SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                 AMENDMENT NO. 2


                                       to

                                    FORM 20-F

(Mark One)

|X|   REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
      EXCHANGE ACT OF 1934

OR

|_|   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934

OR

|_|   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: 0-49984

                           MITEL NETWORKS CORPORATION
             (Exact name of Registrant as specified in its charter)

                                     Canada
                 (Jurisdiction of incorporation or organization)

                                350 Legget Drive
                         Ottawa, Ontario, Canada K2K 2W7
                    (Address of principal executive offices)

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:

                         Common Shares Without Par Value
                                (Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act: None


Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report: 115,439,998 common shares as of November 25, 2002


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 for 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 |_|  No |X|

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

Item 17 |_|  Item 18 |X|
<PAGE>

Basis of Presentation

      The accounts of Mitel Networks Corporation are maintained in Canadian
dollars and have been prepared in compliance with accounting principles
generally accepted in the United States of America for the purpose of this
registration statement. Mitel Networks also reported to its shareholders audited
consolidated financial statements in accordance with accounting principles
generally accepted in Canada. In this registration statement, all dollar amounts
are expressed in Canadian dollars except where otherwise indicated.

Foreign Currency Exchange Rates


      On November 25, 2002, the Noon Buying Rate was CDN$1.00 to US$0.6356. The
high and low exchange rates (i.e., the highest and lowest rates at which
Canadian dollars were sold), the average exchange rate (i.e., the average of the
exchange rates on the last day of each full month during the period) and the
period end exchange rate of one Canadian dollar in exchange for United States
(U.S.) dollars for each of the applicable periods, as calculated from the
exchange rates reported by the U.S. Federal Reserve, are set forth below:


<TABLE>
<CAPTION>
                                                            Period
                                                              End          Average         High          Low
                                                           ---------------------------------------------------
<S>                                                          <C>            <C>           <C>           <C>
U.S. Dollars

Fiscal Year Ended April 28, 2002                             0.6397         0.6372        0.6657        0.6200
Ten Week Period Ended April 27, 2001                         0.6486         0.6448        0.6696        0.6333
Forty-six Week Period Ended February 16, 2001                0.6507         0.6656        0.6889        0.6410
Fiscal Year Ended March 31, 2000                             0.6878         0.6810        0.6968        0.6607
Fiscal Year Ended March 26, 1999                             0.6607         0.6627        0.7054        0.6341
Fiscal Year Ended March 27, 1998                             0.7068         0.7113        0.7316        0.6832
</TABLE>

The high and low exchange rates of one Canadian dollar in exchange for U.S.
dollars for each of the six months preceding the filing of this registration
statement are set forth below:

                                                         High           Low
                                                       -----------------------
U.S. Dollars


June 2002                                               0.6619         0.6452
July 2002                                               0.6602         0.6297
August 2002                                             0.6442         0.6264
September 2002                                          0.6432         0.6303
October 2002                                            0.6394         0.6279
November 2002                                           0.6418         0.6316



                                      -i-
<PAGE>

Forward Looking Information

      Certain statements in this registration statement constitute
"forward-looking statements". Mitel Networks has based these forward-looking
statements on its current expectations, which are subject to known and unknown
risks, uncertainties and assumptions. They include statements relating to future
revenues, expenses and profitability, the future development and expected growth
of Mitel Networks' business and the communications industry, Mitel Networks'
ability to successfully execute its business model and business strategy,
projected capital expenditures, and trends in government regulation.

      Forward-looking statements can be identified by terminology such as "may,"
"will," "should," "could," "expects," "intends," "plans," "anticipates,"
"believes," "estimates," "predicts," "potential," or "continue," or the negative
of these terms or other comparable terminology. These statements are only
predictions. Actual events or results may differ materially from those suggested
by these forward-looking statements. In evaluating these statements, carefully
consider the risks outlined under Item 3. Key Information - Risk Factors.

      Although Mitel Networks believes that the expectations reflected in the
forward-looking statements are reasonable, it cannot guarantee future results,
levels of activity, performance or achievements. Mitel Networks does not promise
to update forward-looking information to reflect actual results or changes in
assumptions.

Trademarks

      The following trademarks are trademarks of Mitel Networks and are
mentioned in this registration statement on Form 20-F: Mitel, SX-200, SX-2000,
Voice First, GX5000, SuperSET and NuPoint.


                                      -ii-
<PAGE>

                                TABLE OF CONTENTS


PART I.........................................................................1

Item 1. Identity of Directors, Senior Management and Advisors..................1

     A. Directors and Senior Management........................................1
     B. Advisors...............................................................3
     C. Auditors...............................................................4

Item 2. Offer Statistics and Expected Timetable................................4


Item 3. Key Information........................................................4

     A. Selected Financial Data................................................4
     B. Capitalization and Indebtedness........................................6
     C. Reasons for the offer and use of proceeds..............................6
     D. Risk Factors...........................................................7

Item 4. Information on Mitel Networks.........................................15

     A. History and Development of Mitel Networks.............................15
     B. Business Overview.....................................................17
     C. Organizational Structure..............................................28
     D. Property, Plants and Equipment........................................29

Item 5. Operating and Financial Review and Prospects..........................30

     A. Operating Results.....................................................36
     B. Liquidity and Capital Resources.......................................45
     C. Research and Development, Patents and Licenses, etc...................52
     D. Trend Information.....................................................52

Item 6. Directors, Senior Management and Employees............................55

     A. Directors and Senior Management.......................................55
     B. Compensation..........................................................59
     C. Board Practices.......................................................61
     D. Employees.............................................................62
     E. Share Ownership.......................................................63

Item 7. Major Shareholders and Related Party Transactions.....................67

     A. Major Shareholders....................................................67
     B. Related Party Transactions............................................68
     C. Interests of Experts and Counsel......................................73

Item 8. Financial Information.................................................73

     A. Consolidated Statements and Other Financial Information...............73
     B. Significant Changes...................................................73

Item 9. The Offer and Listing.................................................73

     A. Offer and Listing Details.............................................73



                                     -iii-
<PAGE>


     B. Plan of distribution..................................................74
     C. Markets...............................................................74
     D. Selling shareholders..................................................74
     E. Dilution..............................................................74
     F. Expenses of the issue.................................................74

Item 10. Additional Information...............................................74

     A. Share Capital.........................................................74
     B. Memorandum and Articles of Incorporation..............................77
     C. Material Contracts....................................................82
     D. Exchange Controls.....................................................95
     E. Taxation..............................................................97
     F. Dividends and Paying Agents..........................................102
     G. Statement by Experts.................................................102
     H. Documents on Display.................................................102
     I. Subsidiary Information...............................................103

Item 11. Quantitative and Qualitative Disclosures About Market Risk..........103

Item 12. Description of Securities Other than Equity Securities..............104

PART II......................................................................104

Item 13. Defaults, Dividend Arrearages and Delinquencies.....................104

Item 14. Material Modifications to the Rights of Security Holders
         and Use of Proceeds.................................................104

Item 15. [Reserved]..........................................................104

Item 16. [Reserved]..........................................................104

PART III.....................................................................104

Item 17. Financial Statements................................................104

Item 18. Financial Statements................................................104

Item 19. Exhibits............................................................105



                                      -iv-
<PAGE>

                                     PART I

Item 1. Identity of Directors, Senior Management and Advisors

A. Directors and Senior Management

      Mitel Networks' directors:

       Full Name                     Business Address                Position
       ---------                     ----------------                --------
Dr. Terence H. Matthews      555 Legget Drive, Tower B Ottawa,     Director and
                                  Ontario, Canada K2K 2X3            Chairman

    Donald W. Smith                  350 Legget Drive                Director
                                  Ottawa, Ontario, Canada
                                          K2K 2W7

   Paul A.N. Butcher                 350 Legget Drive                Director
                                  Ottawa, Ontario, Canada
                                          K2K 2W7

  Peter D. Charbonneau       555 Legget Drive, Tower B Ottawa,       Director
                                  Ontario, Canada K2K 2X3

       Kirk Mandy          234 Old Quarry Road, RR #2, Woodlawn,     Director
                                  Ontario, Canada K0A 3M0

 Sir David Rowe-Beddoe          46 Egerton Gardens, London,          Director
                                  United Kingdom SW3 2BZ

      Mitel Networks' senior management:

    Full Name            Business Address                    Position
    ---------            ----------------                    --------
 Donald W. Smith         350 Legget Drive            Chief Executive Officer
                      Ottawa, Ontario, Canada
                              K2K 2W7

Paul A.N. Butcher        350 Legget Drive         President and Chief Operating
                      Ottawa, Ontario, Canada                Officer
                              K2K 2W7


                                      -1-
<PAGE>

 Jenifer Chilcott        350 Legget Drive        Vice-President, General Counsel
                      Ottawa, Ontario, Canada        and Corporate Secretary
                              K2K 2W7

  Stephane Godin         350 Legget Drive           Vice-President Finance and
                      Ottawa, Ontario, Canada        Chief Financial Officer
                              K2K 2W7



  Simon Gwatkin          350 Legget Drive           Vice-President, Strategic
                      Ottawa, Ontario, Canada               Marketing
                              K2K 2W7

   James Davies          350 Legget Drive          Vice-President, Small Medium
                      Ottawa, Ontario, Canada          Enterprise Solutions
                              K2K 2W7

  Raymond Brown          350 Legget Drive           Vice-President, Enterprise
                      Ottawa, Ontario, Canada               Solutions
                              K2K 2W7

 Graham Bevington       Mitel Business Park         Vice-President and General
                          Caldicot, Wales                Manager, Europe
                      United Kingdom NP26 5YR

 Carl Carruthers         350 Legget Drive           Vice-President, Operations
                      Ottawa, Ontario, Canada
                              K2K 2W7

  George Cuesta    2680 Bishop Drive, Suite 280     Vice-President, Enterprise
                    San Ramon, California 94583           Sales Channels

 Stephen Grassie         350 Legget Drive         Vice-President, North American
                      Ottawa, Ontario, Canada              Distribution
                              K2K 2W7

 Sharron McIntyre        350 Legget Drive                   Treasurer
                      Ottawa, Ontario, Canada
                              K2K 2W7




                                      -2-
<PAGE>

B. Advisors

      Mitel Networks' principal bankers:

                 Name                                      Address
                 ----                                      -------
  Canadian Imperial Bank of Commerce                  89 Sparks Street
                                                         Suite 1000
                                                   Ottawa, Ontario, Canada
                                                           K1P 5T8

          Bank One Michigan                             6I 1 Woodward
                                                    Mail Suite MI 1 8033
                                                      Detroit, Michigan
                                                            48226

          Barclays Bank PLC                       Corporate Banking Centre
                                                  Wales and the South West
                                                         PO Box 1015
                                                  3rd Floor, Windsor Court,
                                                       3 Windsor Place,
                                                   Cardiff, Wales CF10 3ZL

Toronto Dominion Bank Financial Group                     TD Tower
                                            66 Wellington Street West, 8th Floor
                                                  Toronto, Ontario, Canada
                                                           M5K 1A2

           Bank of Montreal                        1 First Canadian Place
                                                          5th Floor
                                                  Toronto, Ontario, Canada
                                                           M5X 1H3

      Mitel Networks' principal legal advisors:

             Name                                           Address
             ----                                           -------
 Gowling Lafleur Henderson LLP                   Suite 2600 - 160 Elgin Street
                                                     PO Box 466, Station "D"
                                                Ottawa, Ontario, Canada K1P 1C3

 Sonnenschein Nath & Rosenthal                    1221 Avenue of the Americas
                                                   New York, New York 10020

         Morgan Cole                                    Bradley Court
                                                          Park Place
                                                    Cardiff, Wales CF10 3DP


                                      -3-
<PAGE>

C. Auditors

      Mitel Networks' auditor was Ernst & Young LLP, Suite 1600, 100 Queen
Street, Ottawa, Ontario, Canada K1P 1K1, a member of the Canadian Institute of
Chartered Accountants, from January 2001 until December 2001, when the firm was
replaced by Mitel Networks. Mitel Networks' auditor since December 2001 has been
Deloitte & Touche LLP, Suite 800, 100 Queen Street, Ottawa, Ontario, Canada K1P
5T8, a member of the Canadian Institute of Chartered Accountants. The change in
auditors was approved by the Audit Committee of the board of directors. The
appointment of the new auditors was approved by the shareholders on July 11,
2002. There were no disagreements with the predecessor auditors who issued (i)
an unqualified standard audit opinion on Mitel Networks' consolidated financial
statements for the ten-week period ended April 27, 2001, and (ii) an unqualified
opinion on the Carve-out Statement of Revenues and Direct Expenses of the
Predecessor Business (as described below) for the forty-six week period ended
February 16, 2001.

Item 2. Offer Statistics and Expected Timetable

      Not applicable.

Item 3. Key Information

A. Selected Financial Data

      The following sets forth selected financial information derived from (a)
Mitel Networks' unaudited carve-out consolidated statements of operations of the
communications systems business, which is referred to in this Registration
Statement as the Predecessor Business, of Mitel Corporation, now known as
Zarlink Semiconductor Inc., for the fiscal years ended March 27, 1998, March 26,
1999 and March 31, 2000, which are not included in this registration statement,
(b) the audited carve-out combined statement of revenues and direct expenses of
the Predecessor Business for the forty-six week period ended February 16, 2001,
included elsewhere in this registration statement, and (c) the audited
consolidated financial statements of Mitel Networks as of, and for the ten week
period ended, April 27, 2001 and as of, and for the fiscal year ended, April 28,
2002, included elsewhere in this registration statement. The selected financial
information may not be indicative of Mitel Networks' future performance as an
independent company and should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and the notes thereto included elsewhere
in this registration statement.


                                      -4-
<PAGE>

STATEMENT OF OPERATIONS DATA
(in millions, except per share data)

<TABLE>
<CAPTION>
                                           Mitel Networks                              Predecessor Business
                                      -------------------------     ----------------------------------------------------------
                                                     Ten Week        Forty-six
                                        Year          Period        Week Period                     Years Ended
                                        Ended          Ended           Ended          ----------------------------------------
                                      April 28,      April 27,        Feb. 16,        March 31,      March 26,       March 27,
                                        2002           2001           2001 (1)         2000 (1)       1999 (1)        1998 (1)
                                      ---------      ---------      -----------       ---------      ---------       ---------
                                      (audited)      (audited)       (audited)       (unaudited)    (unaudited)     (unaudited)
<S>                                    <C>            <C>             <C>             <C>              <C>            <C>
Revenue                                $ 560.2        $ 121.4         $ 515.0         $ 793.7          $ 752.7        $ 566.8
Cost of sales                            331.0           64.4           291.0           388.3            388.7          303.8
                                       -------        -------         -------         -------          -------        -------
Gross margin                             229.2           57.0           224.0           405.4            364.0          263.0

Research and development                  92.2           20.1            74.2            77.8             71.7           62.9
Selling, general and
 administrative                          228.5           47.0           202.2           233.5            232.6          172.6
Purchased in-process research
 and development                            --           20.7              --              --               --             --
Special charges                           11.7             --            14.8              --             13.1             --
Loss on disposal of business               2.4             --              --              --               --             --
Amortization of acquired
 intangibles                              68.6           12.9             2.7            23.1             24.6            4.7
                                       -------        -------         -------         -------          -------        -------
Operating income (loss)                 (174.2)         (43.7)          (69.9)           71.0             22.0           22.8

Other expense, net                        (5.3)          (0.7)            N/A             N/A              N/A            N/A
Income tax expense                        (0.2)          (0.9)            N/A             N/A              N/A            N/A
                                       -------        -------         -------         -------          -------        -------
Net loss                               $(179.7)       $ (45.3)        $   N/A         $   N/A          $   N/A        $   N/A
                                       =======        =======         =======         =======          =======        =======

Net loss per share:
  Basic and diluted                    $ (1.73)       $ (0.45)        $   N/A         $   N/A          $   N/A        $   N/A
                                       =======        =======         =======         =======          =======        =======

Weighted average number of
 common shares outstanding               106.8          100.0             N/A             N/A              N/A            N/A
                                       =======        =======         =======         =======          =======        =======
</TABLE>

----------
(1) Results of operations of the Predecessor Business for fiscal years ended
March 27, 1998, March 26, 1999 and March 31, 2000 and for the forty-six week
period ended February 16, 2001, exclude (i) any allocation of Zarlink corporate
overhead expenses not directly attributable to the operations of the Predecessor
Business, (ii) other income (expense), net, and (iii) provision for income
taxes.

BALANCE SHEET DATA                                       As at         As at
                                                       April 28,      April 27,
                                                         2002           2001
                                                       ---------      ---------
(in millions)                                          (audited)      (audited)
Cash and cash equivalents                                $  5.7        $  8.4
Other current assets                                      207.0         237.3
Property and equipment                                     46.4          45.5
Other assets                                               66.2         127.8
                                                         ------        ------
Total assets                                             $325.3        $419.0
                                                         ======        ======

Current liabilities                                      $217.1        $203.2
Other liabilities                                          33.9          10.3
                                                         ------        ------
                                                          251.0         213.5
                                                         ------        ------

Redeemable common shares                                   43.0            --
                                                         ------        ------

Shareholders' equity
  Capital stock                                           261.1         251.3
  Other capital accounts                                    0.2          (0.5)
  Accumulated deficit                                    (230.0)        (45.3)
                                                         ------        ------
                                                           31.3         205.5
                                                         ------        ------

Total liabilities and shareholders' equity               $325.3        $419.0
                                                         ======        ======


                                      -5-
<PAGE>

B. Capitalization and Indebtedness


      The following table sets forth the unaudited capitalization of Mitel
Networks as at November 25, 2002. The information presented below should be read
in conjunction with the audited consolidated financial statements and the notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this registration statement.

                                                                       As at
(in millions)                                                       November 25,
                                                                        2002
                                                                    ------------
                                                                     (unaudited)
SECURED DEBT

Bank indebtedness                                                      $ 53.5
Current portion of long-term debt                                         6.4
                                                                       ------
                                                                         59.9

Long-term debt                                                           21.9
                                                                       ------

Total secured debt                                                       81.8
                                                                       ------

UNSECURED DEBT

Loans from companies controlled by Dr. Terence H. Matthews               21.0
Convertible debentures                                                   10.1
                                                                       ------

Total unsecured debt                                                     31.1
                                                                       ------

REDEEMABLE COMMON SHARES
(Authorized and Issued - 14,000,000)                                     43.4
                                                                       ------

SHAREHOLDERS' EQUITY

Common shares
  (Authorized - Unlimited; Issued - 101,439,998,
   excluding 14,000,000 redeemable common shares)                       284.9
Warrants (Issued - 6,182,588)                                            17.0
Deficit                                                                (287.9)
Deferred stock-based compensation                                        (0.8)
Accumulated other comprehensive income                                     --
                                                                       ------

Total shareholders' equity                                               13.2
                                                                       ------

Total capitalization                                                   $169.5
                                                                       ======

C. Reasons for the offer and use of proceeds


      Not applicable.


                                      -6-
<PAGE>

D. Risk Factors

      Investment in Mitel Networks' common shares should be regarded as highly
speculative and is suitable only for those investors who are able to sustain a
total loss of their investment. The risk factors set forth below and elsewhere
in this registration statement are not intended to be an exhaustive list of the
general or specific risks involved, but identify certain risks that are now
foreseen by Mitel Networks. Investors should carefully consider all information
contained in this registration statement, and should give particular
consideration to the following risk factors when evaluating Mitel Networks and
its business. Additional risks and uncertainties that are not yet identified or
that Mitel Networks currently considers to be immaterial may also materially
adversely affect Mitel Networks' business and financial condition in the future.
Any of the following risks could materially adversely affect Mitel Networks'
business, results of operations or financial condition and could result in a
complete loss of an investment in Mitel Networks.

Mitel Networks has incurred net losses from operations since its inception and
may not be profitable in the future.

Mitel Networks has been operating since February 2001 and has generated revenues
since its inception. Mitel Networks has incurred net losses from operations
since its inception. The future success of Mitel Networks in building its
revenue and market share at attractive prices for its products is dependent upon
the ability of Mitel Networks to continue to attract orders, manage its
manufacturing and assembly costs including those supplied by BreconRidge
Manufacturing Solutions Corporation (formerly known as Ridgeway Research
Corporation), a corporation incorporated under the laws of Canada and currently
controlled by Dr. Terence H. Matthews, and its subsidiaries (collectively,
"BreconRidge"), and develop products that have a competitive advantage. The high
technology industry is characterized by long and variable delays between
expenses incurred for research and development, and sales and marketing and the
generation of revenues, if any, from such expenditures. There can be no
assurance that Mitel Networks will be able to grow its revenues and market share
or that changes will not occur which will require unanticipated expenditure of
Company capital resources. Finally, there can be no assurance that Mitel
Networks will be able to achieve profitability or that, if achieved, such
profitability can be sustained.

Mitel Networks' revenues from operations were not sufficient to cover its
operating expenses during Fiscal 2002 and, while Mitel Networks believes that
its expected cash flow from operations and other existing cash resources should
be sufficient to satisfy cash requirements of Mitel Networks in the coming year,
Mitel Networks cannot make any assurance that it will not require additional
equity or debt financing in the future.

During Fiscal 2002, Mitel Networks' revenues from operations were not sufficient
to cover its operating expenses. While Mitel Networks believes that its expected
cash flow from operations and other existing cash resources should be sufficient
to satisfy Mitel Networks' cash requirements in the coming year, there is no
assurance that Mitel Networks will not require additional equity or debt
financing in the future. Failure to generate the expected level of cash flow
from operations, loss of existing financing or inability to renew Mitel
Networks' 364-day revolving credit facility could result in the delay or
abandonment of some or all of Mitel Networks' business plans, the sale of
assets, or the undertaking of other measures which could have a material adverse
effect on Mitel Networks' business, financial condition and results of


                                      -7-
<PAGE>

operations. There can be no assurance that Mitel Networks will be able to obtain
on satisfactory terms, or at all, any additional financing required to compete
successfully. Any such financing, if obtained, may involve the issuance of
further equity at prices which may dilute an investor's interest in Mitel
Networks. Failure to obtain such financing could have a material adverse effect
on Mitel Networks' business, financial condition and results of operations. In
addition, certain holders of common shares have antidilution protection and
redemption rights under certain circumstances, which could be triggered by any
such additional financing or Mitel Networks' failure to obtain specified levels
of financing. See Item 10.A "Share Capital - Special Rights."

The quarterly revenues and operating results of Mitel Networks and the
Predecessor Business have fluctuated historically and are highly variable.
Therefore, the results of one quarter may not provide a reliable indicator of
Mitel Networks' future performance.

The quarterly revenues and operating results of Mitel Networks and the
Predecessor Business have fluctuated historically depending upon, among other
factors, the timing of executed contracts and purchase orders. Accordingly,
Mitel Networks' operating results in a particular period are highly variable,
difficult to predict and may not meet the expectations of investors. Factors
which may cause Mitel Networks' financial results to fluctuate significantly
from quarter to quarter include, but are not limited to: the fact that each
individual order or contract can represent substantial dollars of revenue; many
of Mitel Networks' products may require significant capital expenditures; the
size, timing and shipment of individual orders; changes in pricing by Mitel
Networks or its competitors; discount levels; foreign currency exchange rates;
the mix of products sold; the timing of the announcement, introduction and
delivery of new product enhancements by Mitel Networks and its competitors; and
general economic conditions. As a result of the foregoing factors, a
quarter-to-quarter comparison of Mitel Networks' results of operations is not
necessarily meaningful. Investors should not rely upon the results of one
quarter as an indication of Mitel Networks' future performance.


Mitel Networks' success is dependent on its intellectual property. The inability
of, or any failure by, Mitel Networks to protect its intellectual property could
have a material adverse effect on Mitel Networks' business, financial condition
and results of operations.

Mitel Networks' success depends on the intellectual property in the products and
services that it develops and sells. See Item 4.B "Business Overview -
Intellectual Property". Mitel Networks relies upon a combination of copyright,
patent, trade secrets, trademarks, confidentiality procedures and contractual
provisions to protect its proprietary technology. There can be no assurance that
Mitel Networks' present protective measures will be enforceable or adequate to
prevent misappropriation of its technology or independent third-party
development of the same or similar technology. Many foreign jurisdictions offer
less protection of intellectual property rights than Canada or the United
States, and there can be no assurance that the protection provided to Mitel
Networks' proprietary technology by the laws of Canada or the United States or
foreign jurisdictions will be sufficient to protect such technology. Preventing
the unauthorized use of such proprietary technology may be difficult in part
because it may be difficult to discover such use. Stopping unauthorized use of
such proprietary technology may be difficult, time-consuming and costly. In
addition, litigation may be necessary in the future to enforce Mitel Networks'
intellectual property rights, to protect Mitel Networks' trade secrets, to
determine the validity and scope of the proprietary rights of others, or to
defend against claims of infringement or invalidity. Such litigation, whether
successful or unsuccessful, could result in



                                      -8-
<PAGE>

substantial cost and diversion of management resources, and a successful claim
against Mitel Networks could effectively block Mitel Networks' ability to use or
license its technology in the United States or abroad or otherwise have a
material adverse effect on Mitel Networks' business, financial condition and
results of operations.

Mitel Networks may in the future be notified of claims that the products and
services offered and sold by Mitel Networks are subject to patents or
proprietary rights of third parties. Any such claim, whether or not it has
merit, would be time consuming to evaluate and defend, and could result in
increased costs, potential shipment delays and stoppages, or lengthy and complex
license negotiations.

The segment of the communications market that includes Mitel Networks' products
has been characterized by extensive litigation regarding patents and other
intellectual property rights. As is common in the industry, Mitel Networks and
the Predecessor Business have in the past been, and Mitel Networks may in the
future be, notified of claims that the products or services offered and sold by
Mitel Networks are subject to patents or other proprietary rights of third
parties. Although Mitel Networks attempts to ensure that its products and
processes do not infringe such third-party patents or proprietary rights, there
can be no assurance that infringement or invalidity claims (or claims for
indemnification resulting from infringement claims) will not be asserted or
prosecuted against Mitel Networks. Any such claim, whether or not it has merit,
would be time consuming to evaluate and defend, and could result in increased
costs, potential shipment delays and stoppages, or lengthy and complex license
negotiations. While Mitel Networks is currently not engaged in any intellectual
property dispute, there can be no assurance that current or future negotiations
with third parties to establish license or cross license arrangements, or to
renew existing licenses, will result in Mitel Networks obtaining or renewing a
license on satisfactory terms or at all. Moreover, license agreements with third
parties may not include all intellectual property rights that may be issued to
or owned by the licensors and thus future disputes with these companies are
possible. In the event an intellectual property dispute is not settled through a
license, or any existing license is not renewed, litigation could result. Any
litigation relating to intellectual property rights, whether or not determined
in Mitel Networks' favor or settled by it, would at a minimum be costly and
would divert the attention and efforts of management and technical personnel. An
adverse determination in such litigation or proceeding could prevent Mitel
Networks from making, using or selling certain of its products and subject Mitel
Networks to damage assessments, all of which could have a material adverse
effect on Mitel Networks' business, financial condition and results of
operations.

All of Mitel Networks' products are manufactured by a third party and Mitel
Networks has a concentrated supply arrangement for semiconductor components.
Elimination or disruption of either of these arrangements could adversely affect
the timing of product shipments.

In August 2001, Mitel Networks and certain subsidiaries signed a supply
agreement with BreconRidge pursuant to which BreconRidge provides required
manufacturing for Mitel Networks and such subsidiaries. Subject to certain
exceptions, the supply agreement is exclusive during the initial three-year
period with respect to current products and new product introductions. There are
risks inherent in outsourcing key aspects of any business including: loss of key
personnel, loss of proprietary know-how, limited ability to control the
manufacturing process, costs, and quality, dependence on the third party
manufacturers and component


                                      -9-
<PAGE>

suppliers and their related proprietary technology. While Mitel Networks
believes that alternative sources of manufacturing would be available if this
arrangement were to cease, disruption of its manufacturing could create a
temporary, adverse effect on product shipments. Mitel Networks also has a supply
agreement with Zarlink, the former owner of the Predecessor Business, for the
supply of certain semiconductors used in the manufacture of Mitel Networks'
products. Although Mitel Networks believes that alternative sources of supply
would be available for the semiconductor products supplied by Zarlink, the
elimination of this arrangement could create a temporary adverse effect on the
timing of product shipments. There can be no assurance that the arrangements
between Mitel Networks and BreconRidge, or any other supplier from which Mitel
Networks obtains technology, products or components will be as successful as
currently anticipated.

