 2003 respectively.

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|                                 |                                                         |                |  |           |   |  |  |        |  
|-------------------------------- | ------------------------------------------------------- | -------------- |  | --------- | - |  |  | ------ | -
|                                 |                                                         |               
|                                 |                                                         | March 31, 2003
|                                 |                                                         |                |  | Pro forma
|                                 |                                                         | As reported    |  | unaudited
|(in millions)                    |                                                         | £              |  | £        
|                                 |                                                         |               
|                                 |                                                         |               
|Statement of operations data:    |                                                         |                |  |           |   |  |  |       
|                                 | Operating loss                                          |                |  | (599      | ) |  |  | (599   | )
|                                 | Loss from continuing operations before income
    taxes |                |  | (1,116    | ) |  |  | (864   | )
|                                 | Loss per share                                          |                |  | (0.39     | ) |  |  | (0.86  | )
|Consolidated balance sheet data: |                                                         |                |  |           |   |  |  |       
|                                 | Total assets                                            |                |  | 3,108     |   |  |  | 2,704  |  
|                                 | Net current (liabilities)/assets                        |                |  | (2,959    | ) |  |  | 617    |  
|                                 | Total liabilities                                       |                |  | (6,442    | ) |  |  | (2,085 | )
|                                 | Shareholders (deficit)/equity                          |                |  | (3,334    | ) |  |  | 619    |  

IT outsourcing agreement

An information technology outsourcing agreement
was agreed in principle with Computer Sciences Corporation
International Systems Management Inc. (CSC) in
February 2003 and signed in May 2003. Under the terms of the
agreement, property, plant and equipment with an approximate
book value of £17 million and 420 employees will be
transferred to CSC in exchange for cash proceeds of
£26 million.

Stock options

On June 24, 2003, options over 76,150,000
ordinary shares in the Company were granted to 43 directors
and senior executives under the terms of the Marconi Corporation
Senior Management Share Option Plan.

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