The failure of Mitel Networks to achieve and sustain market acceptance of its
products and technologies in broader industry segments or to develop new
customers could have a material adverse effect on Mitel Networks' business,
financial condition and results of operations.

Certain of Mitel Networks' products represent alternatives to traditional
designs. As a result, such products may be slow to achieve, or may not achieve,
market acceptance, as customers may seek further validation of the efficiency
and reliability of Mitel Networks' technology. Mitel Networks believes that, to
a significant extent, its growth prospects depend on the continuing acceptance
by a broader group of customers and by broader industry segments of its new
products and technologies. The failure of Mitel Networks to obtain and sustain
acceptance of its products and technologies in broader industry segments or to
develop new customers could have a material adverse effect on Mitel Networks'
business, financial condition and results of operations.

Mitel Networks' inability to effectively manage significant growth in the number
of its employees or the scope of its operations could have a material adverse
effect on Mitel Networks' business, financial condition and results of
operations.

Mitel Networks may experience significant growth in the number of its employees
and the scope of its operations through acquisitions or otherwise. If such
growth occurs it may place a significant strain on Mitel Networks' management
and operations, particularly with respect to: broadening its management team;
attracting, training, supervising and retaining skilled employees; developing
and managing a larger, more complex international organization; expanding Mitel
Networks' treasury and accounting functions and information systems to meet the
demands imposed by Mitel Networks' growth; and strengthening Mitel Networks'
financial and management controls in a manner appropriate for a larger
enterprise. Mitel Networks' inability to manage growth effectively could have a
material adverse effect on Mitel Networks' business, financial condition and
results of operations.

The business of Mitel Networks could be disrupted if Mitel Networks is unable to
successfully integrate any businesses, technologies, product lines or services
that are acquired in the future.

The execution of Mitel Networks' business strategy may include the acquisition
of additional businesses, technologies, product lines or services in the future,
and may also include the divestiture or downsizing of product or service groups
or business divisions in order to permit


                                      -10-
<PAGE>

Mitel Networks to focus on its core competencies. Acquisitions, divestitures and
other strategic restructuring initiatives involve a number of risks, potentially
including:

o     disruption to Mitel Networks' business;

o     inability to integrate, train, retain and motivate key personnel of an
      acquired or restructured business; employee motivation, employee and union
      relations issues, and other human resources matters resulting from a
      restructuring;

o     diversion of management from the day-to-day business of Mitel Networks;


o     difficulty or inability to incorporate acquired technologies successfully
      into Mitel Networks' existing products and services, or to compensate for
      gaps in technology or know-how resulting from divestiture;


o     additional expense associated with completing an acquisition or
      divestiture and, in the case of an acquisition, amortization of any
      acquired intangible assets;

o     impairment of relationships with Mitel Networks' customers and strategic
      partners; and

o     inability to maintain uniform standards, controls, procedures and
      policies.

In addition, there can be no assurance that Mitel Networks will be able to
complete future acquisitions or divestitures, or that Mitel Networks will be
able to successfully integrate any acquired business, including maintaining the
levels of operating efficiencies that the acquired company achieved or may have
achieved separately. In order to finance acquisitions and other strategic
reorganizations, it may be necessary for Mitel Networks to raise additional
funds through public or private financings which may be on unfavorable terms to
Mitel Networks and, in the case of equity financings, may result in dilution to
Mitel Networks' stockholders. The execution of Mitel Networks' business strategy
may also include entering into strategic investments and joint ventures with
other companies, transactions which are subject to many of the same risks
identified above for strategic reorganizations.

Mitel Networks' loss of key personnel could have a material adverse effect on
Mitel Networks' operations and business prospects.


The success of Mitel Networks is dependent upon the services of a number of the
members of its senior management and software and engineering staff, as well as
the expertise of its directors. The loss of one or more of these individuals
could have a material adverse effect on Mitel Networks' operations and business
prospects. Mitel Networks currently does not maintain life insurance policies on
the lives of its directors or key employees. Mitel Networks' success will also
depend on its ability to attract and retain additional highly qualified
management and technical personnel. Mitel Networks faces competition for
qualified personnel, many of whom are often subject to competing employment
offers. A major part of Mitel Networks' compensation to its key employees is in
the form of stock option grants. A depression in Mitel Networks' share price or
the lack of a public market for such shares could make it difficult for Mitel
Networks to retain employees and recruit additional qualified personnel. Recent
economic conditions have made it necessary for Mitel Networks to implement
certain cost saving initiatives that have a direct effect on employees. These
cost containment measures have included global workforce reductions, mandatory
unpaid days off and a temporary reduction in



                                      -11-
<PAGE>


working hours program that will continue until the business climate improves.
There can be no guarantee that further such initiatives will not be necessary.


The occurrence of design defects, errors, failures or bugs in Mitel Networks'
products could result in damage to Mitel Networks' reputation, lost revenue, and
the loss of, or delay in achieving, market acceptance of Mitel Networks'
products, and adversely affect Mitel Networks' ability to attract new customers
or retain existing customers.

Mitel Networks' products are highly complex and, from time to time, may contain
design defects that are difficult to detect and correct. Errors, failures or
bugs may be found in Mitel Networks' products after shipment to customers. If
errors are discovered, Mitel Networks may not be able to correct such errors in
a timely manner or at all. The occurrence of errors and product failures could
result in damage to Mitel Networks' reputation, lost revenue, and the loss of,
or delay in achieving, market acceptance of Mitel Networks' products, and
adversely affect Mitel Networks' ability to attract new customers or retain
existing customers. Efforts to correct such errors and failures in Mitel
Networks' products could require significant expenditure of capital and
resources by Mitel Networks, and may not be successful. The sale and support of
such products may entail the risk of product liability or warranty claims based
on damage to such equipment. In addition, the failure of Mitel Networks'
products to perform to customer expectations could give rise to warranty claims.
Mitel Networks' insurance may not cover or its coverage may be insufficient to
cover any such claims successfully asserted against Mitel Networks or its
contracted suppliers and manufacturers, including BreconRidge, and therefore the
consequences of such errors, failures and claims could have a material adverse
effect on Mitel Networks' business, financial condition and results of
operations.

Mitel Networks' inability to enter into additional, or maintain its existing,
strategic relationships on commercially reasonable terms could materially
adversely affect Mitel Networks' business, financial condition and results of
operations.

The execution of Mitel Networks' business strategy may involve entering into
strategic or other collaborative relationships with other companies, including
certain of its customers, to develop new technologies and leverage their sales
and marketing organizations. Mitel Networks may need to enter into additional
relationships to execute its business plan. If Mitel Networks is unable to enter
into additional, or maintain its existing, strategic relationships on
commercially reasonable terms, Mitel Networks may have to devote substantially
more resources to the development of new technologies and the sales and
marketing of its products and services than it would otherwise. The failure of
one or more of its strategic relationships could materially adversely affect its
business, financial condition and results of operations.

There are significant restrictions on the resale of Mitel Networks' securities
and there can be no assurance as to when such restrictions will cease to apply,
if ever.

There is presently no market through which Mitel Networks' securities may be
sold or resold. Mitel Networks' securities are not listed for trading on any
stock exchange and there is no guarantee that any such listing will be completed
in the future. Mitel Networks' securities have not been registered under the
United States Securities Act of 1933, as amended, or the securities laws of any
of the states of the United States, the securities laws of Canada or any
province thereof, or the securities laws of any other country or province or
state thereof. As a result, there are significant restrictions on the resale of
Mitel Networks' securities and there can be no


                                      -12-
<PAGE>

assurances as to when such restrictions will cease to apply, if ever. Investors
may be unable to liquidate an investment in Mitel Networks' securities, whether
or not a listing is subsequently effected. In addition, Mitel Networks'
securities may be subject to "hold periods" in accordance with applicable
securities legislation, and Mitel Networks' articles of incorporation currently
provide that any transfer of shares must be approved by the board of directors.
An investor should not purchase securities in Mitel Networks unless such
investor is able to withstand a total loss of his or her investment.

Mitel Networks has never declared or paid dividends and Mitel Networks does not
anticipate declaring or paying any cash dividends in the foreseeable future.

Mitel Networks anticipates that for the foreseeable future its earnings, if any,
will be retained for use in the business and that no cash dividends will be paid
on any class of Mitel Networks' securities. Declaration of dividends on any
class of securities will depend upon, among other things, future earnings, the
operating and financial condition of Mitel Networks, its capital requirements
and general business conditions. Mitel Networks has never declared or paid
dividends and there is no assurance that Mitel Networks will declare or pay
dividends at any time in the future.

Mitel Networks' competitive position may be affected by fluctuations in exchange
rates and its current currency hedging strategy may not be sufficient to counter
such fluctuations.

A significant portion of the business of Mitel Networks is conducted in
currencies other than the Canadian dollar. Due to the substantial volatility of
currency exchange rates, Mitel Networks cannot predict the effect of exchange
rate fluctuations upon future sales. Mitel Networks uses financial instruments,
principally forward exchange contracts, in its management of foreign currency
exposures. These contracts primarily require Mitel Networks to purchase and sell
certain foreign currencies with or for Canadian dollars at contractual rates. It
is Mitel Networks' practice to monitor the financial standing of the
counterparties to these financial instruments, which include several major
financial institutions, and limit the amount of exposure to any one institution.
Mitel Networks may be exposed to a credit loss in the event of nonperformance by
the counterparties of these contracts. Additionally, Mitel Networks' operations
could be adversely affected if it is unable to guard against currency
fluctuations in the future. There can be no assurance that foreign currency
fluctuations will not have a material adverse effect on Mitel Networks'
business, financial condition and results of operations.

The failure of Mitel Networks' products to keep pace with rapidly changing
technology and evolving industry standards could have a material adverse effect
on Mitel Networks' business, financial condition and results of operations.

The markets for Mitel Networks' products are competitive and characterized by
rapidly changing technology, evolving industry standards and frequent new
product introductions. Mitel Networks has invested and intends to continue to
invest in the development of products. There is no assurance that such products
will be accepted in the face of competing products and changing customer
requirements.


                                      -13-
<PAGE>

Mitel Networks may not be able to compete effectively in the highly competitive
high technology industry.

Mitel Networks' competitors include large corporations with greater name
recognition, larger customer bases and significantly greater financial,
technical, marketing, public relations, sales and other resources than those of
Mitel Networks. There can also be no assurance that Mitel Networks' competitors
will not recognize Mitel Networks' products as a threat to their installed bases
and develop technological innovations of their own that will successfully
compete against or render Mitel Networks' products obsolete.

There are risks inherent in Mitel Networks' international operations which may
have a material adverse effect on its business, financial condition and results
of operations.


Mitel Networks expects sales from markets outside of Canada to represent a
significant portion of total sales. Certain risks are inherent in all
international operations, including exposure to currency exchange rate
fluctuations, political and economic conditions, unexpected changes in
regulatory requirements, exposure to different legal standards, particularly
with respect to intellectual property, future import and export restrictions,
difficulties in staffing and managing operations, difficulties in collecting
receivables and potentially adverse tax consequences. Sales in higher risk
markets such as Eastern Europe, the Middle East, Asia, Latin America and Africa
constitute less than 10% of Mitel Networks' sales. Mitel Networks is more
susceptible in those areas to political instability, local currency devaluation,
higher interest rates and increased governmental control of the economy than a
company that limits its operations to North America. There can be no assurance
that any or all of these factors resulting from international operations will
not have a material adverse effect on Mitel Networks' business, financial
condition and results of operations.


It may be difficult to enforce a judgment of a United States court against Mitel
Networks.

Mitel Networks is a business corporation established pursuant to the federal
laws of Canada. Mitel Networks' headquarters are located in Ottawa, Ontario,
Canada, and it maintains limited assets in the United States. In addition, all
of Mitel Networks' officers and members of its board of directors are residents
of countries other than the United States. As a result, it may be difficult or
impossible to effect service of process within the United States on, or to
enforce any judgments against, Mitel Networks, its officers and directors,
including those in relation to actions pursuant to United States federal
securities laws. In addition, a Canadian court may not permit an investor to
bring an original action in Canada or to enforce in Canada a judgment of a
United States court based upon civil liability provisions of United States
federal securities laws.

The failure of Mitel Networks to comply with present or future environmental
regulations, or to control the use, disposal or storage of or adequately
restrict the discharge of, hazardous substances could subject Mitel Networks to
future liabilities and could have a material adverse effect on Mitel Networks'
business, financial condition and results of operations.

Mitel Networks is subject to a variety of federal, state, provincial and local
laws, rules and regulations related to the discharge or disposal of toxic,
volatile or other hazardous chemicals used in its manufacturing process.
Although Mitel Networks believes it has complied with these laws, rules and
regulations in all material respects and to date have not been required to take
any


                                      -14-
<PAGE>

action to correct any noncompliance, the failure to comply with present or
future regulations could result in fines being imposed on Mitel Networks,
suspension of production or a cessation of operations. Such regulations could
require Mitel Networks to incur substantial expenses to comply with
environmental regulations. Any failure by Mitel Networks to control the use,
disposal or storage of, or adequately restrict the discharge of, hazardous
substances could subject Mitel Networks to future liabilities and could have a
material adverse effect on Mitel Networks' business, financial condition and
results of operations.

The failure of Mitel Networks to modify its products to comply with new
regulatory requirements, or to obtain or maintain the necessary regulatory
approvals for its products could have a material adverse effect on Mitel
Networks' business, financial condition and results of operations.

The sale of certain of Mitel Networks' products may be affected by governmental
regulatory policies, the imposition of carrier tariffs and taxation of
communications services. These policies are under continuous review and are
subject to change. Regulations may prohibit sales of products that fail to
comply with these regulations or otherwise subject Mitel Networks to liability
with respect to the sale of its products until Mitel Networks makes appropriate
modifications. For example, there are certain recent disability-access
regulations of which Mitel Networks' design experts are aware. There can be no
assurance that Mitel Networks will be successful in modifying its products, or
in obtaining or maintaining the necessary regulatory approvals for its products,
and its failure to do so could have a material adverse effect on Mitel Networks'
business, financial condition and results of operations.

Adverse changes to the industry, overall economic conditions or governmental
policies could have a material adverse effect on Mitel Networks' business,
financial condition and results of operations.

There can be no assurance that the current taxation policy, and other government
policies and provisions applicable to the high technology industry, will not be
adversely changed in the future. Furthermore, since 2001, the high technology
industry has experienced a significant downturn characterized by diminishing
product demand, price erosion, fluctuating inventory levels, and substantial
recurring expenditures for product development and capital equipment. The
current downturn and future downturns in the industry may be severe and
prolonged, and there can be no assurance that further deterioration in both the
industry and overall economic conditions will not occur, whether in the short
term or otherwise. The possibility of renewed terrorist activity, and its
consequent effect on the global economy, remain as constant threats. The
occurrence of any of such events could have a material adverse effect on Mitel
Networks' business, financial condition and results of operations.

Item 4. Information on Mitel Networks

A. History and Development of Mitel Networks

      The registered name of Mitel Networks is Mitel Networks Corporation. Mitel
Networks was incorporated in Canada on January 12, 2001, pursuant to the Canada
Business Corporations Act. Mitel Networks is not a reporting issuer as such term
is defined in the Securities Act (Ontario) and the securities laws of any other
province of Canada. Mitel Networks' registered


                                      -15-
<PAGE>

office and corporate headquarters are located at 350 Legget Drive, Ottawa,
Ontario, Canada, K2K 2W7, Telephone: (613) 592-2122, Facsimile: (613) 592-4784.

      Mitel Networks was formed by Zarlink Semiconductor Inc., a Canadian
corporation formerly known as Mitel Corporation, in order to reorganize its
communications systems division in contemplation of the sale of that business to
Dr. Terence Matthews. In a series of related transactions dated February 16,
2001 and March 27, 2001, which are collectively referred to in this registration
statement as the acquisition transactions, Mitel Networks acquired the "Mitel"
name and substantially all of the assets and subsidiaries of the communications
systems division of Zarlink, other than Canadian real estate and most
intellectual property assets. As a consequence of the acquisition transactions,
Dr. Matthews became the indirect owner of 90% of the shares of Mitel Networks
and Zarlink retained the remaining 10%. Dr. Matthews, through companies
controlled by him, made total cash payments to Zarlink aggregating $346,750,000,
in consideration for the 90% interest in Mitel Networks and 100% of the
interests in each of Mitel Knowledge Corporation and Mitel Research Park
Corporation, which are described below.

      Also as part of the acquisition transactions:

o     Zarlink's Canadian real estate assets were sold to Mitel Research Park
      Corporation, and substantially all of the intellectual property assets of
      the communications systems division of Zarlink were sold to Mitel
      Knowledge Corporation, both of which are owned by Dr. Matthews or
      companies wholly owned by Dr. Matthews.


o     Mitel Networks entered into a research and development agreement with
      Mitel Knowledge, dated March 27, 2001, pursuant to which Mitel Knowledge
      owned substantially all of the intellectual property, excluding
      trademarks, developed by Mitel Networks. The Research and Development
      Agreement provided for a license back to Mitel Networks of the rights to
      exploit the intellectual property in Canada, South and Central America,
      Mexico and the Caribbean. The research and development agreement was in
      effect until November 1, 2002, at which time Mitel Networks exercised its
      right to purchase the intellectual property from Mitel Knowledge.

o     A wholly-owned subsidiary of Mitel Networks entered into a research and
      development cost-sharing agreement with Mitel Knowledge, dated March 27,
      2001, pursuant to which Mitel Knowledge licensed to that subsidiary the
      rights to exploit the intellectual property in the United States, Europe,
      the Middle East, Africa and the Asia/Pacific region, in return for which
      the subsidiary contributed towards the funding of Mitel Networks' research
      and development activities. The cost-sharing agreement between Mitel
      Knowledge and the Mitel Networks subsidiary was terminated on November 1,
      2002, and replaced with a similar cost-sharing agreement between Mitel
      Networks and the subsidiary.

      In August 2001, Mitel Networks outsourced its manufacturing and repair
operations, including the sale of related net assets, and approximately 660
employees, to BreconRidge, then known as Ridgeway Research Corporation, which is
majority owned by Dr. Matthews. The primary reason for outsourcing the
manufacturing and repair operations was to allow Mitel Networks to focus upon
Mitel Networks' core competencies, being research and development as well as
sales and distribution. As part of the transaction, Mitel Networks and certain
of its subsidiaries entered into supply agreements with BreconRidge, pursuant to
which BreconRidge



                                      -16-
<PAGE>


manufactures Mitel Networks' products and provides repair and remanufacture
services, as well as global logistics and distribution support.

      On June 22, 2001, Mitel Networks acquired certain assets from e-Smith Inc.
(Ontario) and e-Smith, Inc. (U.S.), including the intellectual property rights
in open source network server software, and 21 employees. The total
consideration for the transaction was $3.2 million consisting of $0.8 million in
cash and common shares of Mitel Networks having an agreed upon value of $2.4
million. Immediately after, Mitel Networks transferred such intellectual
property rights to Mitel Knowledge in accordance with the terms of the Research
and Development Agreement (see Item 4.B under "Intellectual Property" for
details). The e-Smith intellectual property has been repurchased by Mitel
Networks as part of the overall purchase of intellectual property from Mitel
Knowledge, described above.


      See Item 5.B for additional information regarding principal capital
expenditures made by Mitel Networks since inception.

B. Business Overview

      Mitel Networks designs, develops, markets and sells voice, video and data
products and services to address the business communications needs of enterprise
and small business customers. Products and services are sold individually or
offered as a solution, which is a combination of products and/or services
designed to address specific communications needs. Mitel Networks' portfolio of
products includes voice, video and data systems, desktop phones and applications
for contact centers, speech-enabled unified communications, collaboration, video
conferencing and mobile communications. Mitel Networks' traditional products are
based on circuit switched Private Branch Exchange, or PBX, telephone systems
that utilize Time Division Multiplexing, or TDM, technology in which
communications are delivered across both the public and private telephone
networks through actual switched circuits that maintain a hard-wired connection
across the entire communication path. Private Branch Exchange systems are
telephone systems that switch calls between users on local lines, while allowing
all users to share a certain number of external telephone lines. Mitel Networks'
new Internet Protocol, or IP, -based communications systems are designed to
leverage Internet Protocol technology which is a method by which packetised data
is sent from one computer to another computer via the Internet. Within the
technology industry, this type of communications is commonly referred to as
Voice Over Internet Protocol, or VoIP. In addition, the combination of voice,
video and data transferred over a single network is often referred to as
converged communications.

      Mitel Networks currently serves the small business market (2-50
employees), the small to medium enterprise market (51-500 employees) and the
corporate major enterprise market (greater than 500 employees) through
communications products, applications and services. Mitel Networks addresses
these markets through a distribution network of direct sales offices, an
indirect channel distribution network of resellers, communications service
providers (also known as carriers), systems integrators, and strategic partners.
Products are sold to organizations internationally and are supported by a
regional presence in major areas of operations. See "Product Distribution" and
"Marketing Channels."


                                      -17-
<PAGE>

      Mitel Networks outsources the manufacture and repair of its products, as
well as global logistics and distribution support to BreconRidge, a company
controlled by Dr. Terence H. Matthews. Mitel Networks has entered into a supply
agreement with BreconRidge that is exclusive, subject to certain exceptions. The
supply agreement has an initial term of three years (until August 31, 2004) with
an automatic three year renewal term followed by automatic one year renewal
terms thereafter, all subject to the right by either party to terminate the
agreement on at least one hundred eighty days prior notice during any renewal
term. The supply agreement was negotiated on an arm's length basis and contains
certain price protections and annualized cost reduction arrangements that
management believes benefit Mitel Networks, as well as those rights and
protections typically afforded to a customer of such services. BreconRidge
agreed to an "open books" approach to arrive at reasonable, competitive pricing,
and has multiple sources of supply for all essential components. Mitel Networks
has a right to obtain a license to make or have made all its products upon any
termination of the supply agreement.


      As of November 25, 2002, Mitel Networks had approximately 2,013 employees
primarily located in North America and in the U.K. with more than 800
distributors worldwide. Mitel Networks operates in four major geographic
regions: North America; Europe, the Middle East and Africa; Asia Pacific; and
Central America/Latin America.


      Mitel Networks' traditional products include the SX-200 and SX-2000
Private Branch Exchange systems, a suite of SuperSET telephones, NuPoint
voicemail systems and other related applications such as contact center
software. Mitel Networks has also developed and introduced an array of Internet
Protocol-based communications systems that combine voice, video and data
processing technologies into a single integrated system. These products include
the MN3100, MN3300, and MN3340 systems as well as a host of Internet
Protocol-based desktop telephones, peripherals and applications.

      Mitel Networks offers a seamless migration strategy that allows customers
to gain cost efficiencies of Internet Protocol-based systems by leveraging their
investment in existing communications infrastructure and minimizing their
incremental investment. Customers do not have to replace their entire business
communications systems. For the purposes of reporting revenue by product, Mitel
Networks combines revenues from traditional and new Internet Protocol-enabled
products under the "Communications Platforms and Desktop Appliances" category
due to the similar nature of the products.

      Small Business Portfolio:

      Mitel Networks offers both traditional and the newer Internet
Protocol-based communications products to the small business markets. The SX-200
is a traditional Private Branch Exchange voice system that addresses single site
and small multi-site businesses having under 400 users. It is designed to
provide voice communications to this customer segment and is complemented by a
broad portfolio of digital telephones. The systems' distributed architecture
allows for flexibility in deployment and ease of growth.

      Mitel Networks' new small business Internet Protocol-based systems, the
MN3100 and the MN3050, provide a communications system with built-in voice mail,
computer networking capabilities and Internet and e-mail connectivity in a
comprehensive "office in a box" offering.


                                      -18-
<PAGE>

Additional features include secure networking, website hosting, and the ability
to utilize a line of digital and web-based phones, receptionist consoles,
teleconferencing and videoconferencing products. Mitel Networks' Internet
Protocol-based small business products are designed for companies with as few as
two employees and as many as 400 employees.

      Enterprise Business Portfolio:

      Mitel Networks' product offering to the enterprise business customer is
broad and supports both traditional Private Branch Exchange technology as well
as the newer Internet Protocol-based technologies. The SX-2000 is a fully
featured traditional communications system that addresses businesses with more
than 200 users, including campus and distributed multi-site organizations. This
system provides extensive feature/functionality, a distributed architecture,
cost-effective redundancy and support for internetworking based on industry
standard protocols for seamless voice communications between sites. In addition,
a broad portfolio of digital desktop telephones and applications support the
system.

      The MN3300 system is the cornerstone of the Internet Protocol-based
enterprise business offering and is designed for organizations with more than 40
users. The system provides an evolutionary migration that can be used to enable
existing SX-2000 customers and those of other traditional Private Branch
Exchange vendors to evolve to an Internet Protocol-based infrastructure. The
MN3300 system includes a suite of applications and Internet Protocol-enabled
telephones that allow enterprise customers to save operational expense by
merging their voice, video and data services to a single infrastructure. Mitel
Networks believes that carrier costs are reduced and that the single management
and administration of the information technology infrastructure provides
additional cost benefits to the end customer. Internet Protocol also facilitates
new software products that address the major issues raised by the enterprise
including employee, workgroup and enterprise productivity, customer
relationships, and operational efficiencies.

      Branch Offices and Remote Working Solutions:

      Mitel Networks' branch office and remote working products seek to address
the needs of the integrated branch office market and are centered around the
MN3340 integrated communications system. This system is designed to provide
branch offices of up to 40 users with seamless voice communications with other
corporate offices and local survivability of full telephone service should
corporate network links become unavailable. Through a combination of the MN3340
system as well as the same applications and Internet Protocol desktop telephones
available to larger corporate offices, Mitel Networks believes it offers a
comprehensive portfolio designed to address the communications challenges facing
organizations with decentralized operations and personnel.

      Contact Center Applications:

      The MN6100 contact center offering provides web-based contact center
applications and services. Through features such as automated call distribution
and interactive voice response, incoming calls are prioritized, routed, and
queued. The suite of applications also enables integrated voice, fax, and e-mail
inputs as well as reporting and tracking capabilities.


                                      -19-
<PAGE>

      Mobile Telephony:

      Mitel Networks' mobile telephony offering permits employees to be
accessible and stay in touch, as well as provides them with the same
communication features that they would utilize if they were in the office. The
wireless users are integrated with the wired telephony community with extension
to extension dialing, attendant functions, voice mail, messaging, external
calling and other capabilities designed to be common and seamless.

      Desktop Portfolio:

      Mitel Networks' desktop portfolio of products includes a broad range of
telephones, consoles and ancillary devices that support traditional Private
Branch Exchange systems as well as the Internet Protocol-based communications
systems. The company has been acknowledged as a leader in the design of desktop
devices recognized for their ease of use, aesthetics, high quality, and
functionality.

      Mitel Networks' Internet Protocol-based Desktop products are available to
both the small and medium-sized business and inter-operate with all Internet
Protocol-based systems and applications. The portfolio includes a wide range of
telephones, from simple low-end sets to sophisticated web sets and Internet
Protocol-based consoles and conference units. These products allow users access
to advanced telephone features and services such as integrated web-browsing,
enhanced directory management, and visual voicemail. In addition, they offer
integration of mobile devices as well as voice and video conferencing.

      Video Applications:

      Mitel Networks' Voice First application and related devices provide
businesses access to video conferencing at the desktop or for dedicated
conference rooms. These products support browser-based video security monitoring
and digital storage and retrieval. Users are able to establish a conference call
using telephone sets, and by pressing a single button to transform the audio
call into a video call. The application also incorporates collaboration tools
that allow users to share computer applications during conferences.

      Mitel Networks' services group is focused in North America and the United
Kingdom and provides customers with a number of services to complement Mitel
Networks' products, from initial planning and design through to implementation
and support. Planning services include needs assessments, site surveys, system
configuration, network design and project management while implementation
services include Internet Protocol-based system and application implementations,
advanced messaging implementations, multi-site installations and on-site systems
training. Additional services include resource coordination, pricing management,
project management, contract administration, performance management, custom
"voice-centric" business applications development, technical support services,
long-term systems management services, which is referred to in this registration
statement as Managed Services, and training.

      Mitel Networks reports its operations in two segments: the Communications
Solutions, or Solutions, segment and the Customer Services, or Services,
segment. The Solutions segment consists of enterprise voice, video and data
communications systems and software and


                                      -20-
<PAGE>

communications applications provided through Mitel Networks' dealer and reseller
network. The Services segment includes direct product sales and services,
professional services, Managed Services, maintenance and technical support
services.

      The following table sets forth the breakdown of (i) total revenues by
business segment and geographic market and (ii) business segments and geographic
markets as a percentage of total revenues, for each of the last three fiscal
periods:

                                                                 Predecessor
                                    Mitel Networks                 Business
                         ------------------------------------  -----------------
                                                                Forty-Six Weeks
                             Year Ended     Ten Weeks Ended         Ended
                           April 28, 2002    April 27, 2001      Feb. 16, 2001
                         -----------------  -----------------  -----------------
                                      % of               % of               % of
(in millions)            Revenues    Total  Revenues    Total  Revenues    Total
--------------------------------------------------------------------------------

Business Segments:

Solutions                 $248.7      44%    $ 47.9      39%    $244.7      48%
Services                   311.5      56%      73.5      61%     270.3      52%
--------------------------------------------------------------------------------
                          $560.2     100%    $121.4     100%    $515.0     100%
--------------------------------------------------------------------------------

Geographic Markets:

Canada                    $ 35.8       6%    $  8.4       7%    $ 33.5       7%
United States              289.6      52%      59.7      49%     248.5      48%
United Kingdom             196.5      35%      44.1      36%     186.2      36%
Other countries             38.3       7%       9.2       8%      46.8       9%
--------------------------------------------------------------------------------
                          $560.2     100%    $121.4     100%    $515.0     100%
--------------------------------------------------------------------------------

Product Distribution

      Mitel Networks uses a combination of direct and indirect sales channels to
market and distribute its products and services on a global basis. Mitel
Networks' communications products and services are distributed in over 50
countries worldwide either directly, or indirectly through an extensive network
of independent dealers, system integrators, carriers and service providers.
Mitel Networks' world headquarters are located in Ottawa, Ontario, Canada, and
it maintains regional headquarters in Caldicot, Wales, U.K., Herndon, Virginia,
U.S.A., and in Hong Kong, China. In addition, Mitel Networks has sales and/or
service offices throughout the world, including: Canada, the U.S., Mexico, the
U.K., Germany, Italy, France, the Netherlands, the United Arab Emirates, South
Africa, Australia, China and Korea.

      Direct Sales: Mitel Networks focuses its direct sales efforts on customers
in Canada, the United States, and the United Kingdom. A key aspect of the direct
sales strategy is the "Direct Touch-Indirect Fulfillment" model in which orders
received for products and services as a result of direct sales efforts are
ultimately sold to an end user through an indirect channel. Mitel


                                      -21-
<PAGE>

Networks' sales personnel work directly with the clients to determine the best
use of Mitel Networks solutions to address their needs, and then work with the
channel partner who is best positioned to address the needs of the customer.

      Value Added Resellers: Mitel Networks' value added resellers, or VARs, are
located worldwide and make up a significant part of Mitel Networks' indirect
sales channel. The value added resellers are independent contractors who
undertake responsibility, on a non-exclusive basis, for marketing, selling,
installing and maintaining Mitel Networks' products pursuant to written
dealership agreements. The value added resellers service what they sell
utilizing Mitel Networks-certified technicians who they employ. Mitel Networks'
value added resellers either purchase product directly from Mitel Networks or
from wholesale distributors for resale to customers. The indirect reseller
channel is supported through awareness campaigns, company-run tradeshows and
conferences, marketing collateral, training, support, lead generation
activities, configuration and pricing tools, proposal development and in-depth
technical product expertise.

      Service Providers: Providers of communications services, including
traditional telephone companies, supply a large portion of the customer premise
equipment sold into the small and enterprise business markets. Customer premise
equipment, which is equipment that is physically located on the customers'
premises, has significant service and integration capabilities that can be
bundled together and offered with Mitel Networks' products as a total solution
to a business' communications needs. Service providers undertake responsibility,
on a non-exclusive basis, for marketing and selling Mitel Networks'
communications solutions pursuant to a written carrier distribution agreement.
Service providers purchase equipment directly from Mitel Networks. They either
install and maintain the products themselves, or subcontract the work back to
Mitel Networks or Mitel Networks' value added resellers, depending upon the
location of the customer site.

      Systems Integrators: Mitel Networks currently has relationships with a
number of systems integrators and intends to develop additional relationships
primarily to access customers in additional regional markets. In addition, Mitel
Networks plans to transition some existing direct corporate customers with
outsourcing requirements to systems integrators. Systems integrators enter into
supply agreements directly with Mitel Networks, and Mitel Networks supplies them
with communications products and services as needed to enable them to act as
prime contractors for the purposes of fulfilling their customers' needs.

      Technology Partners: Mitel Networks has entered into strategic
partnerships with several technology companies to jointly market and deploy an
integrated voice and data infrastructure, although, to date, there have been no
material sales through such partnerships.

      Independent Consultants: Mitel Networks has developed relationships with
independent consultants who focus on assisting companies with network design,
implementation and vendor selection. Mitel Networks has a formal Consultant
Liaison Program under which it holds regular sessions to ensure that the
consulting community has the most current and relevant information on Mitel
Networks' products to assist their clients.


                                      -22-
<PAGE>

      Mitel Networks also provides value-added services through its "Service
Partners Program." This program screens and accredits authorized resellers to
provide sales-independent installation and support services for the indirect
sales channel. Service partners are given the opportunity to fulfill
installation and service requests within their primary coverage area.

Seasonality

      Mitel Networks undergoes a normal business cycle throughout the year with
peak periods being January to June and September to November, with lower sales
volumes in other months due to the summer vacation period and the winter holiday
season.

Marketing Channels

      Mitel Networks markets its products to businesses, institutions and
governmental agencies. Mitel Networks also targets potential customers in key
vertical markets such as education, hospitality, retail, and health care and
seeks to expand upon its established reputation in key market segments.

      Further to Mitel Networks' restructuring and repositioning efforts (see
Item 5), Mitel Networks' direct sales force focuses on corporate accounts while
augmenting and strengthening relationships with service providers, systems
integrators, technology and channel partners on the indirect side. A key aspect
of the direct marketing strategy is the "Direct Touch - Indirect Fulfillment"
model in which orders received for products and services which result from
direct sales efforts are ultimately sold to an end customer through an indirect
channel. This model allows Mitel Networks to extend its relationships with its
resellers so that they can perform "fulfillment" services on behalf of Mitel
Networks and other resellers. "Fulfillment" services include the staging,
configuring and programming of the communications systems sold by Mitel Networks
to a customer, as well as the installation, cutover, and subsequent maintenance
of the system involved. Such services are usually performed for Mitel Networks
on a sub-contract basis, although the company may assign the whole contract to
one of its indirect channel partners for fulfillment. At the same time,
corporate accounts receive direct sales support enabling Mitel Networks to
maintain key customer relationships.

      Mitel Networks' global reseller network consists of three tiers: Platinum,
Gold and Silver. The global reseller tiered model is a competency based program
designed to ensure that the customer receives a high quality of service and
support from resellers committed to achieving high levels of customer
satisfaction. Accreditation at each level is based on a reseller's technical and
commercial skill set, particularly in the area of convergence. Each tier carries
its own set of accreditation requirements and receives differing levels of
support from Mitel Networks. Resellers primarily operate in defined territories
and are able to earn volume discounts and rebates as well as marketing credits.

      Mitel Networks is pursuing a growth strategy to:

      o     increase and broaden distribution channels within its core markets;

      o     expand geographic penetration;

      o     expand its addressable market by introducing products for less than
            50 users; and


                                      -23-
<PAGE>

      o     migrate customers from legacy Private Branch Exchange systems to
            converged voice, video and data communications in an evolutionary
            manner.


      The expansion of geographic penetration outside of its core markets is
seen as an essential component of Mitel Networks' growth strategy. Mitel
Networks has opened a number of sales offices in newly-targeted regions, and has
invested significant resources to develop and deliver regionally-compliant
products. Over the last 18 months, Mitel Networks has opened sales offices in
Italy, Germany, France, the Netherlands, the United Arab Emirates, South Africa,
Mexico, Hong Kong, Australia, China and South Korea, and is currently targeting
regions or countries where it believes that it can gain significant market share
with a minimum level of investment. Given the current uncertainty in the high
technology sector, as well as the global economy generally, it is difficult to
predict timeframes for further expansion into new markets. As of November 25,
2002, Mitel Networks had approximately 38 value added resellers in Europe, the
Middle East and Africa (excluding the core market of the United Kingdom), 28
value added resellers in Asia Pacific, and 20 value added resellers in Latin
America.


      Mitel Networks' growth strategy may include the acquisition of additional
businesses, technologies, product lines or services in the future and may also
include the divestiture or downsizing of product or service groups in order to
permit Mitel Networks to focus on what management believes are Mitel Networks'
core competencies, although no such acquisitions or divestitures are currently
contemplated.

      In September 2001, Mitel Networks also entered into a strategic alliance
with March Networks Corporation, a Canadian corporation controlled by Dr.
Terence H. Matthews, which is intended to enable Mitel Networks to broaden its
product portfolio to the converged market sector and to provide another channel
of distribution. Activities undertaken pursuant to the strategic alliance may
include, initially, joint product marketing and research and development
activities. March Networks develops, manufactures and distributes integrated
technology solutions enabling businesses and service providers to deliver
enhanced multimedia communication services by leveraging the worldwide growth
and always-on, interactive capabilities of broadband networks.

Competition

      Over the past three-to-five years, the competitive landscape of enterprise
communications has changed dramatically. The rapid growth and subsequent
unprecedented downturn in the global communications market, coupled with the
emergence of Internet Protocol communications and converged networks, have
caused a tremendous disruption in the marketplace. This disruption has resulted
in the emergence of new vendors and the demise of a number of traditional ones.
Several major diversified communications equipment suppliers, including Fujitsu,
Philips, Ericsson, Harris, DeTeWe, Ascom, and Bosch, have exited the enterprise
voice systems business or have not introduced Internet Protocol-based products.
Others, such as Nortel, have reduced their level of investment in new technology
platforms. Resulting product inefficiencies are compounded by the fact that many
traditional players have been adversely affected by the recent economic
downturn, forcing them to make deep cuts in their workforce, restructure their
management teams, and consolidate product lines. Management believes that Nortel
Networks, Avaya, Alcatel and many others have all dealt with this new economic
reality over the past 12-18 months.


                                      -24-
<PAGE>

      Today's business communications vendors are largely split between two main
market segments. The first consists of the traditional vendors such as Mitel
Networks, Nortel Networks, Avaya, Siemens, and Alcatel. The second consists of
the incumbent data-centric players such as Cisco, 3Com, Shoreline and Vertical
Networks.

      The data-centric vendors come from a background in networking and Local
Area Network, or LAN, infrastructure. Through the emergence of converged
networks, they have now extended their presence into voice communications
through Local Area Network telephony. Being new entrants to the market, they
have few existing voice system installations and typically offer voice to round
out an end-to-end networking solution to their data customers. The leaders in
this area are Cisco and 3Com, which have leveraged data networking technology to
incorporate voice. These vendors were first to market with their offerings and
consequently jumped to a sizeable lead in market share. It is only in the last
six-to-nine months that the traditional voice system vendors have begun to
offset this advantage through comparable Internet Protocol-based products and
services.

      While the data-centric players were first to market, that accomplishment
did not come without a price. While traditional Private Branch Exchange vendors
offer robust feature sets, data-centric vendors do not, thereby requiring the
customers of data-centric vendors to sacrifice functionality in adopting
Internet Protocol telephony. They also offer a limited range of Internet
Protocol desktop devices that typically include only one or two high-end
Internet Protocol phones. The largest barrier to long -term success for the
data-centric vendors is their inability to provide businesses with sufficient
levels of migration and investment protection. Customers with existing voice
infrastructure investments are not attracted to a forklift approach, which
necessitates the replacement of the entire voice system and supporting
infrastructure. Rather, customers typically look for a cost-effective migration
whereby a phased transition to Internet Protocol can be made at their own pace.
Although the data-centric vendors profess to be addressing these issues, this is
not a reality as of yet.

      The traditional Private Branch Exchange and key telephone system vendors
take a vastly different approach in their adoption of Internet Protocol
telephony. In an effort to leverage large installed bases, they have focused on
providing an Internet Protocol-enabled solution, whereby a line card is inserted
into an existing Private Branch Exchange system to support Internet Protocol
networking functionality and Internet Protocol phones. While this approach makes
sense in the short-term, it has limitations in the long-term as users will not
fully derive the benefits of next-generation converged applications such as
location independent working and Internet Protocol-based video conferencing. As
stated earlier, a number of other major traditional Private Branch Exchange
vendors, including Ericsson, Fujitsu, Philips, Harris and DeTeWe, have not
introduced Internet Protocol-based voice systems. As a result, management
believes that vendors that can provide a path for migration from the old to the
new now have the opportunity to address these installed bases and gain
significant market share.

      Mitel Networks' approach to the Internet Protocol telephony market is
focused on leveraging the advantages of both these respective approaches. The
company has committed to investment protection and migration through an approach
that allows customers to cost-effectively deploy a true Internet Protocol system
but have it fully support a traditional infrastructure. This approach is
effective for both Mitel Networks' customers and those of other


                                      -25-
<PAGE>

incumbent Private Branch Exchange manufacturers. Through best-in-class
partnerships in data networking, Mitel Networks seeks to offer businesses the
choice of an end-to-end solution or standalone interoperability on virtually any
Local Area Network infrastructure. Mitel Networks offers a diverse array of
systems to address the needs of the small business, branch office and large
corporate enterprise. These systems are augmented by the industry's largest
portfolio of user devices and applications. With a field-proven portfolio of
products and services, as well as aggressive channel recruitment activities,
management believes that Mitel Networks is well positioned to prosper in this
emerging market.

      Based upon information found in generally available industry publications,
Mitel Networks believes that in the 2001 calendar year it held an approximately
14.9% market share in the converged systems category, second only to Nortel
Networks, and was fifth overall in total Private Branch Exchange lines shipped
in the U.S. for the same calendar year. In addition, Mitel Networks believes
that, in the second quarter of calendar year 2002, as compared to other vendors,
it shipped the greatest number of enterprise communications systems (Private
Branch Exchange and Internet Protocol combined) in the U.S.

Intellectual Property


      Mitel Networks' intellectual property assets include patented technology,
industrial designs, proprietary software and the copyright therein, operating
and instruction manuals, trade secrets and confidential business information.
Until November 1, 2002, such intellectual property rights were licensed from
Mitel Knowledge, a Canadian corporation that is indirectly wholly owned by Dr.
Terence H. Matthews. On November 1, 2002, Mitel Networks exercised its right to
purchase the intellectual property from Mitel Knowledge.


Ownership and Exploitation of Intellectual Property


      As part of the acquisition transactions, substantially all of the
intellectual property of the Predecessor Business, excluding trademarks, was
acquired by Mitel Knowledge. Following the completion of the acquisition
transactions, Mitel Networks and Mitel Knowledge entered into the Research and
Development Agreement, and Mitel Knowledge and Mitel Networks Overseas Limited
entered into the Research and Development Cost Sharing Agreement, pursuant to
which Mitel Knowledge owned substantially all of the intellectual property
developed by Mitel Networks, excluding trademarks. Pursuant to these agreements
and related license agreements, Mitel Knowledge licensed such intellectual
property, and the intellectual property acquired as part of the acquisition
transactions, to Mitel Networks and its subsidiaries. Pursuant to the Research
and Development Agreement, Mitel Networks provided research and development
services in consideration for which Mitel Knowledge funded a portion of Mitel
Networks' research and development activities.

      The Research and Development Agreement also provided for a license from
Mitel Knowledge to Mitel Networks for the rights to exploit the intellectual
property in Canada, South and Central America, Mexico and the Caribbean. The
Research and Development Cost Sharing Agreement provided for a license from
Mitel Knowledge to Mitel Networks Overseas Limited for the rights to exploit the
intellectual property in the United States, Europe, the Middle East,



                                      -26-
<PAGE>


Africa and the Asia/Pacific region, in return for which Mitel Networks Overseas
Limited contributed towards the funding of Mitel Networks' research and
development activities.

      The Research and Development Agreement provided for a call right pursuant
to which Mitel Networks had the right to require Mitel Knowledge to sell all of
its rights, title, interest in, and benefits from, the intellectual property,
including improvements and new technology, to Mitel Networks. The purchase price
for the intellectual property would be paid through the issuance of common
shares from Mitel Networks' treasury, with each such share having a value of
$5.25. The number of shares was to be determined in accordance with a prescribed
formula, which defined the value of the intellectual property to be equal to
$3.8 million plus the difference between Mitel Knowledge expenses (defined as
Mitel Knowledge expenses net of any amounts recovered under the Research and
Development Cost-Sharing Agreement) and license fees paid by Mitel Networks to
Mitel Knowledge.

      Effective November 1, 2002, Mitel Networks exercised the call right and
acquired the intellectual property from Mitel Knowledge for a price of
approximately $12.5 million, satisfied through the issuance of approximately
4,555,169 common shares from treasury with a fair value of $2.75 per share,
which is based upon an independent valuation. The purchase price was determined
in accordance with the formula described above. As a result, both the Research
and Development Agreement and the Research and Development Cost-Sharing
Agreement have been terminated. The Research and Development Cost-Sharing
Agreement between Mitel Knowledge and Mitel Networks Overseas Limited has been
replaced by a similar agreement between Mitel Networks and Mitel Networks
Overseas Limited.


Description of Intellectual Property


      Mitel Networks and the Predecessor Business accumulated, through
development or acquisition, a significant body of intellectual property related
to customer premise communications products and related applications. The
intellectual property consists of approximately 150 inventions for which patents
have been granted in at least one country, and approximately 140 additional
inventions for which patent applications have been filed. This intellectual
property has been primarily embodied and expressed in telecommunications
products based on analog, Time Division Multiplexing, and Internet Protocol
technologies. Over the last three years, particular emphasis has been placed on
Voice over Internet Protocol implementations and on applications leveraging the
features and capabilities provided by Internet Protocol/packet-based
technologies. As a result, 30 of the patent applications referred to above
relate specifically to Internet Protocol and its associated technologies. In
connection with the acquisition transactions, Mitel Networks has entered into an
Intellectual Property License Agreement with Zarlink under which Zarlink granted
Mitel Networks a perpetual non-exclusive license to certain intellectual
property retained by Zarlink to enable Mitel Networks to continue the operations
of the Predecessor Business.


      Mitel Networks also maintains an active trademark registration policy and
has a portfolio of trademarks and design marks. Mitel Networks also endeavors to
register or otherwise protect its current product names, taglines and domain
names.


                                      -27-
<PAGE>

      As a standard practice, Mitel Networks enters into confidentiality
agreements with its employees and consultants, and non-disclosure agreements
with customers, partners, distributors, value-added resellers, and original
equipment manufacturers.

Government Regulations

      There are certain regulatory policies that require the disabled to be able
to utilize Mitel Networks' products in the United States. Failure to achieve
this form of accessibility could either subject Mitel Networks to liability with
respect to commercial sales of its products and/or could prevent the government
from procuring Mitel Networks' products to the extent that they do not meet the
government's interpretation of the disability access regulations. Mitel
Networks' design experts are aware of these and other regulations. Mitel
Networks is likewise aware of the fact that the U.S. Department of Defense
currently contemplates requiring interoperability certification from its vendors
before procuring new communications systems and Mitel Networks is presently
reviewing the impact of this requirement on its sales to the U.S. Department of
Defense. There is no assurance that the above-noted government regulations will
not have a material effect on Mitel Networks' capital expenditures, results of
operations, cash flows or competitive position.

C. Organizational Structure


      As of November 25, 2002, Mitel Systems, a corporation controlled by Dr.
Terence H. Matthews, owned approximately 78% of Mitel Networks' outstanding
common shares, Zarlink owned approximately 9% of Mitel Networks' outstanding
common shares, Mitel Knowledge, a corporation controlled by Dr. Terence H.
Matthews, owned approximately 4%, employees of Mitel Networks and its
subsidiaries owned approximately 3% and other non-employee minority shareholders
owned approximately 6% of Mitel Networks' outstanding common shares.


      Mitel Networks carries on its worldwide communications systems business
through its subsidiaries. Mitel Networks' active subsidiaries are shown on the
chart below, the jurisdiction of incorporation being noted in parentheses.


                                      -28-
<PAGE>


============  ================  ================  ===========  ===============
               Mitel Systems         Mitel
  Zarlink       Corporation        Knowledge       Employees    Non-Employees
                                  Corporation
============  ================  ================  ===========  ===============
    9% |             |  78%            |  4%           |  3%         |  6%
       |             |                 |               |             |
       ---------------------------------------------------------------
                                       |
            ========================================================
                           Mitel Networks Corporation
                                    (Canada)
            ========================================================
                                       |
       50%                             |                          100%
       ---------------------------------------------------------------
       |                  |            |             |               |
====================      |            |             |       ==================
   Tianchi-Mitel          |            |             |         Mitel Networks
 Telecommunications       |            |             |         International
   Corp. (China)          |            |             |            Limited
                          |            |             |           (Barbados)
====================      |            |             |       ==================
                          |            |             |
         ------------------        100%|             -----------------
         |                             |                             |
         |  100%                       |                             |  100%
         |                             |                             |
=======================       ====================         ==================
         Mitel                   Mitel Networks              Mitel Networks
 Networks Asia Pacific          Holdings Limited                Overseas
        Limited                       (UK)                       Limited
      (Hong Kong)                                              (Barbados)
=======================       ====================         ==================
                                       |
                                       |
         -------------------------------
    100% |
         |
====================        ========================        ====================
   Mitel Networks                                              Mitel Networks
    Limited (UK)      100%    Mitel Networks, Inc.    100%  Solutions Inc. (US)
  (formerly Mitel   --------         (US)           --------  (formerly Mitel
  Telecom Limited)           (formerly Mitel, Inc.)            Communications
                                                              Solutions, Inc.)
====================        ========================        ====================
         |
         |
         -------------------------------------------------------------
                                       |                         |
                                  100% |                     80% |
                                       |                         |
                                ===============     ==========================
                                   Mitel SRL          Edict Training Limited
                                    (Italy)                    (UK)
                                ===============     ==========================


D. Property, Plants and Equipment

      Mitel Networks' activities are currently conducted in North America from
leased headquarters facilities of 512,391 square feet located in Ottawa,
Ontario, Canada, from leased


                                      -29-
<PAGE>

facilities of 17,974 square feet located in Herndon, Virginia, USA and from
owned premises of 26,600 square meters located in Caldicot, Wales, U.K. The
headquarters facilities are leased from a company controlled by Dr. Terence H.
Matthews under terms and conditions reflecting prevailing market conditions for
a period of 10 years expiring on February 15, 2011. Mitel Networks also has a
number of smaller leased premises located elsewhere in North America, the U.K.
and throughout the world.

      On August 31, 2001, Mitel Networks entered into sublease agreements with
BreconRidge for certain office and manufacturing facilities in Ottawa and in the
United Kingdom totaling 252,941 square feet under terms and conditions
reflecting prevailing market conditions. The Ottawa sublease agreement with
BreconRidge was amended on May 31, 2002 to increase leased space by 4,026 square
feet, bringing the total space subleased to BreconRidge to 256,967 square feet.
The Ottawa sublease agreement is for a term of five years expiring on August 31,
2006. The United Kingdom lease agreement is for a term of fifteen years expiring
in August 2016 with cancellation options on the fifth and tenth years available
to Mitel Networks and BreconRidge.

Item 5. Operating and Financial Review and Prospects

Management's Discussion and Analysis of Financial Condition and Results of
Operations

      This Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with the accompanying
audited consolidated financial statements as of and for the ten week period
ended April 27, 2001 and as of and for the fiscal year ended April 28, 2002 and
with the audited combined carve-out statement of operations of the Predecessor
Business for the forty-six week period ended February 16, 2001. These reports
are presented in Canadian dollars and have been prepared in accordance with
accounting principles generally accepted in the United States, referred to in
this registration statement as US GAAP.

Overview

      Mitel Networks was incorporated under the laws of Canada on January 12,
2001 and is a majority-owned subsidiary of Mitel Systems, a Canadian business
corporation indirectly owned and controlled by Dr. Terence H. Matthews.


      On February 16, 2001, and in subsequent related transactions dated March
27, 2001, Mitel Networks acquired the "Mitel" name and substantially all of the
assets of the communication systems business of Zarlink, the Predecessor
Business, excluding Canadian real estate and most intellectual property assets.
Zarlink, which retained its semiconductor division, sold 90% of the shares of
Mitel Networks to Mitel Systems. Zarlink retained 10% of the shares of Mitel
Networks. The Predecessor Business' Canadian real estate assets, comprised of
its Ottawa headquarters facilities, were sold to Mitel Research Park
Corporation. The Predecessor Business' intellectual property assets, other than
trademarks, were sold to Mitel Knowledge, although they were subsequently sold
to Mitel Networks on November 1, 2002. Both Mitel Research Park Corporation and
Mitel Knowledge are wholly owned by Dr. Terence H. Matthews. The Ottawa
headquarters facilities are leased by Mitel Networks from Mitel Research



                                      -30-
<PAGE>

Park Corporation under terms and conditions reflecting prevailing market
conditions. The initial term of the lease expires on February 15, 2011.

      Mitel Networks is a global provider of next-generation Internet Protocol
telephony, video and data products that creates advanced communication products
and applications in the areas of speech recognition, wireless mobility, unified
messaging, and customer interaction. Through direct and indirect channels of
distribution, Mitel Networks currently serves a wide range of vertical markets,
including the education, hospitality, healthcare, and government segments, in
the United States, Europe and Canada.

      Mitel Networks enters into a significant number of related party
transactions in the normal course of business and in connection with the
financing of its operations. Material related party transactions include the
outsourcing of the manufacturing and repair operations to BreconRidge, research
and development funding received from Mitel Knowledge, financing of operations
through demand promissory notes payable to companies controlled by Dr. Terence
H. Matthews, leasing of the Ottawa headquarters facilities from Mitel Research
Park Corporation, and the distribution of March Networks products through Mitel
Networks' channels. Except for certain committed cost reductions on purchases of
traditional communications platform products which will improve Mitel Networks'
results of operations through August 1, 2004, the terms of the supply agreement
with BreconRidge reflect prevailing market conditions. Mitel Networks' liquidity
was also positively affected by the research and development funding received
from Mitel Knowledge, and the financing obtained from companies controlled by
Dr. Terence H. Matthews. See Item 7.B. Related Party Transactions for further
details.

Business Segments:

      Mitel Networks reports its operations in two segments: the Communications
Solutions segment and the Customer Services segment. The Solutions segment
represents Mitel Networks' core business, consisting of enterprise voice, video
and data communications systems and software as well as communications
applications. Solutions' products are distributed through Mitel Networks' dealer
and reseller networks and are used by large enterprises, small and medium
businesses as well as government, education and healthcare organizations. The
Services segment consists of direct product sales and services, professional
services, maintenance and technical support services, all of which are provided
through Mitel Networks' direct sales offices throughout North America and the
United Kingdom. Mitel Networks does not allocate general and administrative
expenses, amortization of acquired intangibles, stock-based compensation expense
and one-time charges to its segments as management does not use this information
to measure the performance of the operating segments. These unallocated expenses
are included in the category of "corporate and other" in the segmented
information disclosure contained in Mitel Networks' financial statements
included elsewhere in this registration statement.

Restructuring and Repositioning:

      Following the acquisition of the Predecessor Business from Zarlink on
February 16, 2001 and during the fiscal periods ended April 27, 2001 and April
28, 2002, Mitel Networks accomplished the major portion of a strategic
repositioning through a series of steps, including: the divestiture of its
manufacturing operations, a significant investment in its research and


                                      -31-
<PAGE>

development program to realize the launch of its new Internet Protocol voice
communications product portfolio, the divestiture of certain product lines that
were no longer strategic and the geographic expansion in continental Europe,
Asia Pacific and Latin and Central America. As part of this repositioning, Mitel
Networks terminated development efforts for its network access products.

      The current downturn in general economic conditions, exacerbated by the
events of September 11, 2001, is resulting in a decreased demand for
communications equipment. In response to these events, Mitel Networks initiated
a series of restructuring actions during Fiscal 2002 to focus on new market
opportunities and to realign its spending level with the lower sales volumes,
including primarily workforce reductions in most regions executed through 278
voluntary and involuntary terminations as well as the outsourcing of certain
support functions. A restructuring charge of $11.7 million was recorded in the
fiscal year ended April 28, 2002 related to these actions.

      These restructuring actions allowed Mitel Networks to redirect resources
to new market opportunities and to strengthen its position in its strategic
markets. Mitel Networks is broadening its distribution channels within its core
markets, North America and the United Kingdom, by increasing the number of value
added resellers and establishing strategic partnerships with service providers,
systems integrators and technology partners. To expand its geographic
penetration outside of its core markets, Mitel Networks has opened a number of
sales offices and invested significant resources to develop and deliver
regionally compliant products. Over the last 18 months, Mitel Networks has
opened sales offices in Italy, Germany, France, the Netherlands, the United Arab
Emirates, South Africa, Mexico, Hong Kong, China, Australia and Korea.

Outsourcing of Manufacturing Operations:

      On August 31, 2001, Mitel Networks outsourced its worldwide manufacturing
and repair operations, including the sale of related net assets and the transfer
of employees, to BreconRidge for total net consideration of $7.8 million. The
transaction resulted in a loss of $2.4 million recorded in operating expenses.
This divestiture has allowed Mitel Networks to focus on product development and
sales efforts and is expected to result in cost reduction opportunities. Mitel
Networks and certain subsidiaries entered into a supply agreement dated August
31, 2001 under which BreconRidge manufactures the majority of Mitel Networks'
products and provides certain services to Mitel Networks and its subsidiaries.
The initial term of the agreement is three years and, unless otherwise
terminated, will be automatically renewed on the same terms and conditions for
an additional term of three years and thereafter for additional one-year
periods. Subject to certain exceptions, the supply agreement is exclusive during
the initial term with respect to current products and new product introductions.
Under the terms of the supply agreement, BreconRidge is required to purchase
Mitel Networks' raw material inventory, before turning to third party suppliers
for raw material procurement. Mitel Networks is not obligated to purchase
finished products from BreconRidge in any specific quantity, except pursuant to
firm purchase orders. Mitel Networks may be obligated to purchase certain excess
inventory levels from BreconRidge that could result from Mitel Networks' actual
sales varying from forecast. Under the terms of the supply agreement,
BreconRidge has committed to certain cost reductions through August 1, 2004 on
purchases of traditional communications platform products.


                                      -32-
<PAGE>

      The supply agreement with BreconRidge represents a concentration that, if
suddenly eliminated, could have an adverse effect on Mitel Networks' operations.
While Mitel Networks believes that alternative sources of manufacturing would be
available if this arrangement were to cease, disruption of its primary source of
manufacturing could create a temporary, adverse effect on product shipments.
There can be no assurance that the supply agreement with BreconRidge will
achieve the business objectives and cost reductions currently anticipated.

      On August 31, 2001, in connection with the outsourcing of its
manufacturing and repair operations, Mitel Networks entered into lease and
sublease agreements with BreconRidge for certain office and manufacturing
facilities in Ottawa and in the United Kingdom totaling 252,941 square feet
under terms and conditions reflecting prevailing market conditions at the time
the leases were entered into. The Ottawa sublease agreement is for a term of
five years expiring in August 31, 2006 and the United Kingdom lease agreement is
for a term of fifteen years expiring in August 2016 with cancellation options on
the fifth and tenth years available to Mitel Networks and BreconRidge.

Research and Development Arrangements:


      Pursuant to the terms of the Research and Development Agreement and the
Research and Development Cost Sharing Agreement, which were in effect until
November 1, 2002, Mitel Knowledge owned substantially all of the intellectual
property developed by Mitel Networks, excluding trademarks, and licensed it and
the intellectual property acquired in connection with the acquisition
transactions to Mitel Networks and its subsidiaries. These arrangements enabled
Mitel Networks to secure a source of funding on attractive terms for a portion
of its research and development, while permitting Mitel Networks and its
subsidiaries to exploit the intellectual property throughout the world.

      Pursuant to the terms of these agreements, Mitel Knowledge provided
research and development funding to Mitel Networks. During Fiscal 2002, Mitel
Networks received $10 million in research and development funding, net of
royalty expenses of $0.3 million, that was recorded as a liability to related
parties on Mitel Networks' Consolidated Balance Sheet. During the ten week
period ended April 27, 2001, Mitel Networks received $1.5 million in research
and development funding, net of royalty expenses of $0.6 million, that was
recorded as a liability to related parties on Mitel Networks' Consolidated
Balance Sheet.

      The Research and Development Agreement provided for a call right pursuant
to which Mitel Networks had the right to require Mitel Knowledge to sell all of
its rights, title, interest in, and benefits from, the intellectual property,
including improvements and new technology, to Mitel Networks. The purchase price
for the intellectual property was to be paid through the issuance of common
shares from Mitel Networks' treasury, with each such share having a value of
$5.25. The number of shares was to be determined in accordance with a prescribed
formula, which defined the value of the intellectual property to be equal to
$3.8 million plus the difference between Mitel Knowledge expenses (defined as
Mitel Knowledge expenses net of any amounts recovered under the Research and
Development Cost-Sharing Agreement) and license fees paid by Mitel Networks to
Mitel Knowledge.



                                      -33-
<PAGE>


      Effective November 1, 2002, Mitel Networks exercised the call right and
acquired the intellectual property from Mitel Knowledge for a price of
approximately $12.5 million, satisfied through the issuance of approximately
4,555,169 common shares from treasury with a fair value of $2.75 per share,
which is based upon an independent valuation. The purchase price was determined
in accordance with the formula described above. As a result, both the Research
and Development Agreement and the Research and Development Cost-Sharing
Agreement have been terminated. The Research and Development Cost-Sharing
Agreement between Mitel Knowledge and Mitel Networks Overseas Limited has been
replaced by a similar agreement between Mitel Networks and Mitel Networks
Overseas Limited. The exercise of the call right resulted in the
reclassification of the liability to issue common shares of $15.3 million
recorded in the due to related parties balance at April 28, 2002 to common
shares on the consolidated balance sheet. Had Mitel Networks exercised the
option to acquire the intellectual property as at April 28, 2002, 2,917,796
common shares would have been issued to Mitel Knowledge pursuant to the terms of
the Research and Development Agreement.


Basis of Presentation

      For periods up to February 16, 2001, the Predecessor Business' combined
statements of operations have been carved out from the consolidated financial
statements of Zarlink, using the historical results of operations of the
Predecessor Business. The combined statement of revenues and direct expenses of
the Predecessor Business excludes any allocation of Zarlink corporate expenses
as well as finance, human resources, information technology and legal expenses
supporting its headquarters operations in Ottawa, Ontario, Canada. The combined
statement of revenues and direct expenses of the Predecessor Business also
excludes interest expense and provision for income taxes. Following the sale of
the Predecessor Business by Zarlink, Mitel Networks has been performing these
functions using its own resources or purchased services. From and after February
16, 2001, Mitel Networks has been operating on a stand-alone basis.

Critical Accounting Policies

      The preparation of financial statements and related disclosures in
conformity with US GAAP requires management to make estimates and assumptions
about future events that affect the amounts reported in Mitel Networks'
financial statements and accompanying notes. The determination of estimates
requires the exercise of judgment and actual results could differ from those
estimates, and any such differences may be material to the financial statements.
Mitel Networks' significant accounting policies are described in Note 3 of the
Notes to the Consolidated Financial Statements included in this registration
statement. The following critical accounting policies are significantly impacted
by judgments, assumptions and estimates.

      REVENUE RECOGNITION - For products sold through indirect distribution
channels, arrangements usually involve multiple elements, including
post-contract technical support and training. Mitel Networks also sells
products, including installation and related maintenance and support services,
directly to customers. Due to the complexity of Mitel Networks' sales
agreements, judgment is routinely applied principally in the areas of customer
acceptance, product returns, unbundling of multiple element arrangements and
collectibility. Mitel Networks relies on historical trends and past experience
to estimate product returns and assess customer


                                      -34-
<PAGE>

acceptance. Different judgments or different contract terms could adversely
affect the amount of revenue recorded.

      COLLECTIBILITY OF ACCOUNTS RECEIVABLE - The allowance for doubtful
accounts is based on Mitel Networks' assessment of the collectibility of
specific customer accounts and the aging of accounts receivable. If there is a
deterioration of a major customer's credit worthiness or actual defaults are
higher than Mitel Networks' historical experience, its estimates of the
recoverability of amounts due could be adversely affected.

      INVENTORIES - In order to record inventory at the lower of cost or market,
Mitel Networks must assess its inventory valuation which requires judgment as to
future demand. Mitel Networks also reviews its historical inventory usage and
applies judgment to adjust its inventory allowances. If there is a sudden and
significant decrease in demand for Mitel Networks' products or there is a higher
risk of inventory obsolescence because of rapidly changing technology and
customer requirements, Mitel Networks may be required to increase its inventory
allowances and its gross margin could be adversely affected.

      WARRANTY PROVISION - Mitel Networks accrues warranty costs based on the
past experience of claims and expected material usage costs to provide warranty
services. If Mitel Networks experiences an increase in warranty claims which are
higher than Mitel Networks' past experience, or an increase in actual costs to
service the claims is experienced, gross margin could be adversely affected.

      LONG-LIVED ASSETS - Mitel Networks assesses the impairment of property,
equipment and intangible assets on a periodic basis or whenever events or
changes in circumstances indicate that the carrying value may not be
recoverable. The determination of useful lives and whether or not these assets
are impaired involves significant judgment. In response to changes in industry
and market conditions, Mitel Networks may strategically realign its resources
and consider restructuring, disposing of or exiting businesses, which could
result in an impairment charge.

      PENSION COSTS - Mitel Networks' defined benefit pension costs are
developed from actuarial valuations. Inherent in these valuations are key
assumptions provided by Mitel Networks to the actuaries including discount
rates, expected return on plan assets and rate of compensation increases. In
estimating the rates and returns, Mitel Networks considers current market
conditions and anticipates how these will affect discount rates, expected
returns and rates of compensation increases. Material changes in Mitel Networks'
pension benefit costs may occur in the future as a result of changes to these
assumptions or from fluctuations in Mitel Networks' related headcount.


                                      -35-
<PAGE>

A. Operating Results

      The following table sets forth the consolidated statement of operations
data for Mitel Networks and the statement of revenue and direct expenses of the
Predecessor Business for the fiscal periods indicated:

<TABLE>
<CAPTION>
                                               Mitel Networks                       Predecessor Business(1)
                              -----------------------------------------------       -----------------------
                                  Year Ended               Ten Weeks Ended          Forty-Six Weeks Ended
                                April 28, 2002              April 27, 2001            February 16, 2001
                              ------------------          -------------------       -----------------------
                                          % of                        % of                       % of
(in millions)                  Amounts   Revenue           Amounts   Revenue          Amounts   Revenue
---------------------------------------------------------------------------------------------------------
<S>                            <C>        <C>              <C>         <C>            <C>         <C>
Revenue                        $ 560.2    100.0%           $ 121.4     100.0%         $ 515.0     100.0%
Cost of sales                    331.0     59.1               64.4      53.0            291.0      56.5
---------------------------------------------------------------------------------------------------------
Gross margin                     229.2     40.9               57.0      47.0            224.0      43.5

Research and development          92.2     16.5               20.1      16.6             74.2      14.4
Selling, general and
  administrative                 228.5     40.8               47.0      38.7            202.2      39.3
Purchased in-process
  research and development          --       --               20.7      17.1               --        --
Special charges                   11.7      2.1                 --        --             14.8       2.9
Loss on disposal of business       2.4      0.4                 --        --               --        --
Amortization of acquired
  intangibles                     68.6     12.2               12.9      10.6              2.7       0.5
---------------------------------------------------------------------------------------------------------
Operating loss                 $(174.2)   (31.1)%          $ (43.7)    (36.0)%        $ (69.9)    (13.6)%

Interest expense                   4.7      0.8                0.2       0.2              N/A       N/A
Other expense, net                 0.6      0.1                0.5       0.4              N/A       N/A
Income tax expense                 0.2       --                0.9       0.7              N/A       N/A
---------------------------------------------------------------------------------------------------------
Net loss                       $(179.7)   (32.0)%          $ (45.3)    (37.3)%            N/A       N/A
=========================================================================================================
</TABLE>

(1) Results of operations of the Predecessor Business for the forty-six week
period ended February 16, 2001, exclude (i) any allocation of Zarlink corporate
overhead expenses not directly attributable to the operations of the Predecessor
Business, (ii) other income (expense), net, and (iii) provision for income
taxes.

Net Loss:

      Net loss amounted to 32% of revenue for Fiscal 2002 compared to 37.3% of
revenue for the ten-week period ended April 27, 2001, an improvement of 5.3
percentage points. This improvement was mainly attributed to the $20.7 million
write-off of purchased in-process research and development recorded in the
ten-week period ended April 27, 2001, which accounted for 17.1% of revenue, and
an improvement in the Services segment's gross margin as a percentage of
revenue, which increased by 1.4 percentage points to 39% of the Services
segment's revenue in Fiscal 2002. These favorable variances were partially
offset by (i) lower margins in the Solutions segment which decreased by 11
percentage points to 36% of the Solutions segment's revenue in Fiscal 2002, (ii)
higher selling, general and administrative, or SG&A, expenses which increased by
2.1 percentage points to 40.8% of total revenue in Fiscal 2002 and (iii) higher
interest expense which increased by 0.6 percentage points in Fiscal 2002.

Operating Loss:

      Operating loss amounted to 31.1% and 36% of revenue for Fiscal 2002 and
for the ten-week period ended April 27, 2001, respectively, compared to 13.6% of
revenue for the forty-six week period ended February 16, 2001. The deterioration
in operating results between the forty-


                                      -36-
<PAGE>

six week period ended February 16, 2001 and Fiscal 2002 was mainly driven by the
increase in the Solutions segment's operating loss, the $65.9 million increase
in the amortization of intangible assets resulting from the acquisition
transaction on February 16, 2001, and a $2.4 million loss on disposal of the
Network Access Solutions business recorded in Fiscal 2002. These unfavorable
variances were partially offset by an improvement of the Services segment's
operating income and lower special charges of $11.7 million recorded in Fiscal
2002 compared to $14.8 million recorded in the forty-six week period ended
February 16, 2001. Other corporate unallocated expenses remained consistent at
9% of total revenue for Fiscal 2002 and the forty-six week period ended February
16, 2001.

      The Solutions segment's operating loss increased to 32.1% of the segment's
revenue for Fiscal 2002 compared to 10.8% of the segment's revenue for the
forty-six week period ended February 16, 2001. This increase was mainly driven
by the significant investment in research and development expenses subsequent to
the acquisition transactions that were required to launch Mitel Networks' new
Internet Protocol-enabled solutions, a deterioration of the segment's gross
margin, and an increase in SG&A expenses resulting from the investment towards
geographic and channel expansion. We anticipate that lower spending, as a result
of cost reduction initiatives taken in Fiscal 2002 and in the first quarter of
Fiscal 2003, and increased revenue from market acceptance of the new Internet
Protocol-enabled products will result in a better performance of the Solutions
segment in Fiscal 2003 compared to Fiscal 2002.

      The Services segment's operating income increased by 8 percentage points
to 17.4% of the segment's revenue for Fiscal 2002 compared to the forty-six week
period ended February 16, 2001. This increase was mainly due to a 5.5 percentage
point increase in gross margin and a 2.5 percentage point increase in SG&A, both
as a percentage of the segment's revenue.


                                      -37-
<PAGE>

Revenue:

      The following table sets forth external segmented revenue, both in dollars
and in percentage terms for the fiscal periods indicated:

<TABLE>
<CAPTION>
                                                                                        Combined Mitel
                                                                                         Networks and
                                                                   Predecessor            Predecessor
                               Mitel Networks                       Business             Business (1)
                  ---------------------------------------       ----------------       -----------------
                        Year                Ten Weeks           Forty-six Weeks             Year
                       Ended                  Ended                  Ended                  Ended
                   April 28, 2002         April 27, 2001         Feb. 16, 2001          April 27, 2001
                  ----------------       ----------------       ----------------       -----------------
                            % of                   % of                    % of                   % of
(in millions)     Revenue   Sales        Revenue   Sales         Revenue   Sales        Revenue   Sales
--------------------------------------------------------------------------------------------------------
                      (Actual)              (Actual)                (Actual)               (Pro Forma)
<S>               <C>        <C>         <C>        <C>          <C>         <C>        <C>        <C>
Solutions         $ 248.7    44%         $  47.9    39%          $  244.7    48%        $ 271.3    48%
Services            311.5    56%            73.5    61%             270.3    52%          320.3    52%
--------------------------------------------------------------------------------------------------------
                  $ 560.2   100%         $ 121.4   100%          $  515.0   100%        $ 591.6   100%
========================================================================================================
</TABLE>

(1) Pro forma annualized revenue for Fiscal 2001 represents the sum of (a)
revenue of the Predecessor Business for the forty-six weeks ended February 16,
2001, extrapolated on forty-two weeks, and (b) Mitel Networks' revenue for the
ten weeks ended April 27, 2001.

      For purposes of the comparative discussion on revenue, annualized revenue
for Fiscal 2001 was extrapolated from revenue for the forty-six week period
ended February 16, 2001 and revenue for the ten-week period ended April 27,
2001. Fiscal 2002 revenue decreased by 5% from Fiscal 2001 revenue, on an
annualized basis, as a result of (i) reduced customer demand for communications
products due to the continued economic slowdown in the technology sector which
explained most of the revenue decrease, and (ii) the discontinuation of the
Network Access Solutions business which accounted for 2% of the reduction. These
reductions were partially offset by the introduction of Internet
Protocol-enabled solutions, which resulted in a 2% increase in total revenue
from Fiscal 2001, on an annualized basis. Despite the low demand for
communications systems resulting from the current economic downturn, management
believes the migration path to Internet Protocol-based products that Mitel
Networks offers to its customers will contribute to a sustained level of revenue
for the next fiscal year. However, there can be no assurance that the adoption
rate by Mitel Networks' customers of new Internet Protocol-based products will
reach expected levels and therefore generate expected revenues.

      The Solutions segment's sales decreased by 8% compared to Fiscal 2001
sales, on an annualized basis, mainly as a result of the discontinuation of the
Network Access Solutions business which accounted for 5% of the total decrease
(see also Special Charges). The balance of the decrease resulted from lower
sales volumes due to a general decrease in customer demand.

      The Services segment's sales decreased by 3% from Fiscal 2001 sales, on an
annualized basis, as a result of lower demand for equipment additions, moves and
changes, as well as by the general economic downturn in the telecommunications
industry. The Services segment was less affected by the general reduction in
demand explained above as it has traditionally been more stable due to its
recurring service revenue.


                                      -38-
<PAGE>

      Fiscal 2002 revenue from product sales amounted to 83% of total revenue
compared to 78% in the forty-six week period ended February 16, 2001, primarily
due to the introduction of Voice over Internet Protocol integrated communication
platforms and associated Internet Protocol-based desktop appliances, a strong
Voice over Internet Protocol migration program, improvements in Time Division
Multiplexing-based products and systems and a strengthened dealer network. These
gains were partially offset by a reduction in original equipment manufacturer
equipment sales as a result of reduced post Year 2000 spending and the reduction
in network access product sales described above.

      Fiscal 2002 revenue from service sales decreased to 17% of total revenue
compared to 22% in the forty-six week period ended February 16, 2001, mainly as
a result of reduced post Year 2000 spending as enterprises required a higher
demand of maintenance and related support services to mitigate the risk of Year
2000 non-compliance in the years leading to 2000 and in the period immediately
following January 1, 2000.

      The following table sets forth sales by geographic regions, both in
dollars and in percentage terms, for the fiscal periods indicated:

<TABLE>
<CAPTION>
                                                                                                  Combined Mitel
                                                                                                   Networks and
                                                                             Predecessor            Predecessor
                                         Mitel Networks                       Business             Business (1)
                            ---------------------------------------       ----------------       -----------------
                                  Year                Ten Weeks           Forty-six Weeks             Year
                                 Ended                  Ended                  Ended                  Ended
                             April 28, 2002         April 27, 2001         Feb. 16, 2001          April 27, 2001
                            ----------------       ----------------       ----------------       -----------------
                                      % of                   % of                    % of                   % of
(in millions)               Revenue   Sales        Revenue   Sales         Revenue   Sales        Revenue   Sales
------------------------------------------------------------------------------------------------------------------
                                (Actual)              (Actual)                (Actual)               (Pro Forma)
<S>                        <C>        <C>         <C>        <C>          <C>         <C>        <C>        <C>
Canada                     $  35.8      6%        $   8.4      7%         $  33.5       7%       $  39.0      7%
United States                289.6     52%           59.7     49%           248.5      48%         286.6     48%
United Kingdom               196.5     35%           44.1     36%           186.2      36%         214.1     36%
Other foreign countries       38.3      7%            9.2      8%            46.8       9%          51.9      9%
------------------------------------------------------------------------------------------------------------------
                           $ 560.2    100%        $ 121.4    100%         $ 515.0     100%       $ 591.6    100%
==================================================================================================================
</TABLE>

(1) Pro forma annualized revenue for Fiscal 2001 represents the sum of (a)
revenue of the Predecessor Business for the forty-six weeks ended February 16,
2001, extrapolated on forty-two weeks, and (b) Mitel Networks' revenue for the
ten weeks ended April 27, 2001.

      The significant downturn in economic conditions has impacted sales in all
of the Company's geographic regions, except in the United States where revenues
marginally increased in Fiscal 2002 compared to Fiscal 2001, on an annualized
basis. Increased product sales due to strengthening of the Company's U.S. dealer
network as well as increased revenue recorded by the Services segment as a
result of a large contract for installation of new communications systems
contributed to increased U.S. revenue. The decreases in the United Kingdom and
other foreign countries markets were largely driven by the discontinuation of
the Network Access Solutions business.

Backlog:

      Mitel Networks defines backlog as unconditional purchase orders or other
contractual agreements for products or services for which customers have
requested delivery within the next


                                      -39-
<PAGE>

twelve months. As orders are frequently booked and shipped within the same
fiscal month, order backlog is not necessarily indicative of a sales outlook for
the month, quarter or year. Backlog was $43.6 million at April 28, 2002,
representing a slight decrease compared to $44.5 million at April 27, 2001.
Despite the economic slowdown, bookings remained fairly consistent throughout
Fiscal 2002.

Gross Margin:

      Mitel Networks operated manufacturing plants for the first four months of
Fiscal 2002 and, following the outsourcing of its manufacturing operations on
August 31, 2001, entered into a supply agreement with BreconRidge for the
remainder of Fiscal 2002. As a result of such supply agreement with BreconRidge,
manufacturing costs of Mitel Networks' products were eliminated and replaced by
purchase prices of finished products for the last eight months of Fiscal 2002.
This change to an outsource manufacturing model did not have a material impact
on the Fiscal 2002 gross margins as a percentage of revenue compared to Fiscal
2001. However, Mitel Networks expects margins for Fiscal 2003 and the first half
of Fiscal 2004 will be positively affected by certain cost reductions on
purchases of traditional communications platform products pursuant to the terms
of the supply agreement with BreconRidge.

      Cost of sales of the Solutions segment consists of cost of goods purchased
from BreconRidge and other suppliers, inventory provisions, engineering costs,
warranty costs and other supply chain management costs. Cost of sales of the
Services segment consists of cost of goods purchased from the Solutions segment
and other suppliers, labor costs associated with installation and support
services, inventory provisions and other supply chain management costs.

      Gross margins as a percentage of revenue declined from 43.5% of revenue in
the forty-six week period ended February 16, 2001 to 40.9% of revenue in Fiscal
2002. This decline was mainly driven by the deterioration of the Solutions
segment's margin, partially offset by an improvement of the Services segment's
margin, both as a percentage of revenue.

      The Solutions segment's gross margins as a percentage of the segment's
revenue decreased from 44.4% of revenue in the forty-six week period ended
February 16, 2001 to 35.7% of revenue in Fiscal 2002. This decline is mainly
attributed to increases in inventory obsolescence provisions associated with a
slow down in the Network Access Solutions business and a shift from the
traditional product portfolio to the Internet Protocol-enabled solutions
resulting in increased inventory provisions for Time Division Multiplexing
products. Also contributing to the overall decrease of the Solutions segment's
margins as a percentage of revenue, but to a lesser degree, were the pricing
pressures on certain traditional communications platform products and lower
Fiscal 2002 margins resulting from Internet Protocol product sales generated
from demonstration and field trial systems sold at lower prices and in lower
line sizes to encourage channel adoption. Lower Internet Protocol sales also
resulted in higher product costs as volume had not yet reached targeted
production levels.

      The Services segment's gross margins as a percentage of the segment's
revenue increased from 33.5% of revenue in the forty-six week period ended
February 16, 2001 to 39.0% of revenue in Fiscal 2002. This increase is mainly
attributed to a reduction in average labor costs


                                      -40-
<PAGE>

resulting from the overall volume increase and a shift in revenue towards higher
margin maintenance contract revenues.

Research and Development:


      Mitel Networks allocates all its research and development expenses to the
Solutions segment. Research and development expenses increased from 14.4% of
revenue during the fiscal period ended February 16, 2001 to 16.6% and 16.5% of
revenue in the fiscal period ended April 27, 2001 and the fiscal year ended
April 28, 2002, respectively. This increase resulted from the significant
development efforts directed towards Mitel Networks' new Internet Protocol voice
communications products prior to their launch in November 2001. It is expected
that research and development expenses will decrease in absolute dollars as
Mitel Networks' major Internet Protocol platforms were launched during Fiscal
2002. The expenses may vary, however, as a percentage of revenue as Mitel
Networks has been taking actions to reduce its research and development expenses
as a percentage of revenue.


Selling, General and Administrative (SG&A):

      SG&A expenses increased to 40.8% of revenue for Fiscal 2002 compared to
39.3% and 38.7% of revenue for the fiscal periods ended February 16, 2001 and
April 27, 2001, respectively. SG&A expenses of the Predecessor Business for the
fiscal period ended February 16, 2001 did not include allocations of corporate
overhead expenses, including finance, human resources, information systems and
legal that are necessary to support a stand alone company. In addition, the
Ottawa headquarters facilities were owned by Zarlink prior to the acquisition
transactions and are now leased by Mitel Networks from a company controlled by
Dr. Terence H. Matthews on terms reflecting prevailing market conditions. The
Fiscal 2002 basic rent expense related to the Ottawa headquarters facilities,
which included a component for property financing charges, exceeded the Fiscal
2001 annualized depreciation expense by approximately $2.8 million. Also
contributing to the increase in SG&A expenses is the significant investment made
during Fiscal 2002 towards geographic expansion, more specifically in
continental Europe, Asia Pacific and Central and Latin America regions, new
strategic alliances and channel expansion. The Fiscal 2002 restructuring actions
described in Special Charges contributed to reduce SG&A expenses in mature areas
of the business as well as core markets to allow the reinvestment of the savings
in new market opportunities. Although Mitel Networks cannot guarantee future
results, it expects that the Fiscal 2002 restructuring actions, coupled with
additional restructuring actions taken in the first quarter of Fiscal 2003, will
result in a decrease in SG&A expenses both in absolute dollars and as a
percentage of revenue from the Fiscal 2002 level.

      The Solutions segment's SG&A expenses increased to 37.1% of the segment's
revenue for Fiscal 2002 compared to 30.5% of the segment's revenue for the
forty-six week period ended February 16, 2001. This increase was largely due to
geographic expansion, increased sales channel coverage into telecommunications
carriers and systems integrators, increased product introduction costs
associated with the emergence of Internet Protocol enabled solutions, and
increased marketing costs associated with becoming a stand alone corporation.


                                      -41-
<PAGE>


      The Services segment's SG&A expenses decreased to 21.6% of the segment's
revenue for Fiscal 2002 compared to 24.2% of the segment's revenue for the
forty-six week period ended February 16th, 2001. This decrease was due to
management's ability to leverage its SG&A investment to grow revenue without
increasing costs.


Purchased In-Process Research and Development:

      On February 16, 2001, in connection with the acquisition transactions,
Mitel Networks allocated the purchase price of the Predecessor Business to
identifiable intangible assets based on their then fair market value, including
$20.7 million to in-process technology. This allocation, supported by an
independent valuation, corresponded to the development of the Internet Protocol
technology that had not yet reached technological feasibility and had no
alternative use at the time of the acquisition transactions. Accordingly, this
amount was charged to expenses immediately upon consummation of the acquisition
transactions. The fair market value of acquired in-process research and
development was determined using the income approach, which discounts expected
future cash flows to present value. A discount rate of 21% was used in the
present value calculations which was derived from a weighted-average cost of
capital analysis adjusted upward to reflect additional risks inherent in the
development life cycle. The following table summarizes other key assumptions
underlying the valuation of the significant in-process research and development
projects acquired on February 16, 2001 and the allocated purchase price based on
the projects estimated fair market values:

<TABLE>
<CAPTION>
(in millions)                         Allocated Purchase      Estimated Cost to
                                     Price Based on Fair   Complete Technology at      Anticipated
                                        Market Values        Time of Acquisition     Completion Date   % Completion
---------------------------------------------------------------------------------------------------------------------

<S>                                        <C>                     <C>               <C>                     <C>
MN3300 system                              $ 8.1                   $14.0             November 2001           52%
Speak@Ease voice recognition
  software                                   4.9                     0.4             July 2001               69%
MN3100 small business system                 3.1                     9.8             August 2001             59%
DSL Network Access Solutions                 2.7                     1.6             September 2001          71%
Internet Protocol desktop products           1.6                     5.0             November 2001           37%
SX-2000 system enhancements                  0.3                     1.5             September 2001          15%
---------------------------------------------------------------------------------------------------------------------
                                           $20.7                   $32.3
---------------------------------------------------------------------------------------------------------------------
</TABLE>

      Actual results have been consistent, in all material respects, with Mitel
Networks' assumptions at the time of the acquisition transactions. The
assumptions primarily consist of an expected completion date for the in-process
projects, estimated costs to complete the projects, and revenue and expense
projections assuming the products have entered the market. The costs to be
incurred for the projects in process are primarily labor costs for design,
prototype development and testing. At the end of Fiscal 2002, all purchased
in-process research and development projects were completed.

Amortization of Acquired Intangibles:

      Amortization of acquired intangibles recorded by the Predecessor Business
in the fiscal period ended February 16, 2001 amounted to $2.7 million and
related to the acquisition by


                                      -42-
<PAGE>

Zarlink of the Customer Premises Equipment Business Unit of Centigram
Communications Corporation in May 1998 and the acquisition by Zarlink of the
products, technology, research and development facilities and sales and
marketing organization of Glasgow-based Telecom Sciences Limited, also completed
in May 1998.

      As part of the acquisition transactions, Mitel Networks recorded acquired
intangible assets of $141.7 million consisting of developed technology,
workforce, customer base and patents. The value of the developed technology
relates to Mitel Networks' right to exploit the intellectual property owned by
Mitel Knowledge, pursuant to the terms of a license agreement (see Item 4.B
under "Intellectual Property" for details). Resulting amortization expense
amounted to $12.9 million and $68.6 million for the fiscal period ended April
27, 2001 and for the fiscal year ended April 28, 2002, respectively.

      In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 142, "Goodwill and Other
Intangible Assets". SFAS 142 requires goodwill and intangible assets with
indefinite useful lives to be tested for impairment and written down when
impaired, rather than being amortized as previous standards required. Intangible
assets with finite lives will continue to be amortized over their estimated
useful lives. On adoption of the new rules, Mitel Networks reclassified to
goodwill the acquired workforce totaling $7.6 million at April 28, 2002
previously classified as purchased intangible assets, and to cease its
amortization. Application of the non-amortization provisions of SFAS 142 to
goodwill is expected to result in an increase in earnings before income taxes of
$7.6 million in Fiscal 2003. As a result of the reassessment of the useful life
of identifiable intangibles completed in the first quarter of Fiscal 2003, Mitel
Networks will continue to amortize intangible assets with finite lives over a
two-year period. SFAS 142 also requires the company to establish reporting units
and apply a two-step approach to assessing goodwill impairment. Management
expects the transitional goodwill impairment test will be completed by the end
of the second quarter of Fiscal 2003.

      Mitel Networks and the Predecessor Business used a consistent
straight-line amortization method over estimated useful life of two years on
acquired intangible assets.

Special Charges:

      During Fiscal 2002, Mitel Networks recorded special restructuring charges
of $11.7 million in operating expenses related to the implementation of a series
of cost reduction actions taken to realign Mitel Networks' organization and
reduce overhead, including the termination of research and development efforts
related to the Network Access Solutions products. The restructuring charges
included workforce reduction costs of $10.5 million related to 278 terminated
employees across most geographic regions, of which $7.3 million and $1.8 million
related to the Solutions segment and the Services segment, respectively, and
$1.4 million related to support functions classified in the "Corporate and
Other" category of Mitel Networks' segmented information. Legal costs of $0.6
million and a loss on disposal of capital assets of $0.6 million related to the
restructuring actions taken in the Solutions segment were also included in the
Fiscal 2002 restructuring charges. Mitel Networks expects that these
restructuring measures will result in a total reduction of its operating costs
of approximately $16 million in the upcoming fiscal year (Solutions segment -
$11 million; Services segment - $3


                                      -43-
<PAGE>

million; Corporate and Other - $2 million). Mitel Networks completed these cost
reduction actions in the first quarter of Fiscal 2003.

      During the fiscal period ended February 16, 2001, the Predecessor Business
executed restructuring programs to reduce its sales, marketing, administrative
and research and development workforce in preparation for the acquisition
transactions. Actions were also taken to downsize and consolidate the operations
of the advanced messaging business unit and to discontinue the GX5000 product
line based on the decision to exit non-core operations. Accordingly, special
charges of $14.8 million were recorded in the fiscal period ended February 16,
2001. These charges were composed of workforce reduction costs of $10.1 million
related to severance and benefits associated with 238 terminated employees
across all business functions, predominantly in North America and the United
Kingdom. As a result of the downsizing and consolidation of the advanced
messaging business unit and the exit of the GX5000 product line, the Predecessor
Business recorded office closure and related moving costs of $2.0 million, a
fixed asset write-down of $2.2 million related to impaired research and
development and office equipment and professional fees of $0.5 million. These
restructuring programs were completed in the first six months of Fiscal 2002.

Loss on Disposal of Manufacturing Assets:

      On August 31, 2001, Mitel Networks outsourced its manufacturing
operations, including the sale of related net assets and the transfer of
employees and certain liabilities to BreconRidge, for total net consideration of
$7.8 million in the form of long-term promissory notes receivable of $8.4
million and promissory notes payable of $0.6 million. The transaction resulted
in a loss on disposal of $2.4 million that was recorded in operating expenses.
The loss represented the excess of the carrying value of the plant, equipment
and manufacturing workforce over the total net consideration.

      The long-term promissory notes receivable are secured by a first charge on
the manufacturing assets transferred, bear interest at LIBOR plus 1.5% and are
due on August 31, 2003. The promissory notes payable are unsecured, bear
interest at LIBOR plus 1.5%, are due on August 31, 2002 and were recorded in the
due to related parties balance on Mitel Networks' Consolidated Balance Sheet.

Interest Expense:

      Interest expense for the year ended April 28, 2002 represented 0.8% of
revenue compared to 0.2% of revenue for the fiscal period ended April 27, 2001.
This increase was attributable to the financing costs incurred on Mitel
Networks' credit facility with the Bank of Montreal, mortgage loans and capital
lease obligations incurred by Mitel Networks during Fiscal 2002 (see Item 4.B
Liquidity and Capital Resources).

Other Expense, Net:

      Other expense, on a net basis, in both the fiscal period ended April 27,
2001 and in Fiscal 2002 consisted primarily of foreign exchange rate gains and
losses and interest income. Other expense, on a net basis, decreased to 0.1% in
Fiscal 2002 compared to 0.4% in the fiscal period ended April 27, 2001
principally as a result of the foreign currency risk management strategy


                                      -44-
<PAGE>

implemented in Fiscal 2002. Mitel Networks uses foreign currency forward
contracts and foreign currency swaps to minimize the short-term impact of
currency fluctuations on foreign currency receivables, payables and intercompany
balances.

Provision for Income Taxes:

      Mitel Networks recorded provisions for income taxes of $0.2 million and
$0.9 million for Fiscal 2002 and for the fiscal period ended April 27, 2001,
respectively, resulting primarily from minimum tax liabilities in certain
jurisdictions. Based on the statutory tax rates in Canada, Mitel Networks would
have been expected to record income tax recoveries for these two fiscal periods.
However, a significant portion of the tax losses was derived from foreign
subsidiaries operating in jurisdictions with lower statutory tax rates than
those that apply in Canada. Furthermore, the tax benefit of tax losses and
deductible temporary differences incurred during these two fiscal years have not
been recognized for accounting purposes to date due to the lack of historical
profitability.

B. Liquidity and Capital Resources

      At April 28, 2002, cash and cash equivalents totaled $5.7 million, which
represented a decrease of $2.7 million from April 27, 2001. Prior to the
acquisition transactions, Zarlink managed cash and financing activities on a
centralized basis with no allocation of cash flows or cash balances to the
Predecessor Business. As a result, the financial statements filed as part of
this registration statement exclude cash flow information for the forty-six week
period ended February 16, 2001.

      Net cash used in operating activities totaled $96.8 million for the year
ended April 28, 2002 and resulted primarily from Mitel Networks' significant
research and development investment strategy during Fiscal 2002 leading to the
launch of its new Voice over Internet Protocol product portfolio in November
2001. Significant investments were also made in Fiscal 2002 to increase the
number of value added resellers and to establish strategic partnerships with
service providers, systems integrators and technology partners and to support
the opening of new sales offices in Italy, Germany, France, the Netherlands, the
United Arab Emirates, South Africa, Mexico, Hong Kong, China, Australia and
Korea. Cash used by the change in non-cash operating assets and liabilities was
$14.1 million in Fiscal 2002, due principally to higher inventory and accounts
receivable and lower accounts payable and accrued liabilities.

      Net cash used in operating activities amounted to $6.5 million for the
ten-week period ended April 27, 2001 and was mainly attributable to cash used in
operations before change in non-cash operating assets and liabilities of $5.2
million and net working capital requirements of $1.3 million as a result of
increased accounts receivable, partially offset by increases in accounts
payable, accrued liabilities and deferred revenue.

      Net cash used in investing activities totaled $19.2 million in Fiscal 2002
compared to $2.4 million for the ten-week period ended April 27, 2001. Capital
expenditures, which generally related to computer equipment and equipment used
on research and development, amounted to $18.3 million for Fiscal 2002 compared
to $2.4 million in the ten-week period


                                      -45-
<PAGE>

ended April 27, 2001. In Fiscal 2002, Mitel Networks used net cash of $0.8
million to acquire e-Smith, a supplier of open-source network server software.

      As part of the acquisition transactions, Mitel Networks purchased
preferred shares of Mitel Knowledge for $37.4 million, which was payable to
Mitel Knowledge pursuant to promissory notes aggregating that amount. These
promissory notes were unsecured and payable on demand. Of these promissory
notes, $20.2 million bore interest at 7.44% and the remaining balance was
non-interest bearing. In January 2002, Mitel Networks redeemed the preferred
shares in a non-cash transaction in exchange for the settlement of the
promissory notes.

      Net cash provided by financing activities totaled $113.5 million in Fiscal
2002 compared to $15.4 million in the ten-week period ended April 27, 2001. Cash
flows from financing activities in Fiscal 2002 were mainly due to (i) proceeds
from Mitel Networks' credit facility of $51.4 million, (ii) net proceeds from
the issuance of common shares of $37.6 million, and (iii) proceeds from mortgage
loans of $28.1 million. During Fiscal 2002, from time to time Mitel Networks
also borrowed funds from companies controlled by Dr. Terence H. Matthews to
finance its operating activities. In Fiscal 2002, total proceeds from these
related party loans amounted to $52.0 million (ten-week period ended April 27,
2001 - $15.4 million) while total repayments of principal and interest amounted
to $56.4 million, resulting in a balance payable of $11.0 million at April 28,
2002, compared to $15.4 million at April 27, 2001. Of the total $11 million
balance payable at April 28, 2002, $6 million was subordinated to the 364-day
revolving credit facility. These related party loans bear interest based on
prime rate plus 0.5% and are payable on demand.

      Mitel Networks has a 364-day revolving credit facility of up to a maximum
of $60.0 million (or the equivalent amount in U.S. dollars) that expires in
January 2003 and that is subject to a borrowing base. The facility bears
interest at the prime rate or U.S. base rate plus 0.5% or LIBOR or Banker's
Acceptance rate plus 1.5% and is secured by a general assignment of
substantially all Mitel Networks' accounts receivable. The credit facility
contains certain restrictions and financial covenants, including (a) quarterly
minimum levels of earnings before interest, income taxes, depreciation and
amortization ("EBITDA") and (b) quarterly minimum equity infusions. As a result
of additional subordinated debt infusions of $6 million by Dr. Terence H.
Matthews, Mitel Networks was in compliance with the restrictions and financial
covenants at April 28, 2002 and expects to remain in compliance for the term of
the credit facility. Although Mitel Networks expects to renew this credit
facility in January 2003, it is exposed to the risk that its ability to renew
this credit facility on favorable terms may be adversely affected by a
deterioration of its financial performance if the actual demand for its products
does not reach expected levels.

      The Company's U.K. subsidiary, Mitel Networks Limited, has a $2.3 million
((pound)1.0 million) overdraft facility and indemnity facilities totaling $9.1
million ((pound)4.0 million) available for letters of credit and other
guarantees. The overdraft facility bears interest at U.K. base rate plus 1.5%.
The overdraft facility and the indemnity facilities are secured by a first
charge of the U.K. subsidiary's real property located in the Mitel Business
Park, Caldicot, Monmouthshire. At April 28, 2002, the overdraft facility was
unused and $0.6 million was committed under letters of credit and other
indemnities.


                                      -46-
<PAGE>

      In December 2001, Mitel Networks' U.K. subsidiary obtained mortgage loans
totaling $26.5 million ((pound)12.5 million). The first mortgage loan amounts to
$9.6 million ((pound)5.0 million), bears interest at 7.7%, is payable in monthly
installments until October 2004 and is secured by certain equipment of the
subsidiary. The second mortgage loan amounts to $16.9 million ((pound)7.5
million), bears interest at 7.4%, is payable in quarterly installments of $0.7
million ((pound)0.3 million) with the balance due in December 2006 and is
secured by the real estate properties of the subsidiary. Pursuant to the terms
of these mortgages, Mitel Networks' U.K. subsidiary must comply with certain
financial covenants. Mitel Networks' subsidiary was in compliance with these
financial covenants at April 28, 2002 and expects to remain compliant for the
term of the loan agreements.

      During Fiscal 2002, Mitel Networks completed three equity offerings to
certain employees and eligible investors. Mitel Networks issued 9,606,180 common
shares for total consideration of $38.5 million of which $29.2 million was
received in cash and $9.3 million was covered by employee interest-free loans
repayable to Mitel Networks over a maximum two year period from the date of each
offering. Outstanding employee loans receivable amounted to $3.7 million at
April 28, 2002.

      In May 2001, Mitel Networks and its shareholders approved an Employee
Stock Purchase Plan allowing U.S. employees to purchase common shares of Mitel
Networks through a single lump sum payment and/or payroll deductions. Of the 6
million common shares authorized under the Employee Stock Purchase Plan, 3
million common shares were available for purchase at $4.00 (U.S. $2.58) per
share during a first offering period that started on May 14, 2001 and ended
April 30, 2002. As at April 30, 2002, employees had purchased 645,032 common
shares under the Employee Stock Purchase Plan for total cash consideration of
$2.6 million. No more shares are being offered under the Employee Stock Purchase
Plan.


      Mitel Networks' primary future cash needs on a recurring basis will
include the funding of operations, working capital, capital expenditures, debt
service and other contractual obligations. Since April 28, 2002, Mitel Networks
initiated and/or completed a series of actions to address its short-term and
long-term cash requirements. In addition to the equity financing initiatives
described below and in order to reduce its spending level, Mitel Networks
terminated 118 North American employees in June 2002 and 158 employees worldwide
in November 2002, across all functions, consolidated certain sales offices in
the U.S. and in the U.K., and downsized the European research and development
group and relocated it to Ottawa, Canada. In addition to the estimated $16
million annual savings expected from the Fiscal 2002 restructuring actions,
Mitel Networks expects that the actions taken in June 2002 and November 2002
will result in estimated annual savings of $20 million. Severance and
restructuring costs of $3.9 million were recorded as part of special charges in
the first quarter of Fiscal 2003 related to the June actions and we anticipate
to record additional on-time charge of approximately $10 million in the third
quarter of Fiscal 2003 related to the November actions. Effective December 2001,
Mitel Networks temporarily reduced its contributions to the Canadian pension
plan to the minimum contribution level required by the Financial Services
Commission of Ontario until its financial situation is improved. Mitel Networks
also implemented a temporary hour reduction program effective July 2002 to the
end of September 2002 and, subsequently, implemented a temporary unpaid days off
program which will remain in effect until the end of January 2003 at which point
the temporary ten percent hour reduction program, first instituted last summer,
will resume for an



                                      -47-
<PAGE>


indefinite period until Mitel Networks' financial situation has improved. These
actions are expected to result in additional annual savings of $18 million in
salary and related benefits costs.


      On August 16, 2002, Mitel Networks closed a private offering of debentures
convertible into its common shares that resulted in total cash proceeds of
$10,089,003. The term of the convertible debentures ends on April 25, 2003, but
may be extended at the option of the board of directors for a further period
ending no later than July 31, 2003. The debentures provide for interest to
accrue at the rate of 6.5% per annum payable on the maturity date or upon
conversion of the debentures and accrued interest into shares of Mitel Networks.
The principal amount of the debentures, together with accrued interest
outstanding under the debentures is subject to mandatory conversion, and will
automatically convert into shares of Mitel Networks (i) if an equity financing
occurs during the term pursuant to which equity securities which are, or which
are convertible into, common shares of Mitel Networks are issued, at an
equivalent price per share, or (ii) if no such financing occurs during the term,
at the end of the term, into fully-paid and non-assessable common shares of
Mitel Networks, at a price per common share equal to the lesser of $3.00 per
share and the price per share determined through external valuation by Mitel
Networks' board of directors.


      Mitel Networks, in conjunction with March Networks and Mitel Knowledge,
has signed an agreement for funding from the Canadian Government for up to $60
million of March Networks' and Mitel Networks' research and development
activities over a three year period. The funding is provided pursuant to an
initiative of the Government of Canada that is designed to promote economic
growth in Canada through strategic investment in technological research,
development and innovation. Mitel Networks expects to benefit from approximately
90% of any funds received under the program. Pursuant to the terms of the
agreement, in exchange for funding received from the Government of Canada, Mitel
Networks has committed to issue warrants to Her Majesty the Queen in Right of
Canada for the zero dollar purchase of common shares, with the warrants to be
issued as of September 30 in each of 2002, 2003 and 2004, and valued in
accordance with fair market value. As of November 25, 2002, Mitel Networks has
received a total of $17 million and has issued warrants for the acquisition of a
total of 6,182,588 common shares, calculated at a per share fair value of $2.75,
which was determined by an independent valuation.

      Management believes that Mitel Networks' cash flow will improve in Fiscal
2003 as a result of the initiatives completed since the beginning of the current
fiscal year. Mitel Networks continues to closely monitor its cash position and
cash requirements and is actively seeking additional sources of financing.

      In June, 2002, Mitel Networks retained the services of an investment
banker in connection with a proposed offering of Series A convertible preferred
shares to accredited investors. The Series A convertible preferred shares will
not be registered under the Securities Act of 1933, as amended, and may not be
offered or sold in the United States absent registration or an applicable
exemption from registration requirements. Mitel Networks anticipates that it
will offer up to $100 million in an offering which is expected to close prior to
the end of the fourth quarter of Fiscal 2003. As of the time of filing of this
registration statement, neither the terms and conditions of the offering, nor
the rights attaching to any securities to be offered



                                      -48-
<PAGE>

pursuant thereto, had been determined. There can be no assurance that Mitel
Networks will be able to complete this offering on satisfactory terms, or at
all.

      Mitel Networks has approximately $8.9 million available under its 364-day
revolving line of credit of $60 million and approximately $10.8 million
available under its UK overdraft and indemnity facilities.

      Based on the cost reduction measures described above, business conditions,
the anticipated net proceeds of equity financing initiatives currently being
pursued, cash flows from operations and other existing cash resources, Mitel
Networks believes that it will have sufficient cash to support its business
operations for the next 12 months. However, there can be no assurance that Mitel
Networks' underlying assumed levels of revenues and expenses will be accurate as
Mitel Networks is exposed to the risk that actual demand for its products may
not reach expected levels. If Mitel Networks' operating results were to fail to
meet expected levels or if inventory, accounts receivable or other working
capital items were to require a greater use of cash than is currently
anticipated, the additional funding that Mitel Networks is currently seeking may
not be sufficient and it could be required to seek additional funding through
additional private financing or other arrangements. There can be no assurance
that the current equity financing initiatives will be successful or that any
additional financing will be available when required or on favorable terms,
which could have a material adverse effect on Mitel Networks' business,
financial condition and results of operations.

Contractual Obligations and Commercial Commitments

      The following table sets forth Mitel Networks' contractual obligations as
at April 28, 2002.

                                              Payments Due by Period
                                    --------------------------------------------
Contractual Obligations                      Less than   1-3      4-5    After 5
(in millions)                        Total     1 Year   Years    Years    Years
--------------------------------------------------------------------------------

Credit Facility                     $ 51.1    $ 51.1   $   --   $   --   $   --
Loans from companies controlled
  by Dr. Terence H. Matthews          11.0      11.0       --       --       --
Promissory notes payable to
  BreconRidge                          0.6       0.6       --       --       --
Long-term debt                        26.5       4.9      5.3      3.5     12.8
Capital lease obligations              2.9       0.9      1.0      1.0       --
Unconditional purchase
  obligations                          0.7       0.7       --       --       --
-------------------------------------------------------------------------------
                                      92.8      69.2      6.3      4.5     12.8
Operating leases                     127.4      22.7     18.9     14.2     71.6
-------------------------------------------------------------------------------

Total contractual cash
  obligations                       $220.2    $ 91.9   $ 25.2   $ 18.7   $ 84.4
-------------------------------------------------------------------------------

      Included in the contractual obligations above is $51.1 million in cash
borrowed under the 364-day revolving line of credit of $60 million. In addition,
$0.6 million of the credit facility was committed under letters of credit at
April 28, 2002. Other commercial commitments


                                      -49-
<PAGE>

consisted of a $2.3 million ((pound)1 million) overdraft facility, and indemnity
facilities totaling $9.1 million ((pound)4 million) available for letters of
credit and other guarantees, of which $0.6 million was committed at April 28,
2002.

      Capital expenditures are expected to reach approximately $13 million in
Fiscal 2003 and are expected to be funded by cash flows from operations which
are dependent upon the ability of Mitel Networks to continue to attract orders
and develop products that have a competitive advantage. Failure to generate the
expected level of cash flow from operations could result in the delay or
abandonment of some capital expenditures.

      On August 31, 2002, the expiry date of the term of the promissory notes
payable to BreconRidge, an agreement was reached to effect a non-cash settlement
applying the $0.6 million balance of the two promissory notes payable against
the balance of the long-term promissory notes receivable from BreconRidge,
resulting in net promissory notes receivable of $7.8 million due on August 31,
2003.

      Mitel Networks' U.K. subsidiary maintains a defined benefit pension plan.
At April 28, 2002, the pension benefit obligation of $97.3 million exceeded the
fair value of the plan assets of $81.2 million, resulting in an unfunded status
of $16.1 million, of which $10.3 million was recorded on Mitel Networks'
Consolidated Balance Sheet in accordance with US GAAP. Mitel Networks' future
contributions to the pension plan, as determined by an independent actuarial
valuation, will be in compliance with U.K. pension regulations with respect to
contributions to, and funding level of the pension plan.

      Under the terms of certain agreements described under Item 10 of this
registration statement, Zarlink and Power Technology Investment Corporation have
the right to require Mitel Networks to redeem their common shares if Mitel
Networks fails to complete an initial public offering on or prior to August 31,
2006. Power Technology Investment Corporation also has additional rights to
require Mitel Networks to redeem its common shares upon the occurrence of
certain other triggering events. Mitel Networks is exposed to the risk that if
such triggering events occur, it could be required to redeem (a) up to 10
million common shares held by Zarlink for cash consideration of up to $28.5
million, and/or (b) up to 4 million common shares held by Power Technology
Investment Corporation for cash consideration of up to $16 million plus interest
accrued at an annual rate of 7% commencing on August 31, 2001 and compounded
semi-annually. There is no assurance that Mitel Networks' cash flows would be
sufficient to satisfy such obligation.

Recent Accounting Pronouncements

      In April 2001, the Emerging Issues Task Force of the Financial Accounting
Standard Board issued Issue 00-25, "Vendor Income Statement Characterization of
Consideration Paid to a Reseller of the Vendor's Products". EITF 00-25 addresses
the accounting and income statement classification of costs that a vendor incurs
to or on behalf of a reseller in connection with the reseller's purchase or
promotion of the vendor's products. The standard is effective for fiscal periods
beginning after December 15, 2001 and was adopted by Mitel Networks as of April
29, 2002. It is not expected that the adoption of this standard will have a
material impact on Mitel Networks' financial position, results of operations or
cash flows.


                                      -50-
<PAGE>

      In June 2001, the FASB issued SFAS 141, "Business Combinations", and SFAS
142, "Goodwill and Other Intangible Assets". SFAS 141 requires that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001. SFAS 141 also includes guidance on the initial recognition and
measurement of goodwill and other intangible assets arising from business
combinations completed after June 30, 2001. Mitel Networks has adopted SFAS 141
effective April 29, 2002. SFAS 142 requires goodwill and intangible assets with
indefinite useful lives to be tested for impairment and written down when
impaired, rather than being amortized as previous standards required. Intangible
assets with finite lives will continue to be amortized over their estimated
useful lives. On adoption of the new rules, Mitel Networks reclassified to
goodwill the acquired workforce totaling $7.6 million at April 28, 2002
previously classified as purchased intangible assets, and to cease its
amortization. Application of the non-amortization provisions of SFAS 142 to
goodwill is expected to result in an increase in earnings before income taxes of
$7.6 million in Fiscal 2003. As a result of the reassessment of the useful life
of identifiable intangibles completed in the first quarter of Fiscal 2003, Mitel
Networks will continue to amortize intangible assets with finite lives over a
two-year period. SFAS 142 also requires the company to establish reporting units
and apply a two-step approach to assessing goodwill impairment. The transitional
goodwill impairment test will be completed by the end of the second quarter of
Fiscal 2003.

      In July 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement
Obligations". The standard applies to obligations associated with the retirement
of tangible long-lived assets. The standard is effective for fiscal periods
beginning after June 15, 2002 and has been adopted by Mitel Networks as of April
29, 2003. It is not expected that the adoption of this standard will have a
material impact on Mitel Networks' financial position, results of operations or
cash flows.

      In August 2001, the FASB issued SFAS 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets" which supersedes SFAS 121, "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of" and
the accounting and reporting provisions of APB Opinion No. 30 for the disposal
of a business segment. SFAS 144 establishes a single accounting model, based on
the framework established in SFAS 121, for long-lived assets to be disposed of
by sale. The Statement also broadens the presentation of discontinued operations
to include disposals of a component of an entity and provides additional
implementation guidance with respect to the classification of assets as
held-for-sale and the calculation of an impairment loss. The standard is
effective for fiscal periods beginning after December 15, 2001 and was adopted
by Mitel Networks as of April 29, 2002. It is not expected that the adoption of
this standard will have a material impact on Mitel Networks' financial position,
results of operations or cash flows.

      In July 2002, the FASB issued SFAS 146, "Accounting for Costs Associated
with Exit of Disposal Activities". The standard will require Mitel Networks to
recognize costs associated with exit or disposal activities when they are
incurred rather than when the company commits to an exit or disposal plan.
Examples of costs covered by this guidance include lease termination costs, and
employee severance costs that are associated with a restructuring, discontinued
operations, plant closings or other exit or disposal activities. The provisions
of this standard are effective for fiscal years beginning after December 31,
2002, and will impact any exit or disposal


                                      -51-
<PAGE>

activities initiated after January 1, 2003. This standard does not currently
impact Mitel Networks.

C. Research and Development, Patents and Licenses, etc.

      See Item 5.A. Operating Results.

D. Trend Information

      The global marketplace for telephony customer premise equipment consists
of the systems, software, telephone sets and other peripherals and applications
used by organizations to interface with the public telephone system. Mitel
Networks and the Predecessor Business have competed in this market for over 29
years, during which time the predominant technology has been Private Branch
Exchange systems based on Time Division Multiplexing technology. Using this
technology, communications are delivered across both the public and private
telephone networks through actual switched circuits that maintain a hard-wired
connection across the entire communication path. For smaller businesses (up to
50 lines), the market has been serviced by key telephone systems, which
traditionally have a less sophisticated feature set and fewer integrated
applications and devices.

      The growth in the use of the Internet and related developments have
spurred an enormous worldwide surge in the volume of traffic transmitted both on
private and public networks. Data traffic in the public network has risen
dramatically such that it now consumes more bandwidth than voice. As a
consequence, public data networks based on Internet Protocol have grown to
address this demand with the support of broadband data capacity, lower
infrastructure costs and recent developments that enable carriers to offer
service level agreements. In addition, many devices are being built and enabled
to work directly as Internet Protocol-based network appliances including the
conversion of legacy data protocols to Internet Protocol. This has paved the way
for the convergence of voice, data, video in an Internet Protocol infrastructure
that meets the needs and quality expectations of the business user.

      A typical business today operates data resources with a local area network
and a wide area network that utilize a series of switches, routers, data
security and other equipment to transfer data messages within the enterprise
network or outside the location to other premises, other businesses or the
Internet. The challenge for this network infrastructure, which has the bandwidth
capacity to accommodate voice and video as well as other data, is in maintaining
quality of service for real-time communications with high reliability.

      The telecom sector is currently in the midst of an enormous market
disruption. The market for customer premises equipment is currently at a
crossroads with Internet Protocol communications emerging and traditional Time
Division Multiplexing communications on a slow and steady decline. This is
compounded by an economic downturn brought on by significant capital spending by
businesses upgrading communications systems prior to the year 2000. Due to these
converging elements, the industry is seeing capital expenditures declining and
organizations are trying to leverage existing investments to their fullest
extent. Many of the large customer premise equipment vendors have diversified
and are now particularly vulnerable due to a lack of focus on their core
businesses.


                                      -52-
<PAGE>

      The current downturn in general economic conditions, exacerbated by the
events of September 11, 2001, is resulting in a decreased demand for
communications equipment. In response to these events, Mitel Networks initiated
a series of restructuring actions during Fiscal 2002 to focus on new market
opportunities and to realign its spending level with the lower sales volumes.
These actions, which primarily consist of workforce reductions in most regions,
executed through 278 voluntary and involuntary terminations as well as the
outsourcing of certain support functions, are expected to result in a savings of
$16 million in Fiscal 2003. Any savings realized by Mitel Networks will be
reinvested in core business activities.

      In addition to the restructuring actions, Mitel Networks outsourced its
worldwide manufacturing and repair operations on August 31, 2001, including the
sale of related net assets and the transfer of employees, to BreconRidge for
total net consideration of $7.8 million. The transaction resulted in a loss of
$2.4 million recorded in operating expenses. This divestiture will allow Mitel
Networks to focus on core product research and development activities and is
expected to result in increased gross margins through to Fiscal 2004 based on
cost reduction commitments made by BreconRidge.

Enterprise Communication Systems Market

      Within the enterprise communication systems market there have been
significant fluctuations over the past five years. The market reached a peak in
1999 as the Year 2000 issue forced customers to invest in and update their
equipment. In 2000, Private Branch Exchange systems that incorporate Internet
Protocol functionality began shipping in volume to early adopting customers and
began to displace traditional systems. Management believes the steady decline in
volumes of voice systems has shown signs of flattening out in 2002, and
management expects a recovery in 2003 as customers migrate to Internet
Protocol-based technology.

      The adoption of Internet Protocol technology is being driven primarily by
cost savings and remote networking capabilities. The cost savings for the
customers include reduced network administration costs, move/add/change costs,
interoffice calling costs, and wiring expenses. In 2001, Internet Protocol-based
systems made up approximately 10% of all sales. Management believes that
shipments of Internet Protocol-based -Private Branch Exchange products will
surpass traditional Private Branch Exchange and key telephone systems equipment
by 2006. As a result of management's belief in Internet Protocol-based products,
Mitel Networks, through strategic repositioning activities such as restructuring
and the outsourcing of manufacturing, is continuing to make investments in new
product research and development.

Industry Disruption

      The rapid growth and subsequent unprecedented downturn in the global
communications market has led to considerable disruption among equipment
suppliers. In particular, suppliers focused on core network infrastructure and
other infrastructure for service providers have experienced dramatic reductions
in demand relative to suppliers serving primarily enterprise customers. Several
major diversified communications equipment suppliers have either decided to exit
the voice systems business or reduced their level of investment in new voice
technology platforms. Management believes that this has led to opportunities for
the remaining vendors to


                                      -53-
<PAGE>

gain market share. In addition, start-up companies are having difficulty
developing distribution channels for their new products, a significant barrier
to entry in this market.

      In the current environment, many customers are either delaying decisions
to purchase or seeking incremental rather than replacement products. The rapid
growth in business communications over the past few years, spurred on by Year
2000 spending, led to substantial investments in traditional voice systems and
networks. Most of these voice systems do not address the needs of businesses
that wish to transmit voice communications over both the traditional
circuit-switched telephone network and packet-switched data networks. For
example, traditional voice systems and networks do not permit a business to
route external calls over its existing voice network and route internal calls
between offices over Internet Protocol data networks using the same
communications system. However, in the current economic climate, many business
enterprises are unwilling or unable to make substantial additional investments
in order to obtain such functionality. Accordingly, Mitel Networks is seeking to
offer customers a migration path to Internet Protocol-based communications
leveraging their existing infrastructure and minimizing their incremental
investment.

      It is management's view that the desire for increased remote networking
capability and potential cost savings, among other things, will foster
mainstream adoption of Internet Protocol technology. Cost savings include
reduced network administration costs, systems moves, additions and changes
costs, interoffice calling costs and wiring expenses. Management believes that
Internet Protocol telephone technology has matured considerably in recent years,
particularly in the enterprise market, and is seen as a key enabler of cost
reduction and true network convergence. However, there are still several forces
that may act to delay the adoption of Internet Protocol telephony. These
include:

o     Traditional Time Division Multiplexing systems not fully depreciated due
      to the Year 2000 overspend, and still providing required functionality for
      many customers causing the market to be flat into calendar 2004.

o     For some customers with limited ability on their data networks, cost and
      complexity of re-engineering the data networks to support voice at
      required quality and redundancy levels (upgrade will need to be driven by
      more than just voice).

o     Economic benefits and end user value propositions are more evident for
      large enterprises.

o     Lack of full feature set capability and inter-working on some Internet
      Protocol-based products.

o     Standards adoption / collaboration in areas such as in-line powering and
      automatic discovery protocols.

      In order to maintain sustained revenues and market-share growth, Mitel
Networks believes that it is imperative that vendors of customer premise
equipment deliver communications solutions that provide high levels of
investment protection and an elegant migration path forward. This will be
coupled with the demand for intuitive applications and services that provide new
value to the user and fully leverage the power of converged voice, video, and
data networks.


                                      -54-
<PAGE>

      Distribution models among vendors of customer premise equipment have also
undergone large-scale changes. Vendors appear to be moving away from the direct
sales force and embracing the indirect sales model through relationships with
resellers, systems integrators and service providers. While this is the emerging
trend among vendors, Mitel Networks already has a strong indirect sales model.
Restructuring actions and a renewed focus on core business have allowed Mitel
Networks to redirect resources to broadening its distribution channels within
its core markets, North America and the United Kingdom, by increasing the number
of value added resellers and establishing strategic partnerships with service
providers, systems integrators and technology partners. To expand its geographic
penetration outside of its core markets, Mitel Networks has opened a number of
sales offices and invested significant resources to develop and deliver
regionally compliant products. Over the last 18 months, Mitel Networks has
opened sales offices in Italy, Germany, France, the Netherlands, the United Arab
Emirates, South Africa, Mexico, Hong Kong, China, Australia and Korea.
Management believes that Mitel Networks' financial condition will be
strengthened as a result of these strategic investments in channel augmentation
and geographic expansion.

Item 6. Directors, Senior Management and Employees

A. Directors and Senior Management

The directors, officers and senior managers of Mitel Networks are as follows:

                                                                 Position
Name                      Position                               Held Since
----                      --------                               ----------
Dr. Terence H. Matthews   Chairman                               February 2001

Donald W. Smith           Director                               April 2001
                          Chief Executive Officer

Paul A.N. Butcher         Director, President and Chief          February 2001
                          Operating Officer

Peter D. Charbonneau      Director                               February 2001

Kirk Mandy                Director                               July 2002

Sir David Rowe-Beddoe     Director                               July 2002

Jenifer Chilcott          Vice-President, General Counsel and    December 2001
                          Corporate Secretary

Stephane Godin            Vice-President Finance and Chief       February 2001
                          Financial Officer                      (Vice-President
                                                                 Finance)
                                                                 October 2001
                                                                 (Chief
                                                                 Financial
                                                                 Officer)


                                      -55-
<PAGE>

James Davies              Vice-President, SME Solutions          June 2002

Raymond Brown             Vice-President, Enterprise Solutions   June 2002

Carl Carruthers           Vice-President, Operations             May 2002



Simon Gwatkin             Vice-President, Strategic Marketing    February 2001

Graham Bevington          Vice-President and Managing Director,  January 2000
                          Europe, Middle-East, Asia and Africa
                          Region

George Cuesta             Vice-President, Enterprise Sales       February 2002
                          Channels

Stephen Grassie           Vice-President, North American         June 2002
                          Distributions

Sharron McIntyre          Treasurer                              March 2001

Directors may either be elected annually by the shareholders or, subject to the
articles of incorporation of Mitel Networks and applicable law, by the board of
directors between annual meetings. Each director holds office until the close of
the next annual meeting of Mitel Networks' shareholders or until he or she
ceases to be a director by operation of law, or until his or her removal or
resignation becomes effective. (Please see also Item 6.C "Board Practices", and
Item 10.B "Memorandum and Articles of Incorporation.")

The following summarizes certain biographical data concerning the directors and
senior management of Mitel Networks:

Dr. Terence H. Matthews, Chairman

Dr. Terence H. Matthews has been Chairman of Mitel Networks since February 2001.
Dr. Matthews has also been Chairman and CEO of March Networks Corporation since
June 2000, and was the Chairman and CEO of Newbridge Networks Corporation from
June 1986 until May 2000.

Donald W. Smith, Director and Chief Executive Officer

Donald W. Smith has been Chief Executive Officer of Mitel Networks since April
2001. From January 2000 until March 2001, Mr. Smith was President, Optical
Internet, Nortel Networks Corporation ("Nortel") and from December 1998 until
January 2000, he was the Vice-President


                                      -56-
<PAGE>

and General Manager of Optera Solutions at Nortel, and from 1996 until December
1998, Mr. Smith was President and Chief Executive Officer of Cambrian Systems
Corporation.

Paul A.N. Butcher, Director, President and Chief Operating Officer

Paul A.N. Butcher has been President and Chief Operating Officer of Mitel
Networks since February 2001. From 1999 until February 2001, Mr. Butcher was
Senior Vice President and General Manager of the Predecessor Business, and from
1997 until 1999, Mr. Butcher was Managing Director of the Predecessor Business,
for the Europe, Middle East and Africa region.

Peter D. Charbonneau, Director

Peter D. Charbonneau has been a General Partner of Skypoint Capital Corporation
since January 2001. From June 2000 until December 2000, Mr. Charbonneau was
Executive Vice-President of March Networks Corporation. From January 1987 until
May 2000, Mr. Charbonneau held various positions, including CFO, COO, President
and Vice-Chairman of Newbridge Networks Corporation.

Kirk Mandy, Director

Kirk Mandy has been an independent Management Consultant and Vice Chairman of
Zarlink since May 2001. Mr. Mandy also holds Chairman positions with several
privately held companies. Prior to May 2001, Mr. Mandy held various senior
management positions at Zarlink, the last of which was President and Chief
Executive Officer from 1998 to 2001.

Sir David Rowe-Beddoe, Director

Sir David Rowe-Beddoe has been Chairman of the Wales Millennium Centre since
2001. Sir David Rowe-Beddoe was also Chairman of the Welsh Development Agency
from 1993 to 2001, Chairman of the Development Board for Rural Wales from 1994
to 1998, President of Morgan Stanley - GFTA Ltd. from 1983 to 1991 and President
of GFTA Trendanalysen BGA Herrdum & Co. from 1981 to 1987.

Jenifer Chilcott, Vice-President, General Counsel and Corporate Secretary

Jenifer Chilcott has been Vice-President, General Counsel and Corporate
Secretary of Mitel Networks since December 2001 and was General Counsel of March
Networks Corporation from September 2001 to December 2001. From July 2000 to
July 2001, Ms. Chilcott was General Counsel, South East Asia, at Alcatel S.A.
From 1994 to July 2000, Ms. Chilcott held various positions, including Chief
Legal Counsel, Asia Pacific, within Newbridge Networks Corporation.

Stephane Godin, Vice-President Finance and Chief Financial Officer

Stephane Godin has been Vice-President Finance and Chief Financial Officer of
Mitel Networks since February 2001 and October 2001, respectively. From February
2000 until February 2001, Mr. Godin was Vice-President Finance of the
Predecessor Business. From April 1993 to February 2000, Mr. Godin held various
positions within Lafarge S.A., including International Treasurer and
Vice-President Finance.


                                      -57-
<PAGE>

James Davies, Vice-President, SME Solutions

James Davies has been Vice-President, SME Solutions of Mitel Networks since June
2002. From September 2001 until June 2002, Mr. Davies was Vice-President,
Solutions Management of Mitel Networks. From February 16, 2001, Mr. Davies was
Mitel Networks' Head of Research and Development. Prior to that, Mr. Davies held
the same position with the Predecessor Business since 1998. From 1988 until
1998, Mr. Davies held various positions with Nortel Networks Corporation.

Raymond Brown, Vice-President, Enterprise Solutions

Raymond Brown has been Vice-President, Enterprises Solutions of Mitel Networks
since June 2001. From February 16, 2001, Mr. Brown was Mitel Networks' Head of
the Mainstream Business Unit and Vice-President, North American direct sales.
Prior to that, Mr. Brown held the same two positions with the Predecessor
Business since 1999 and 1998, respectively. From 1988 until 1990, Mr. Brown was
Director, Sales and Marketing for the Public Switching Business Unit of the
Predecessor Business and Vice-President, Public Switching Business Unit from
1990 until the business unit was discontinued in 2000.

Carl Carruthers, Vice-President, Operations

Carl Carruthers has been Vice-President, Operations since May 2002 and was
employed by the Predecessor Business from 1976 until February 2001. From
February 16, 2001 until May 2002, Mr. Carruthers was Vice-President, North
American Direct Sales of Mitel Networks. Prior to that, Mr. Carruthers held the
same position for the Predecessor Business since 2000. From 1990 until 1991 Mr.
Carruthers was Vice-President, North American Manufacturing Operations and in
1991 until 2000 the scope of his responsibility was broadened to include
worldwide operations of the Predecessor Business.



Simon Gwatkin, Vice-President, Strategic Marketing

Simon Gwatkin has been Vice-President, Strategic Marketing of Mitel Networks
since February, 2001. From July 2000 until February, 2001, Mr. Gwatkin was Head
of the IP Business Unit of the Predecessor Business. From 1993 until July 2000,
Mr. Gwatkin held various senior management positions with the Predecessor
Business, including Head of the Asia Pacific operations. From 1990 until 1993,
Mr. Gwatkin was Managing Director and co-founder of Chough Software Limited.

Graham Bevington, Vice-President and Managing Director, Europe, Middle East,
Asia and Africa Region

Graham Bevington has been Mitel Networks' Vice-President and Managing Director
of the Europe, Middle East, Asia and Africa region since February 2001. Prior to
that, Mr. Bevington held the same position for the Predecessor Business since
January 2000. From 1997 until 2000, Mr. Bevington was Managing Director at
DeTeWe Limited. From 1986 until 1997, Mr. Bevington was Sales Director at
Shipton DeTeWe Limited.


                                      -58-
<PAGE>

George Cuesta, Vice-President, Enterprise Sales Channels

George Cuesta has been Vice-President, Enterprise Sales Channels of Mitel
Networks since June 2002. From February 2002 to June 2002, Mr. Cuesta was
Vice-President of the U.S. Service Provider Business Unit of Mitel Networks.
From 1989 until February 2002, Mr. Cuesta held various senior sales roles at
Egenera Networks Inc., Cisco Systems Inc., Nortel Networks Corporation and
Newbridge Networks Corporation.

Stephen Grassie, Vice-President, North American Distribution

Stephen Grassie has been Vice-President, North American Distribution of Mitel
Networks since June 2002. From February 2001 until June 2002, Mr. Grassie was
leading Mitel Networks' Canadian Sales Team. Prior to that, Mr. Grassie held the
same position for the Predecessor Business since 1999. From 1980 until 1999, Mr.
Grassie held various positions with the Predecessor Business, including
positions with North American customer service, marketing and operations
organizations. From 1978 until 1980, Mr. Grassie held various positions in the
distribution organization of Nortel Networks Corporation.

Sharron McIntyre, Treasurer

Sharron McIntyre has been Treasurer of Mitel Networks since March 2001. From
January 1997 until March 2001, Ms. McIntyre was Director Corporate Banking,
Scotia Capital. From September 1991 to July 1996, Ms. McIntyre held various
positions at Queen's University in Kingston, Ontario. From May 1980 to June
1991, Ms. McIntyre held various positions in the Canadian banking sector.

      There are no family relationships between any directors or executive
officers. There are no arrangements or understandings pursuant to which any
director or member of senior management was selected as a director or member of
senior management.

B. Compensation


      Senior management of Mitel Networks includes: Donald Smith, Paul Butcher,
Stephane Godin, Sharron McIntyre, Jenifer Chilcott, James Davies, Raymond Brown,
Graham Bevington, Carl Carruthers, Simon Gwatkin, George Cuesta and Stephen
Grassie. As Chairman, Dr. Terence H. Matthews has also been actively involved in
establishing the strategic direction of Mitel Networks. The aggregate annualized
salary paid during the fiscal year ended April 28, 2002 to senior management of
Mitel Networks (including Ms. Chilcott and Mr. Cuesta, who joined Mitel Networks
on December 1, 2001 and February 2002, respectively, Mr. Geoffrey Smith who was
employed by Mitel Networks during Fiscal 2002, and Mr. Carl Drodge who was
employed by Mitel Networks from February 2002 to November 2002) was $3,608,980.


      Pursuant to Mitel Networks' employee stock option plan (see Item 6.E), a
total of 1,015,000 options to acquire common shares at an exercise price of
$4.00 per share were granted to senior officers of Mitel Networks during the
fiscal year ended April 28, 2002. These stock options vest over four years and
expire on the fifth anniversary of the date of grant.


                                      -59-
<PAGE>

      Directors who are not also officers of Mitel Networks do not receive cash
compensation, however they are reimbursed for any out-of-pocket expenses
incurred in connection with attending directors meetings. In addition, as
previously approved by the shareholders of Mitel Networks, directors of Mitel
Networks are eligible to participate in Mitel Networks' stock option plan. No
options to acquire common shares were granted to non-employee directors during
Fiscal 2002.

      Under certain circumstances, section 124 of the Canada Business
Corporations Act permits or requires a corporation to indemnify its directors
and officers from claims, costs, charges and expenses incurred in connection
with civil, criminal or administrative actions to which he or she has been made
a party by reason of being, or having been, a director or officer of such
corporation. Mitel Networks, pursuant to section 124(4) of the Canada Business
Corporations Act, is insured under a policy of insurance maintained by a company
controlled by Dr. Terence H. Matthews for the benefit of the directors and
officers of the group of companies named in the policy in the sum of
$25,000,000. The current annual premium is paid to December 1, 2002 and the
portion of the cost thereof reimbursed by Mitel Networks to the related company
was $45,000. The policy of insurance contains a deductible of $50,000 in Canada
and $100,000 outside Canada applicable to each loss for which reimbursement is
sought by Mitel Networks and contains a number of exclusions and limitations to
the coverage provided, as a result of which Mitel Networks may, under certain
circumstances, be obligated to indemnify its directors or officers for certain
claims which do not fall within the coverage provided under the policy.

Employment Contracts

      There are no written employment contracts with any of Mitel Networks'
employees other than Donald Smith and Paul Butcher (see Item 10.C for a summary
of these employment contracts).

Indebtedness of Directors, Officers and Members of Senior Management

      None of the directors or officers of Mitel Networks, and no associate or
affiliate of any of them, is or has been indebted to Mitel Networks at any time
since the beginning of Mitel Networks' last completed fiscal year, except for
certain officers who have participated in Mitel Networks' employee loan program.
The employee loan program permitted employees to borrow up to $10,000 on an
interest -free basis, repayable within one year, for the sole purpose of
purchasing common shares of Mitel Networks in connection with the equity
financings completed by Mitel Networks in June 2001. The four officers who
participated in the loan program are Mr. Donald Smith, Mr. Butcher, Mr. Godin
and Ms. McIntyre, each of whom borrowed $10,000, and all of whom have repaid the
loans in full.

Pension and Retirement Plans

      Mitel Networks and its subsidiaries maintain defined contribution pension
plans that cover substantially all employees. Mitel Networks matches the
contributions of participating employees to the defined contribution pension
plans on the basis of the percentages specified in each plan. Mitel Networks
also maintains a defined contribution Supplemental Executive


                                      -60-
<PAGE>


Retirement Plan to provide supplementary retirement benefits to selected members
of Mitel Networks' executive management team. Amounts contributed by Mitel
Networks pursuant to the foregoing are included as part of the aggregate
compensation disclosed above. There were no material accrued obligations at
April 28, 2002 pursuant to these defined contribution pension plans. As part of
a series of cost reduction initiatives, Mitel Networks has reduced, on a
temporary basis, its contributions to the Canadian pension plan to the 1%
minimum contribution level required by Canadian pension regulations and expects
to reduce its contributions to the U.S. non-unionized 401(k) retirement plan and
the U.K. defined contribution pension plan until its financial situation is
improved.


      Mitel Networks' United Kingdom subsidiary also maintains a defined benefit
pension plan. The defined benefit plan provides pension benefits based on length
of service and final average earnings. The defined benefit pension costs accrued
by Mitel Networks are actuarially determined using the projected benefits method
pro-rated on services and management's best estimate of the effect of future
events. The most recent actuarial valuation of the plan was performed as at
March 31, 2002. As at April 28, 2002, the actuarial present value of the accrued
pension benefits of $97.3 million exceeded the fair market value of the net
assets available to provide for these benefits of $81.2 million, resulting in an
unfunded status of the defined benefit pension plan of $16.1 million, of which
$10.3 million was recorded in Mitel Networks' Consolidated Balance Sheet in
accordance with US GAAP. Mitel Networks' future contributions to the pension
plan, as determined by an independent actuarial valuation, will be in compliance
with U.K. pension regulations with respect to contributions to, and funding
level of, the pension plan.

      In June 2001, the defined benefit pension plan was closed to new employees
and a defined contribution option was introduced to participants of the defined
benefit pension plan. Participants were given the choice to continue in the
defined benefit plan or to transfer their assets to the defined contribution
plan. All participants opted to continue in the defined benefit plan.

C. Board Practices

      The articles of incorporation of Mitel Networks provide that the board of
directors of Mitel Networks shall consist of a minimum of one and a maximum of
ten directors. Under Canadian law, 25% of Mitel Networks' board of directors
must be residents of Canada, subject to certain exceptions. Directors can be
either elected annually by the shareholders at the annual meeting of
shareholders or, subject to the articles of incorporation of Mitel Networks and
applicable law, appointed by the board of directors between annual meetings.
Each director shall hold office until the close of the next annual meeting of
shareholders or until he or she ceases to be a director by operation of law or
until his or her resignation becomes effective. No director has any contract or
arrangement with Mitel Networks entitling him to benefits upon termination of
his directorship. Mitel Networks' executive officers are appointed by, and serve
at the discretion of, the board of directors.

      There are two committees of the board of directors of Mitel Networks: the
Audit Committee and the Compensation Committee. These committees meet regularly
and operate under specific terms of reference as approved by the board of
directors.


                                      -61-
<PAGE>

      The Audit Committee consists of two directors. The committee members are
Peter Charbonneau and Kirk Mandy. This committee is responsible for the
relationship with Mitel Networks' independent external auditor and for actively
engaging in a dialog with that auditor with respect to any disclosed
relationships or services that may impact the objectivity and independence of
the auditor. This committee is also responsible for developing Mitel Networks'
approach to governance issues and Mitel Networks' response to corporate
governance guidelines of regulatory authorities.

      The Compensation Committee consists of two directors. The committee
members are Peter Charbonneau and Kirk Mandy. This committee is responsible for
administering Mitel Networks' executive compensation programs and Mitel
Networks' pension plan programs. Responsibilities include developing
compensation guidelines and philosophy for executive management and annually
reviewing and approving compensation for executive officers of Mitel Networks.
With respect to long-term incentives, this committee reviews and recommends
periodic grants under the stock option plan. This committee also monitors
pension plan activities.

D. Employees


      The Predecessor Business had 3,040 employees at March 31, 2000. Mitel
Networks had 2,936 and 2,363 employees at April 27, 2001 and April 28, 2002,
respectively. At November 25, 2002, there were approximately 2,013 employees of
whom 993 employees were in Canada, 375 employees were in the U.S. and 645
employees were in the U.K. and other countries.

      Since the beginning of the fiscal year ended April 28, 2002, a number of
strategic decisions and restructuring programs have been implemented by Mitel
Networks, including the outsourcing of the manufacturing operations. These
programs resulted in total workforce reductions of approximately 1,200 employees
since the beginning of Fiscal 2002. This reduction was partially compensated by
recruiting in other strategic areas of the business.


      At the moment, Mitel Networks is hiring selectively to support current
skills shortages. The turnover rate of the Predecessor Business for the past 10
years was 7% - 8% on average, well below the market average of 10% - 12%, rose
to a high of approximately 17% in 2000 and is currently at less than 1% as a
result of the recent market and economic downturn.


      Mitel Networks' compensation programs include opportunities for regular
annual salary reviews, bonus plans and stock options. For Fiscal 2003, in step
with local markets, compensation programs are on hold and an hours reduction
program was implemented in June 2002 on a temporary basis to bridge market and
economic shortfalls. In October, Mitel Networks extended its cost containment
measures by implementing a program of mandatory unpaid days off through the end
of January 2003, at which point the temporary ten percent hour reduction
program, first instituted last summer, will resume for an indefinite period
until the company's financial situation has improved.


      Mitel Networks has a long -standing positive working relationship with the
International Brotherhood of Electrical Workers with respect to approximately
125 U.S. field technicians who perform installation, maintenance and systems
changes for Mitel Networks. The current contract


                                      -62-
<PAGE>


expires in the fall of 2003. By way of letter agreement dated July 1, 2002, the
International Brotherhood of Electrical Workers approved an amendment to the
contract permitting a temporary reduction in hours worked each week, which
lasted until the end of September 2002. In light of the ongoing economic
downturn, the union has recently approved a subsequent cost-containment measure,
whereby unionized employees will take a number of unpaid days off between the
beginning of October 2002 and the end of January 2003. Mitel Networks intends to
discuss a proposed extention of a new reduction in hours program with the union
in the near future and to bargain in good faith to attempt to achieve a result
similar to the non-unionized employees' extention to their hours reduction
program.


E. Share Ownership


      Donald Smith, Mitel Networks' Chief Executive Officer, currently holds
options to purchase 5,000,000 common shares of Mitel Networks. Of this amount,
options to purchase 2,000,000 common shares were granted by Mitel Networks at an
exercise price of $3.50 per share in accordance with Mitel Networks' stock
option plan. The remaining 3,000,000 options, which also have an exercise price
of $3.50 per share, are options to purchase outstanding shares of Mitel Networks
owned by Mitel Systems, a company indirectly wholly-owned by Dr. Terence H.
Matthews, which were granted to Mr. Smith by Dr. Matthews on March 1, 2002. Upon
the exercise of these latter options, the proceeds of the exercise would be paid
directly to Mitel Systems. The 3,000,000 options granted by Dr. Matthews on the
outstanding shares of Mitel Networks owned by Mitel Systems were intended to
provide an additional incentive to Mr. Smith in connection with his employment
by Mitel Networks. Had such options been issued by Mitel Networks, the aggregate
option grant to Mr. Smith would have been an excessive drain on the limited pool
of shares set aside by Mitel Networks under its stock option plan. The options
granted to Mr. Smith on the common shares currently held by Mitel Systems vest
in 25% increments on the first, second, third and fourth anniversaries of Mr.
Smith's employment start date, April 2, 2001, and expire on the fifth
anniversary of the employment start date. As of November 25, 2002, 1,250,000 of
the aggregate options held by Mr. Smith had vested, but none had been exercised.
Except for Dr. Matthews, whose share ownership information is disclosed in
Subsection 7.A, there are no other directors or officers of Mitel Networks who
beneficially own 1% or more of Mitel Networks' common shares.


Stock Option Plan

      The shareholders of Mitel Networks approved the Mitel Networks Corporation
Employee Stock Option Plan, dated March 6, 2001, amended as of May 8, 2001, and
further amended as of August 3, 2001. All (i) non-employee directors of Mitel
Networks, which are referred to in this registration statement as Director
Participants, and (ii) employees or officers of Mitel Networks, any subsidiary
and any affiliate, directors (other than Director Participants) of any
subsidiary and any affiliate and consultants or any consultant company on a
worldwide basis, which are referred to in this registration statement as
Participants, are eligible to participate in the stock option plan. There are no
other service requirements or prerequisites to participation in the stock option
plan. The stock option plan defines a "subsidiary" as any corporation in which
Mitel Networks, directly or through one or more corporations which are
themselves subsidiaries of Mitel Networks, owns 50% or more of the shares
eligible to vote at meetings of the company's shareholders. For the purposes of
the stock option plan, a company is an "affiliate" of another


                                      -63-
<PAGE>

company if one of them is a subsidiary of the other or if both are subsidiaries
of the same company, or if each of them is controlled by the same person or
company. Accordingly, provided that Dr. Terence Matthews continues to control
Mitel Networks, employees, officers and directors of other companies controlled
by Dr. Matthews will be eligible to participate in the Mitel Networks stock
option plan.


      Mitel Networks has reserved 25 million common shares for issuance under
the stock option plan. As of November 25, 2002, there were outstanding options
to purchase 16,487, 233 common shares. Therefore, under the terms of the stock
option plan, Mitel Networks is permitted to grant options to purchase an
additional 8,512,767 common shares. The following table sets forth aggregate
options held by senior management and directors at November 25, 2002.

                                                                      Total
                                               Total Options       Exercisable
Date of Grant             Exercise Price        Outstanding          Options
-------------------------------------------------------------------------------

March 6, 2001                 $ 3.50              5,116,000          1,279,000
June 15, 2001                 $ 4.00                 15,000              3,750
December 13, 2001             $ 4.00                 75,000                 --
February 25, 2002             $ 4.00                150,000                 --
April 26, 2002                $ 4.00                 25,000                 --
June 18, 2002                   (1)                  25,000                 --
July 12, 2002                   (1)                 114,000                 --
September 6, 2002               (1)                 528,000                 --
-------------------------------------------------------------------------------

Total                                             6,048,000          1,282,750
-------------------------------------------------------------------------------


----------
(1)   Stock options were granted without an exercise price which is to be
      determined once the fair market value of Mitel Networks' common shares is
      available.

      Mitel Networks' board of directors may terminate the stock option plan (or
any options thereunder) at any time. Options may only be granted pursuant to the
stock option plan within the ten-year period from March 6, 2001 to March 5,
2011. The termination of the stock option plan has no effect on outstanding
options, which continue in effect in accordance with their terms and conditions
and the terms and conditions of the stock option plan, provided that no option
granted under the stock option plan may be exercised after the tenth anniversary
of the date upon which the option was granted or such other date specified by
Mitel Networks' Compensation Committee at the time it grants the option (which
date shall not be prior to the date the Compensation Committee acts to grant the
option) (the "Date of Grant").

      The Compensation Committee administers the stock option plan. The
Compensation Committee has the sole and absolute discretion to determine which
Participants are granted options pursuant to the stock option plan. Director
Participants are granted a specified number of options by Mitel Networks' board
of directors upon the occurrence of certain specified events. Director
Participants are granted options to purchase (i) 10,000 common shares on the
date of each annual meeting of the shareholders of Mitel Networks at which the
Director Participant is


                                      -64-
<PAGE>

elected to serve as a member of Mitel Networks' board of directors, (ii) 15,000
common shares on the date of each annual meeting of the shareholders of Mitel
Networks at which the Director Participant is elected to serve as the chair of
Mitel Networks' board of directors, (iii) 2,000 common shares on the date of
each annual meeting of the shareholders of Mitel Networks following which the
Director Participant is appointed as a member of a Standing Committee (as
defined below) by Mitel Networks' board of directors and (iv) 4,000 common
shares on the date of each annual meeting of the shareholders of Mitel Networks
following which the Director Participant is appointed as chair of a Standing
Committee by Mitel Networks' board of directors. For purposes of the stock
option plan, "Standing Committee" means any sub-committee of Mitel Networks'
board of directors established by Mitel Networks' board of directors from time
to time, and includes the Audit Committee and the Compensation Committee.

      The number of options to be granted to the Director Participants, as well
as the number of common shares subject to each outstanding option and the
exercise price for such common shares, shall be adjusted for any subdivision,
redivision, consolidation or any similar change affecting the common shares. No
consideration is paid or payable by a grantee in connection with the initial
grant of any option under the stock option plan, although, as described below,
payment of the exercise price will be required to exercise any such option and
acquire the related common shares.

      The exercise price per common share purchasable under an option shall be
no less than (a) the average of the daily high and low board lot trading price
of the common shares for the five (5) trading days preceding the Date of Grant,
rounded to the next highest cent, if the common shares are listed on a
securities exchange in Canada, (b) the average of the daily high and low sales
price of the common shares reported in the consolidated reporting system in the
United States for the five (5) trading days preceding the Date of Grant, rounded
to the next highest cent, if the common shares are not listed on a securities
exchange in Canada, or (c) the fair market value of a common share on the Date
of Grant, as reasonably determined by the Compensation Committee, if the sales
price of the common shares is not reported in the consolidated reporting system
in the United States. Since the common shares are not reported in the
consolidated reporting system in the United States, the exercise price of
options granted at the present time may not be less than the fair market value
of a common share on the Date of Grant.

      Subject to accelerated termination as provided for in the stock option
plan, each option shall, unless otherwise specified by the Compensation
Committee, expire on the fifth anniversary of the Date of Grant, provided,
however, that no option may be exercised after the tenth anniversary of the Date
of Grant. Unless otherwise specified by the Compensation Committee at the time
of granting an option, and except as otherwise specified in the stock option
plan, each option will be subject to a vesting schedule whereby 25% of the
options vest on each anniversary of grant. The Compensation Committee shall have
the right to accelerate the date upon which any installment of any option is
exercisable.

      The stock option plan and each option granted thereunder is subject to the
requirement that, if at any time the Compensation Committee determines that the
listing, registration or qualification of the common shares subject to such
option upon any securities exchange or under any provincial, state, federal or
other applicable law, or the consent or approval of any


                                      -65-
<PAGE>

governmental body, securities exchange, or the holders of the common shares
generally, is necessary or desirable, as a condition of, or in connection with,
the granting of such option or the issuance or purchase of common shares
thereunder, no such option may be granted or exercised in whole or in part
unless such listing, registration, qualification, consent or approval shall have
been effected or obtained free of any conditions not acceptable to the
Compensation Committee.

      Unless otherwise determined by the Compensation Committee, if the
employment or services of a Participant or a Director Participant who has been
granted one or more options terminate for any reason other than death,
disability or retirement, any option (other than options granted to a Director
Participant in that capacity pursuant to the stock option plan (a "Director's
Option")) held by such option holder shall terminate effective upon the
expiration of any notice period with respect to such termination of employment
or services, except that each such option, to the extent then exercisable, may
be exercised for the lesser of 60 days following such termination, or the
balance of such option's term. Options shall not be affected by any change of
employment within or among Mitel Networks, any subsidiary or any affiliate.

      Unless otherwise determined by Mitel Networks' board of directors, if an
option holder's services terminate for any reason other than death, any
Director's Option, to the extent it becomes exercisable, held by such option
holder can be exercised within the lesser of three years from the date of
termination or the balance of such option's term.

      If an option holder's employment or services terminate by reason of death,
any unvested option held by such option holder vests immediately and may
thereafter be exercised for a period of 365 days (or such other period as the
Compensation Committee may specify) from the date of such death.

      Except in the case of a Director's Option, if an option holder's
employment or services terminate by reason of disability or retirement, any
option held by such option holder may thereafter be exercised, to the extent
then exercisable or to such other extent as the Compensation Committee may
determine, until the expiration of the stated term of such option.

      Unless otherwise determined by the Compensation Committee or Mitel
Networks' board of directors, any options outstanding immediately prior to the
occurrence of a change in control (defined as (a) the acquisition by any person
other than Mitel Networks or any of its affiliates of beneficial ownership of
securities of Mitel Networks representing 20% or more of the combined voting
power of Mitel Networks' then outstanding securities; or (b) the occurrence of a
transaction requiring approval of Mitel Networks' shareholders involving the
acquisition of Mitel Networks by an entity through purchase of assets, by
amalgamation or otherwise), but which are not then exercisable, shall become
fully exercisable upon the occurrence of a change in control. Unless otherwise
determined by the Compensation Committee or Mitel Networks' board of directors
at or after the Date of Grant, all such outstanding options shall be cashed out
at the change in control price (defined as the highest price per common share
paid in any transaction reported on a securities exchange or paid or offered in
any bona fide transaction related to a potential or actual change in control of
Mitel Networks at any time during the 5 trading days (or if the common shares
are not listed on any securities exchange and are not quoted for trading on a
United States automated quotation system, during the 3 month period) preceding
the change in control, as determined by the Compensation Committee or Mitel


                                      -66-
<PAGE>

Networks' board of directors), less the applicable exercise price for such
options, as of the date such change in control is determined to have occurred,
or as of such other date as the Compensation Committee or Mitel Networks' board
of directors may determine prior to the change in control. Outstanding options
may only be cashed out, as described above, if the change in control price is
higher than the exercise price for such outstanding options. Further, the
Compensation Committee or Mitel Networks' board of directors shall have the
right to provide for the conversion or exchange of any outstanding Options into
or for options, rights or other securities in any entity participating in or
resulting from the change in control. The Compensation Committee or Mitel
Networks' board of directors shall also have the right to determine, in its
discretion, that options outstanding, but which are not then exercisable, shall
not become exercisable and shall be canceled in the event of a change in
control.

      Option holders will not have any rights as a shareholder with respect to
common shares to be received upon exercise of an option until full payment of
the exercise price for such options has been made to Mitel Networks and the
common shares have been issued to the option holder (as evidenced by the
appropriate entry on the books of Mitel Networks or of a duly authorized
transfer agent of Mitel Networks).

Employee Stock Purchase Plan

      In May 2001, Mitel Networks and its shareholders approved the Employee
Stock Purchase Plan, which allowed U.S. resident employees to purchase common
shares through a single lump sum payment and/or payroll deductions. Of the 6
million common shares authorized under the Employee Stock Purchase Plan, 3
million common shares were available for purchase at $4.00 (U.S. $2.58) per
share during the first offering period that began May 14, 2001 and ended April
30, 2002. As at April 28, 2002, employees purchased 645,032 common shares for
cash consideration of $2.6 million. No more shares are being offered under the
Employee Stock Purchase Plan.

Item 7. Major Shareholders and Related Party Transactions

A. Major Shareholders


      Mitel Networks is directly controlled by Mitel Systems, which owns 90
million common shares or approximately 78% of the outstanding common shares, and
is indirectly controlled by Dr. Terence H. Matthews.

      The following table sets forth certain information as of November 25, 2002
concerning the beneficial ownership of common shares of Mitel Networks as to
each person known to the management of Mitel Networks to be the beneficial owner
of more than 5% of the outstanding shares of Mitel Networks:



                                      -67-
<PAGE>


                                                    Beneficial       Percentage
Title of Class   Identity of Person or Group       Amount Owned     of Class (3)
--------------   ---------------------------      -------------     ------------
Common Shares    Mitel Systems Corporation        90,000,000 (2)         78%
Common Shares    Dr. Terence H. Matthews        94,555,169 (1)(2)        82%
Common Shares    Zarlink Semiconductor Inc.         10,000,000            9%

----------
(1)   Based on indirect ownership of, or control or direction over, the shares
      of Mitel Systems and includes 4,555,169 common shares issued by Mitel
      Networks to Mitel Knowledge on November 1, 2002 on the exercise of the
      right to purchase the intellectual property owned by Mitel Knowledge
      pursuant to the Research and Development Agreement dated March 27, 2001
      (see Item 4.B under "Intellectual Property" for details).


(2)   Excludes the impact of vested options granted by Dr. Terence H. Matthews
      to Donald Smith and Paul Butcher to acquire up to 1,000,000 common shares
      in the aggregate from the holdings of Mitel Systems.


(3)   Calculated based on 115,439,998 common shares outstanding.

      At November 25, 2002, Dr. Terence H. Matthews also held 30,000 unvested
options to purchase common shares of Mitel Networks, at an exercise price of
$4.00 per share, expiring in July 2007.


      Mitel Networks' major shareholders do not have different voting rights
than other shareholders. Mitel Networks is not aware of any arrangements, the
operation of which would result in a change in control of Mitel Networks.

United States Shareholders


      On November 25, 2002, Mitel Networks had 445 registered shareholders with
addresses in the United States holding approximately 1,566,232 common shares or
approximately 1.41% of the total number of issued and outstanding shares. United
States residents also hold options to purchase 1,541,200 common shares.
Residents of the United States may beneficially own common shares registered in
the names of non-residents of the United States.


B. Related Party Transactions

      Set forth below is a description of several transactions between Mitel
Networks and persons or entities that are deemed to be related parties to Mitel
Networks. With the exception of Zarlink and the persons and entities referred to
below under "Other Transactions," all of such related parties are entities
directly or indirectly controlled by Dr. Terence Matthews. Zarlink, which is a
publicly-held Canadian corporation not affiliated with Dr. Matthews, is deemed a
related party because it owns approximately 9% of the outstanding common shares
of Mitel Networks. New Heights Software Corporation (a corporation controlled by
Dr. Matthews' son) may be deemed a related party because Dr. Matthews indirectly
owns approximately 15.7% of the interests in that company. Messrs. Paul Butcher
and Donald Smith are deemed related parties because they are executive officers
and directors of Mitel Networks.

      There are a significant number of related party transactions principally
as a result of the structure that was adopted in order to effectuate Dr.
Matthews' acquisition of the communications systems division of Zarlink. That
transaction was negotiated at arms' length


                                      -68-
<PAGE>

between Dr. Matthews and Zarlink. The parties agreed upon the aggregate
consideration to be paid for the communications systems division, which
consisted of cash and Zarlink's retained 10% interest in Mitel Networks. The
decision to effectuate the purchase partially through the acquisition of
Zarlink's Canadian real property by Mitel Research Park Corporation and
substantially all of the intellectual property assets of the Predecessor
Business by Mitel Knowledge Corporation was made, and the resulting agreements
between Mitel Networks and such other entities were entered into, in order to
structure the transaction in the most tax-efficient manner and to maximize the
economic benefits of such transaction to the purchaser.

Research and Development Agreements


      With effect from February 16, 2001 until November 1, 2002, Mitel Networks
was party to a research and development agreement with Mitel Knowledge, under
which Mitel Networks received funding to perform research and development
services. Mitel Knowledge owned the intellectual property for the products
developed and licensed certain of the intellectual property rights to Mitel
Networks in exchange for royalties based on a percentage of sales of products
developed under the programs. With effect from March 27, 2001 until November 1,
2002, Mitel Networks Overseas Limited, a wholly-owned subsidiary of Mitel
Networks, and Mitel Knowledge were parties to a research and development
cost-sharing agreement pursuant to which they shared the costs of research and
development, and in exchange for which Mitel Networks Overseas Limited obtained
a license to additional intellectual property rights. The research and
development agreement also provided that Mitel Networks would transfer to Mitel
Knowledge any investment tax credits earned on the research and development
activity to the extent that such investment tax credits were not required to
reduce Mitel Networks' Canadian federal tax payable. Management believes that
the arrangement set out in these agreements provided Mitel Networks with
research and development funding at a lesser cost than could have been obtained
from an independent third party based upon the likely return on investment that
a third party would require.

      From February 16, 2001 and up to the end of Fiscal 2002, Mitel Networks
received $11.5 million in research and development funding (with an additional
$5.5 million received in the two first quarters of Fiscal 2003), net of royalty
expenses of $0.9 million, that was recorded as part of due to related parties.
As at April 28, 2002, net balances payable pursuant to this agreement amounted
to $15.5 million (April 27, 2001 - balance receivable of $2.5 million).

      Effective November 1, 2002, the Company exercised the call right and
acquired the intellectual property from Mitel Knowledge at a price of
approximately $12.5 million to be satisfied by the issuance of approximately
4,555,169 common shares from treasury with a fair value of $2.75 per share,
which was based on an independent valuation. The purchase price was determined
based on an assigned value of $5.25 per share and the formula stated in the
research and development agreement, described above. As a result, the research
and development agreement dated February 16, 2001 and the research and
development cost-sharing agreement dated March 27, 2001 have been terminated.
This transaction resulted in the reclassification of the liability to issue
common shares of $15.3 million recorded in the due to related parties balance at
April 28, 2002 to common shares on the consolidated balance sheet.



                                      -69-
<PAGE>

Outsourcing of Manufacturing and Repair Operations

      On August 31, 2001, in an effort to rationalize its operations and focus
on core competencies, Mitel Networks sold its manufacturing and repair
operations, comprising plant, equipment, workforce and certain liabilities to
BreconRidge, a company controlled by Dr. Terence H. Matthews, for total net
consideration of $7.8 million in the form of long-term promissory notes
receivable of $8.4 million and promissory notes payable of $0.6 million. The
total net consideration approximated the fair value of the disposed
manufacturing tangible net assets. The long-term promissory notes receivable are
secured by a first charge on the manufacturing assets transferred, bear interest
at LIBOR rate plus 1.5 percent and are due on August 31, 2003. The promissory
notes payable are unsecured, bear interest at LIBOR rate plus 1.5 percent, are
due on August 31, 2002 and were recorded in due to related parties. The
transaction resulted in a loss on disposal of $2.4 million that was recorded in
operating expenses.

      In connection with the disposal of the manufacturing operations, Mitel
Networks entered into a supply agreement dated August 31, 2001 whereby
BreconRidge will provide certain products and services under terms and
conditions reflecting prevailing market conditions at the time the agreement was
entered into. The initial term of the agreement is three years and will be,
unless otherwise terminated, automatically renewed on the same terms and
conditions for an additional term of three years and thereafter shall be
automatically renewed for additional consecutive one-year periods. Under the
terms of the supply agreement, BreconRidge is required to purchase Mitel
Networks' raw material inventory, before turning to third party suppliers for
raw material procurement. During Fiscal 2002, Mitel Networks purchased $127.4
million of products and services and sold $31.2 million of raw material
inventory under this agreement (period ended April 27, 2001 - $nil). As at April
28, 2002, balances payable pursuant to this agreement amounted to $18.3 million
and balances receivable pursuant to this agreement amounted to $7.1 million.
Total inventory purchased and services received from BreconRidge amounted to $60
million in the first three months of Fiscal 2003. Total raw material inventory
sold to BreconRidge amounted to $5.8 million in the first three months of Fiscal
2003.


      On August 31, 2001, Mitel Networks also entered into service agreements
with BreconRidge to provide human resource, finance and information systems
support services during the transition period ended December 31, 2001 and to
provide facilities management services for the period covering the term of the
premise lease agreements. Amounts charged to BreconRidge were equal to, and
recorded as a reduction of, the costs incurred to provide the related services
in the consolidated statement of operations. During Fiscal 2002, Mitel Networks
provided services valued at $9.3 million under these agreements. As at April 28,
2002, balances receivable pursuant to these agreements were not material.


Leased Properties

      In March 2001, Mitel Networks entered into a lease agreement for its
Ottawa-based headquarter facilities of 512,391 square feet with Mitel Research
Park Corporation, a company controlled by Dr. Terence H. Matthews and the
acquirer of the real estate previously owned by Zarlink, under terms and
conditions reflecting prevailing market conditions at the time the lease was
entered into. The lease agreement is for 10 years expiring in March 2011.


                                      -70-
<PAGE>

      On August 31, 2001 and in connection with the outsourcing of its
manufacturing and repair operations, Mitel Networks entered into sublease
agreements with BreconRidge for certain office and manufacturing facilities in
Ottawa and in the United Kingdom totaling 252,941 square feet under terms and
conditions reflecting prevailing market conditions at the time the leases were
entered into. The Ottawa sublease agreement is for a term of five years expiring
in August 31, 2006 and the United Kingdom lease agreement is for a term of
fifteen years expiring in August 2016 with cancellation options on the fifth and
tenth years available to Mitel Networks and BreconRidge.

      Since February 16, 2001, Mitel Networks incurred $13.1 million of rent
expense in connection with the leased Ottawa headquarter facilities and earned
rental income of $5.6 million in connection with the BreconRidge sublease
agreements.

Preferred Share Investment

      On February 16, 2001, Mitel Networks' opening balance sheet resulting from
the acquisition transactions included a $37.4 million investment in preferred
shares of Mitel Knowledge and an equal amount of promissory notes payable to
Mitel Knowledge recorded in due to related parties. In January 2002, Mitel
Networks redeemed the $37.4 million preferred share investment in Mitel
Knowledge in a non-cash transaction in exchange for the settlement of an equal
amount of promissory notes payable to Mitel Knowledge. These promissory notes
were unsecured and payable on demand. Of these promissory notes, $20.2 million
bore interest at 7.44% and the remaining balance was non-interest bearing.

      As a result of the acquisition transactions, Mitel Networks also held $7.5
million of unsecured non-interest bearing demand promissory notes payable to
Zarlink and Mitel Systems in connection with the disposal of the Predecessor
Business by Zarlink. These promissory notes were included in due to related
parties at April 27, 2001. In June 2001, Zarlink and Mitel Systems made a
non-cash contribution to the capital of Mitel Networks in exchange for the
settlement of the promissory notes.

Strategic Alliance Agreement with March Networks

      In September 2001, Mitel Networks entered into a strategic alliance
agreement and a global distribution agreement with March Networks, a company
controlled by Dr. Terence H. Matthews, to broaden its product portfolio and its
distribution channel. Under the terms of the agreement, the parties agree to
cooperate in the performance of joint development activities and each party will
bear its own costs arising in connection with the performance of its
obligations. Both parties will share common costs incurred in the performance of
joint activities. During Fiscal 2002, Mitel Networks purchased $2.3 million in
products and services from March Networks and had a balance payable of $0.4
million recorded in the due to related parties pursuant to this agreement at
April 28, 2002 (April 27, 2001 - $nil).

Financing of Operations

      Since February 16, 2001, Mitel Networks has borrowed, from time to time,
funds from companies controlled by Dr. Terence H. Matthews to finance its
operations and wording capital requirements.


                                      -71-
<PAGE>


      On December 21, 2001, Mitel Networks borrowed $5 million from Mitel
Knowledge, a company controlled by Dr. Terence H. Matthews, in the form of a
unsecured demand promissory note bearing interest at prime plus 0.5%. During the
first two quarters of Fiscal 2003, $4 million of the original amount was repaid,
leaving a balance of $1 million outstanding as at October 27, 2002.

Mitel Networks also borrowed $21 million from Wesley Clover Corporation, a
company controlled by Dr. Terence H. Matthews, in a series of transactions set
forth below. These unsecured demand promissory notes were still outstanding at
October 27, 2002 and subordinated to bank debt.


               Principal          Date of issuance      Interest rate
              --------------------------------------------------------

              $6 million           April 22, 2002           Prime
              $4 million            May 10, 2002            Prime
              $5 million            June 7, 2002            Prime
              $5 million           June 21, 2002            Prime
              $1 million           July 25, 2002            Prime
             -----------
             $21 million
             -----------

Other Transactions

      Mitel Networks has entered into technology licensing and distribution
agreements with New Heights Software Corporation, a corporation which is
controlled by Owen Matthews, Dr. Terence H. Matthews' son, and in which Dr.
Matthews owns indirectly a 15.7% interest. The terms of both agreements reflect
prevailing market conditions. New Heights Software Corporation develops
technology that enables video, voice and collaboration functionality to be
integrated directly into Web-based applications.

      In the normal course of business, Mitel Networks enters into purchase and
sale transactions with companies related to Dr. Terence H. Matthews under terms
reflecting prevailing market conditions. Mitel Networks also purchases
semiconductor components from, and leases facilities located in the U.K. to,
Zarlink, the holder of approximately 9% of its common shares issued and
outstanding (see Item 4.D). These transactions were immaterial during the period
from February 16, 2001 to July 28, 2002.


      By way of private letter agreements between Mr. Paul Butcher, Chief
Operating Officer of Mitel Networks, Mr. Donald Smith, Chief Executive Officer
of Mitel Networks, and Dr. Terence H. Matthews dated March 1, 2002, Dr. Matthews
granted to Mr. Butcher and Mr. Smith options to purchase common shares of Mitel
Networks owned by Mitel Systems, a company indirectly wholly owned by Dr.
Matthews. Proceeds of the exercise of any such options will be payable by Mr.
Smith and Mr. Butcher to Mitel Systems. Such options vest in 25% increments on
the first, second, third and fourth anniversaries of Mr. Smith's start date
(April 2, 2001) and Mr. Butcher's start date (February 16, 2001). As of November
25, 2002, none of these options have been exercised.



                                      -72-
<PAGE>

C. Interests of Experts and Counsel

      Not applicable.

Item 8. Financial Information

A. Consolidated Statements and Other Financial Information

      Mitel Networks' Financial Statements, which are set forth in the
accompanying index to Consolidated Financial Statements included in this
registration statement, are filed as a part of this registration statement
pursuant to Item 18.

Legal Proceedings

      Mitel Networks is subject to a relatively small number of claims or
potential claims that have arisen in the normal course of its business. In the
opinion of Mitel Networks, any monetary liability or financial impact of such
claims or potential claims to which Mitel Networks might be subject after final
adjudication would not be material to the consolidated financial position of
Mitel Networks or the consolidated results of its operations.

Dividend Policy

      Mitel Networks has not declared or paid any cash dividends on its common
shares. Mitel Networks currently intends to retain any future earnings for use
in the operation and expansion of its business. Mitel Networks does not
anticipate paying any cash dividends on its common shares in the foreseeable
future.

B. Significant Changes

      No significant change has occurred since the date of the audited
consolidated financial statements included in Item 18, except for the private
offering of convertible debentures that closed on August 16, 2001 (see details
under Item 5.B).

Item 9. The Offer and Listing

A. Offer and Listing Details

      This registration statement covers common shares of Mitel Networks and is
being filed pursuant to Section 12(g) of the Securities Exchange Act of 1934, as
amended. No common shares are being offered for sale by Mitel Networks pursuant
to this registration statement. The common shares of Mitel Networks are not
listed for trading on any United States, Canadian or other stock exchange, there
are currently no plans to list the common shares on any stock exchange, and
there is no guarantee that any such listing will be completed in the future.
There is no market through which Mitel Networks' common shares may be sold or
resold. The common shares have not been registered under the United States
Securities Act of 1933, as amended, or any state securities laws, the securities
laws of Canada or any province thereof, or the securities laws of any other
country or governmental subdivision thereof. Therefore, there are significant
restrictions on the resale of Mitel Networks' common shares.


                                      -73-
<PAGE>

      The common shares may not be resold unless registered under applicable
securities laws or an exemption from registration is available under applicable
securities laws. The terms of Mitel Networks' articles of incorporation also
prohibit any transfer of common shares without the consent of Mitel Networks'
board of directors.

      Since the formation of Mitel Networks on January 12, 2001, all common
shares that have been offered or sold have been priced at $4.00 per share, other
than 3,562 common shares acquired upon the exercise of options having an
exercise price of $3.50 per share.

B. Plan of distribution.

      Not applicable.

C. Markets.

      Mitel Networks' common shares are not listed for trading on any stock
exchange or any other regulated market. See "Offer and Listing - Offer and
Listing Details".

D. Selling shareholders.

      Not applicable.

E. Dilution.

      Not applicable.

F. Expenses of the issue.

      Not applicable.

Item 10. Additional Information

A. Share Capital

      The articles of incorporation of Mitel Networks authorize Mitel Networks
to issue an unlimited number of common shares at no par value. All common shares
rank equally as to dividends, voting rights and the distribution of assets upon
winding up or liquidation. Holders of common shares are entitled to one vote for
each share held of record on all matters to be acted upon by the shareholders.
Holders of common shares are also entitled to receive such dividends as may be
declared from time to time by the board of directors, in its discretion, out of
funds legally available therefor. In accordance with the articles of
incorporation, there are certain restrictions on the transfer of shares. The
transfer of shares can only occur if the transaction is in accordance with the
Ontario Securities Act and has been approved by Mitel Networks' board of
directors.


      There were 100,000,000 common shares of Mitel Networks issued and
outstanding as of April 27, 2001, and 115,439,998 as of April 28, 2002. As of
November 25, 2002 there were 115,439,998 common shares issued and outstanding.
Of this total, 90 million (or 78%) common



                                      -74-
<PAGE>


shares were issued to Mitel Systems, 10 million (or 9%) common shares were
issued to Zarlink as part of the acquisition transactions, and 4,555,169 (or 4%)
common shares were issued to Mitel Knowledge on November 1, 2002 upon exercise
of the right to purchase the intellectual property (see Item 4.B Intellectual
Property). A reconciliation of the number of common shares outstanding at the
beginning and end of the fiscal year ended April 28, 2002 is detailed in the
Consolidated Statement of Shareholders' Equity included in the audited
consolidated financial statements under Item 18 of this registration statement.


      During Fiscal 2002, Mitel Networks completed three equity offerings to
certain employees and eligible investors. Mitel Networks issued an aggregate of
9,606,180 common shares for total consideration of $38.5 million of which $29.2
million was received in cash and $9.3 million was funded by way of interest-free
loans repayable to Mitel Networks over a maximum two year period from the date
of each offering. As at April 28, 2002, outstanding employee loans receivable
amounted to $3.7 million, of which amount $35,648 represents loans to senior
management.

      In May 2001, Mitel Networks and its shareholders approved the Employee
Stock Purchase Plan allowing U.S. employees to purchase common shares of Mitel
Networks through a single lump sum payment and/or payroll deductions. Of the 6
million common shares authorized under the Employee Stock Purchase Plan, 3
million common shares were available for purchase at $4.00 (U.S. $2.58) per
share during a first offering period that started on May 14, 2001 and ended
April 30, 2002. As at April 30, 2002, employees had purchased 645,032 common
shares under the Employee Stock Purchase Plan for total cash consideration of
$2.6 million. No more shares are being offered under the Employee Stock Purchase
Plan.

      For information regarding outstanding options to purchase common shares of
Mitel Networks, refer to Item 6.E.

      On July 11, 2002 the shareholders of Mitel Networks passed a resolution
authorizing an amendment to the articles of incorporation to provide for the
creation of an unlimited number of Class A Preferred Shares. The Class A
Preferred Shares may be issued at any time or from time to time in one or more
series. The board of directors of Mitel Networks may from time to time fix the
number of shares, and determine the designation, rights, privileges,
restrictions and conditions attaching to the shares, of each series of Class A
Preferred Shares.


      The Research and Development Agreement executed between Mitel Networks and
Mitel Knowledge as of March 27, 2001, which was terminated on November 1, 2002,
provided for a call right pursuant to which Mitel Networks had the right to
require Mitel Knowledge to sell all of its rights, title, interest in, and
benefits from, the intellectual property, including improvements and new
technology, to Mitel Networks. The Research and Development Agreement provided
that the purchase price for the intellectual property would be paid through the
issuance of common shares from Mitel Networks' treasury. The number of common
shares would be determined in accordance with a formula described in the
agreement, which was designed to reimburse Mitel Knowledge for its costs
incurred in connection with the Research and Development Agreement.



                                      -75-
<PAGE>


      Effective November 1, 2002, Mitel Networks terminated the Research and
Development Agreement and exercised the call right. It acquired the intellectual
property from Mitel Knowledge at a price of approximately $12.5 million,
satisfied through the issuance of approximately 4,555,169 common shares from
treasury with a fair value of $2.75 per share. The purchase price was determined
based upon an assigned value of $5.25 per share and the formula stated in the
Research and Development Agreement (see Item 4.B Intellectual Property).

      Mitel Networks, in conjunction with March Networks and Mitel Knowledge,
has signed an agreement for funding from the Canadian Government for up to $60
million of March Networks' and Mitel Networks' research and development
activities over a three year period. The funding is provided pursuant to an
initiative of the Government of Canada that is designed to promote economic
growth in Canada through strategic investment in technological research,
development and innovation. Mitel Networks expects to benefit from approximately
90% of any funds received under the program. Pursuant to the terms of the
agreement, in exchange for funding received from the Government of Canada, Mitel
Networks has committed to issue warrants to Her Majesty the Queen in Right of
Canada for the zero dollar purchase of common shares, with the warrants to be
issued as of September 30 in each of 2002, 2003 and 2004, and valued in
accordance with fair market value. As of November 25, 2002, Mitel Networks has
received a total of $17 million and has issued warrants for the acquisition of a
total of 6,182,588 common shares, calculated at a per share fair value of $2.75,
which was determined by an independent valuation.

      On August 16, 2002, Mitel Networks closed a private offering of debentures
convertible into common shares of Mitel Networks, which raised an aggregate
principal amount of $10,089,003. The term of the convertible debentures ends on
April 25, 2003, but may be extended at the option of the board of directors for
a further period ending no later than July 31, 2003. The debentures provide for
interest to accrue at the rate of 6.5% per annum payable on the maturity date or
upon conversion of the debentures and accrued interest into common shares of
Mitel Networks. The principal amount of the debentures, together with accrued
interest outstanding under the debentures is subject to mandatory conversion,
and will automatically convert in whole and not in part into shares of Mitel
Networks (i) if an equity financing occurs during the term pursuant to which
equity securities which are, or which are convertible into, common shares of
Mitel Networks are issued, at an equivalent price per share, or (ii) if no such
financing occurs during the term, at the end of the term, into fully-paid and
non-assessable common shares of Mitel Networks, at a price per common share
equal to the lesser of $3.00 per share and the price per share determined
through external valuation by Mitel Networks' board of directors. Although the
debentures are not currently convertible, assuming a current share price of
$2.75 per share, a total of approximately 3,710,371 shares of Mitel Networks
would have been issued to debentureholders if conversion had occurred on
November 25, 2002 . Mitel Networks intends to use net proceeds of the debenture
offering to fund sales and marketing, research and development, capital
expenditures, working capital, and for general corporate purposes.


Special Rights

      Pursuant to a subscription agreement dated August 31, 2001, as amended as
of May 3, 2002, entered into with Power Technology Investment Corporation, Mitel
Networks issued 4 million common shares for cash consideration of $16 million.
Under the terms of the


                                      -76-
<PAGE>

subscription agreement, within thirty days following the occurrence of certain
triggering events, Power Technology Investment Corporation has the right to
require Mitel Networks to redeem all or part of its common shares at a price of
$4.00 per share plus interest accrued at an annual rate of 7% commencing on
August 31, 2001 and compounded semi-annually. Power Technology Investment
Corporation also has additional non-interest bearing put rights that can be
exercised at a price of $4.00 per share at any time after the occurrence of
certain other events. See Item 10.C "Material Contracts" for additional
information on the subscription agreement.

      If, at any time prior to Mitel Networks having completed a single equity
or equity component financing of at least $20 million, Mitel Networks issues
common shares or common share equivalents to any party under terms that are more
favorable than the rights of Power Technology Investment Corporation under the
Shareholders' Agreement described above, Power Technology Investment Corporation
has the right to exchange its shares for that number of such common shares or
common share equivalents as would be issued at a $4 subscription price, with
certain additional rights attaching to the securities. If, at any time prior to
Mitel Networks completing an aggregate $40 million in equity financing, Mitel
Networks issues common shares or common share equivalents to any party at a
price or exercise price below $4.00 per share, Power Technology Investment
Corporation has the right to require Mitel Networks to issue, for nominal
consideration, an additional number of such common shares or common share
equivalents necessary to maintain the then current ownership percentage of Power
Technology Investment Corporation in Mitel Networks.

      In connection with the subscription agreement described above, the
original shareholders agreement dated February 16, 2001 previously entered into
by Mitel Networks, Mitel Systems and Zarlink, was amended and restated on August
31, 2001. Pursuant to this amended and restated shareholders agreement, within
thirty days following the failure by Mitel Networks to complete an initial
public offering of its common shares on or prior to the fifth anniversary of the
date of the amended shareholders agreement, Zarlink has the right to require
Mitel Networks to redeem all or part of its 10 million common shares held in
Mitel Networks at a price of $2.85 per share.

      Pursuant to the amended and restated shareholders agreement, no securities
shall be issued by Mitel Networks, other than for employee stock-based
compensation or in connection with a business acquisition, to any persons before
the securities have first been offered to Power Technology Investment
Corporation, Zarlink and Mitel Systems. These three shareholders are not
entitled to receive more than their proportionate share of the securities
offered calculated as at the date of offer of the securities.

B. Memorandum and Articles of Incorporation

      Mitel Networks' certificate and articles of incorporation are included in
this registration statement under Item 9. Exhibits.

      Mitel Networks is incorporated under the Canada Business Corporations Act
under company number 385460-4. The date of incorporation is January 12, 2001.
Mitel Networks' certificate and articles of incorporation do not contain any
limitations on Mitel Networks' objects


                                      -77-
<PAGE>

or purposes. The following is a summary of certain provisions of Mitel Networks'
certificate and articles of incorporation and by-laws:

Annual Meeting of Shareholders

      Mitel Networks' by-laws refer to subsections 133(a) and 155(1) of the
Canada Business Corporations Act. Mitel Networks must hold an ordinary general
meeting of its shareholders at least once every calendar year at a time and
place determined by its directors and not later than fifteen months after the
preceding ordinary general meeting. Mitel Networks must place before the
shareholders at every annual meeting comparative financial statements for the
immediately preceding financial year along with the report of the auditor.

Special Meetings of Shareholders

      Mitel Networks' chair, president or any vice president may at any time
convene a special meeting. In accordance with subsection 143 of the Canada
Business Corporations Act, referred to in the by-laws, Mitel Networks'
directors, upon the requisition of shareholders, shall proceed to convene the
meeting or meetings to be held at such time and place as the directors
determine. The requisition shall state the objects of the meeting requested, and
must be signed by the requisitionists and deposited at Mitel Networks'
registered office.

      Meetings of shareholders shall be held at the registered office of Mitel
Networks or any other place within Canada determined by the directors. Mitel
Networks' by-laws refer to section 132 of the Canada Business Corporations Act,
which states that shareholder meetings can be held outside of Canada as long as
the shareholders entitled to vote agree.

      The by-laws refer to sections 135 and 136 of the Canada Business
Corporations Act with respect to notice of meetings and adjournments. At least
21 days' notice, or any longer period of notice as may be required by the Canada
Business Corporations Act, of every general meeting, specifying the place, day
and hour of the meeting and, when special business is to be considered, the
general nature of such business, must be given to Mitel Networks' shareholders
entitled to be present at Mitel Networks' meeting by notice given as permitted
by Mitel Networks' articles of incorporation. With the consent in writing of all
Mitel Networks' shareholders entitled to vote at the meeting, a shorter notice
or a notice given in any other manner may convene a meeting, or notice of the
time, place and purpose of the meeting may be waived by all of Mitel Networks'
shareholders. If a meeting of shareholders is adjourned for less than 30 days it
is not necessary to give notice of the adjourned meeting other than by
announcement at the earliest meeting that is adjourned.

      The by-laws reference section 139 of the Canada Business Corporations Act.
No business will be transacted at any general meeting unless the requisite
quorum is present at the commencement of the business. A quorum of shareholders
is present at a meeting of shareholders, irrespective of the number of persons
actually present at the meeting, if the holders of a majority of the shares
entitled to vote at the meeting are present in person or represented by proxy.

      The right to vote and give proxies is in accordance with sections 140, 141
and Part XIII of the Canada Business Corporations Act as referenced in the
by-laws of Mitel Networks.


                                      -78-
<PAGE>

Holders of Mitel Networks' common shares are entitled to attend meetings and
vote. Any of Mitel Networks' corporate shareholders that have an authorized
agent or representative present at any of the meeting will be deemed to be
personally present at the meeting.

      If a resolution has been declared as carried or not carried by the
chairman at a meeting, it shall be conclusive evidence of the fact. The chairman
may vote as a shareholder at a meeting of shareholders but shall not have a
second or casting vote in case of an equality of votes.

      The by-laws refer to section 137 of the Canada Business Corporations Act
with respect to proposals made by shareholders entitled to vote. The shareholder
must submit to the corporation a notice of any matter that the person proposes
to raise at the meeting. The corporation shall set out the proposal in the
management proxy circular and the proposing shareholder may request to include a
supporting statement. If the corporation does not include the proposal in the
management proxy circular, it must send a notice of refusal to the proposing
shareholder including the reasons why the proposal will not be included. Either
the shareholder and/or the corporation may apply to the courts claiming
aggrievance.

Directors

      On July 11, 2002, the shareholders of Mitel Networks approved a resolution
amending the articles to enable the directors to appoint one or more additional
directors, who shall hold office for a term expiring not later than the close of
the next annual meeting of shareholders, but the total number of directors so
appointed may not exceed one third of the number of directors elected at the
previous annual meeting of shareholders.

      The by-laws refer to section 105 of the Canada Business Corporations Act,
which states that 25% of the directors of a corporation must be resident
Canadians. Section 106, also referred to in the by-laws states that a notice of
directors must be filed with the Director of the Canada Business Corporations
Act and updated upon any changes occurring. Directors are elected by the
shareholders annually at the annual meeting of shareholders.

      The by-laws refer to subsection 102(1) and section 122 of the Canada
Business Corporations Act with respect to general powers of directors.
Subsection 102(1) states that subject to any unanimous shareholder agreement the
directors shall manage the business and affairs of a corporation. Section 122
states that every director and officer of a corporation shall act honestly and
in good faith with a view to the best interests of the corporation and to
exercise care, diligence and skill that a reasonably prudent person would
exercise in comparable circumstances.

      The directors appoint officers of Mitel Networks after election at each
annual meeting of shareholders.

      Meetings of directors may be called by the chairman, president or any two
directors and notice of meeting shall be served upon each director at least 48
hours prior to the time fixed for such meeting. The directors may from time to
time fix the quorum for meetings of directors, but unless so fixed a majority of
the directors in office shall constitute a quorum. The chairman may vote as a
director at any meeting of the directors but shall not have a second or casting
vote in case of an equality of votes.


                                      -79-
<PAGE>

      The by-laws refer to section 109 of the Canada Business Corporations Act
with respect to the removal of directors. The shareholders of a corporation, or
the holders of any class or series of shares that has an exclusive right to
elect one or more directors, may by ordinary resolution at a special meeting
remove any director from office. If a vacancy is created by the removal of a
director, the vacancy may be filled at the meeting of the shareholders at which
the director is removed or if the vacancy remains unfilled, the directors may
fill the vacancy. The by-laws refer to section 108 of the Canada Business
Corporations Act. A director ceases to hold office if he dies or resigns, is
removed by the shareholders or he becomes disqualified by claiming bankruptcy or
becomes of unsound mind.

      Mitel Networks' by-laws refer to section 125 of the Canada Business
Corporations Act. Subject to the Canada Business Corporations Act, the directors
of Mitel Networks may fix the remuneration of the directors of Mitel Networks.

      The by-laws refer to section 117 of the Canada Business Corporations Act
with respect to written resolutions in lieu of meetings. A written resolution,
signed by all the directors entitled to vote on that resolution is as valid as
if it had been passed at a meeting of the directors or committee of directors.

      No director or officer shall be liable for the acts, receipts, neglects or
default of any other director or officer or employee for any loss, damage or
expense happening to Mitel Networks unless the same are occasioned by his own
willful neglect or default. Subject to the limitations of the Canada Business
Corporations Act, Mitel Networks shall indemnify a director or officer, a former
director or officer, or a person who acts or acted at Mitel Networks' request as
a director or officer against all costs, charges and expenses reasonably
incurred by him in respect of any civil, criminal or administrative action or
proceeding to which he is made a party by reason of being or having been a
director or officer of Mitel Networks if he acted honestly and in good faith
with a view to the best interests of Mitel Networks and in the case of a
criminal or administrative action or proceeding that is enforced by a monetary
penalty, he had reasonable grounds for believing that his conduct was lawful.

      Mitel Networks' by-laws refer to section 120 of the Canada Business
Corporations Act pursuant to which a director who directly or indirectly is
party to a material contract, shall disclose in writing to Mitel Networks or
request to have included in the minutes of the meeting the nature and extent of
such interest.

Committees

      The by-laws refer to section 115 of the Canada Business Corporations Act
pursuant to which directors of a corporation may appoint a committee of
directors and delegate to such committee any of the powers of the directors.

Officers

      Mitel Networks' by-laws refer to section 121 of the Canada Business
Corporations Act, which states that the directors may appoint officers and
specify their duties and delegate to them powers to manage the business and
affairs of the corporation. A director may be appointed to any office and any
person can hold more than one officer position.


                                      -80-
<PAGE>

Capital Stock

      Pursuant to the articles of incorporation, Mitel Networks' authorized
capital consists of an unlimited number of common shares without par value. Each
Common Share ranks equally as to dividends, voting rights and as to the
distribution of assets on winding-up for liquidation. Holders of common shares
are entitled to one vote for each share held of record on all matters to be
acted upon by the shareholders.

      The articles also provide that no shares of Mitel Networks may be
transferred without the consent of the directors of Mitel Networks evidenced by
a resolution passed by them and recorded in the books of Mitel Networks.

      On July 11, 2002, the shareholders of Mitel Networks approved the creation
of a class of Class A Preferred Shares. The articles have not yet been amended
to provide for the creation of the class.

      The by-laws of Mitel Networks refer to subsection 25(1) of the Canada
Business Corporations Act, which states that, subject to a unanimous
shareholders agreement, shares may be issued at such times and to such persons
and for such consideration as the directors may determine.

Financial Year and Audit

      The directors may fix and from time to time change the financial year-end
of Mitel Networks. The by-laws refer to sections 162 and 163 of the Canada
Business Corporations Act with respect to audits. The shareholders shall, by
ordinary resolution, at each annual shareholder meeting, appoint an auditor to
hold office until the close of the next annual meeting. If an auditor is not
appointed at a meeting of shareholders, the incumbent auditor continues in
office until a successor is appointed. The remuneration of the auditors can be
fixed by the shareholders or if not so fixed, may be fixed by the directors.

Company Representation for Certain Purposes

      Declarations - Any person authorized by the directors, by any two
officers, or by the Chairman or the President is authorized and empowered to
appear and make answer for Mitel Networks upon articulated facts issued out of
any court, and to declare for and on behalf of Mitel Networks with respect to
all judicial proceedings to which Mitel Networks is a party, and to make
petitions for winding-up or bankruptcy orders upon any debtor of Mitel Networks
and to attend and vote at all meetings of creditors of Mitel Networks' debtors
and grant proxies in connection therewith.

      Representation at meetings - any person authorized by the directors may
represent Mitel Networks and attend and vote at any meeting in which Mitel
Networks holds an interest and any action taken and vote cast by him at any such
meeting shall be deemed to be an act and/or vote of Mitel Networks. He is also
authorized to execute and deliver instruments of proxy in such form and terms as
the person so executing and delivering the same may see fit.


                                      -81-
<PAGE>

Enactment, Repeal and Amendment of By-Laws

      The by-laws refer to section 103 of the Canada Business Corporations Act.
The directors may, by resolution, make, amend, or repeal any by-laws that
regulate the business or affairs of Mitel Networks. The directors shall submit a
by-law or amendment or a repeal of a by-law to the shareholders at the next
annual meeting of shareholders and the shareholders may, by ordinary resolution,
confirm, reject or amend the by-law, amendment or repeal.

      If the by-law is confirmed by the shareholders, the by-law is deemed to be
effective as at the date approved by the directors. If the shareholders do not
confirm, the by-law ceases to be effective.

C. Material Contracts

      The following summary of Mitel Networks' material agreements, which
agreements are filed as exhibits to this registration statement, does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, all the provisions of those agreements.

Shareholders Agreements:

a) Amended and Restated Shareholders' Agreement

      The Amended and Restated Shareholders' Agreement, dated August 31, 2001,
is between Mitel Systems, Zarlink and Power Technology Investment Corporation,
referred to in this section as the shareholders, and Mitel Networks. Under the
terms of this agreement, no common share or common share equivalents shall be
issued, other than for employee stock-based compensation or in connection with a
business acquisition, to any persons before the common share or common share
equivalents have first been offered to the shareholders. The shareholders are
not entitled to acquire more than their proportionate share of the common share
or common share equivalents being offered calculated as at the date of the
offer. If a party to the agreement wishes to sell or dispose of some of its
common shares to a third party, the other shareholders have the right to sell
their proportionate percentage to the third party on the same terms as the
selling shareholder. If Mitel Networks proposes to effect an initial public
offering of its common shares upon the request of Mitel Networks' shareholders,
Mitel Networks will take all steps as are commercially reasonable to cause the
Shareholders' shares to be included in the initial public offering. Zarlink has
the right to require Mitel Networks to repurchase all of part of its common
shares at a price of $2.85 per share if, on or prior to the fifth anniversary of
the date of this agreement, Mitel Networks has not completed an initial public
offering. All rights of Zarlink and Power Technology Investment Corporation
expire on the date immediately prior to the completion of an initial public
offering of Mitel Networks' or Mitel Systems' common shares or the merger of
Mitel Networks and March Networks.

b) Power Technology Investment Corporation Subscription Agreement

      Under a Subscription Agreement between Mitel Networks and Power Technology
Investment Corporation dated August 31, 2001, Power Technology Investment
Corporation subscribed to and purchased 4 million common shares of Mitel
Networks for total cash consideration of $16 million. Under the terms of the
subscription agreement, within thirty days


                                      -82-
<PAGE>


following the occurrence of certain triggering events, including (i) Mitel
Networks' failure to complete an initial public offering on or before the fifth
anniversary of the subscription agreement; (ii) a change in the status of Dr.
Terence H. Matthews as an officer or director of Mitel Networks prior to an
initial public offering; (iii) the disposal by Dr. Terence H. Matthews of more
than 25% of his investment in Mitel Networks to an unrelated party prior to an
initial public offering, other than pursuant to an exchange of securities in
connection with a merger or other arrangement pursuant to which he continues to
be an officer or director; or (iv) the disposal by Dr. Terence H. Matthews of
any of his common shares held in Mitel Networks at a price below $4.00 per share
prior to an initial public offering, other than to an affiliate or pursuant to
an exchange of securities in connection with a merger or other arrangement
pursuant to which he continues to be an officer or director, Power Technology
Investment Corporation has the right to require Mitel Networks to redeem all or
part of its common shares at a price of $4.00 per share plus interest accrued at
an annual rate of 7% commencing on August 31, 2001 and compounded semi-annually.
Power Technology Investment Corporation also has additional non-interest bearing
put rights that can be exercised at a price of $4.00 per share at any time after
the occurrence of the following events: (i) Mitel Networks' failure to receive,
before April 30, 2003, a commitment for funding from the Government of Canada in
the amount of $45 million; or (ii) the absence of a commitment by Dr. Terence H.
Matthews, before April 30, 2003, to provide a minimum of $45 million in funding
to Mitel Networks.


      If, at any time prior to Mitel Networks having completed a single equity
or equity component financing of at least $20 million, Mitel Networks issues
common shares or common share equivalents to any party under terms that are more
favorable than the rights of Power Technology Investment Corporation under the
Shareholders' Agreement described above, Power Technology Investment Corporation
has the right to exchange its shares for that number of such common shares or
common share equivalents as would be issued at a $4.00 subscription price, with
certain additional rights attaching to the securities. If, at any time prior to
Mitel Networks completing an aggregate $40 million in equity financing, Mitel
Networks issues common shares or common share equivalents to any party at a
price or exercise price below $4.00 per share, Power Technology Investment
Corporation has the right to require Mitel Networks to issue, for nominal
consideration, an additional number of such common shares or common share
equivalents necessary to maintain the then current ownership percentage of Power
Technology Investment Corporation in Mitel Networks.

Banking Agreements:

a) Amended and Restated Loan Agreement Between Mitel Networks, the Lenders from
time to time and the Bank of Montreal as Administrative Agent

      Mitel Networks entered into a Credit Agreement dated May 11, 2001 with the
Bank of Montreal under which Mitel Networks obtained a revolving credit facility
in an aggregate maximum principal amount of $30 million. The parties agreed to
increase the credit facility to $60 million under the terms of an Amended and
Restated Loan Agreement dated January 21, 2002. The Restated Loan Agreement
provides Mitel Networks with a 364-day revolving credit facility of $60 million
(or the equivalent amount in U.S. dollars) that is subject to a borrowing base.
The facility bears interest at the prime rate or U.S. base rate plus 0.5% or
LIBOR or Banker's Acceptances plus 1.5% and is secured by a general assignment
of substantially all


                                      -83-
<PAGE>

Mitel Networks' accounts receivable. The credit facility matures on January 23,
2003 and contains certain restrictions and financial covenants.

b) Chattel Mortgage Loan Facility with Barclays Bank PLC

      On October 22, 2001, Mitel Networks Limited, a wholly-owned subsidiary of
Mitel Networks, entered into a loan with Barclays Bank PLC in the amount of
(pound)5.0 million, secured by certain United Kingdom equipment. The mortgage
bears interest at 7.7%, is payable in monthly installments and is due in October
2004.

c) Real Property Loan Facility with Barclays Bank PLC

      Pursuant to a Facility Letter dated December 13, 2001 and a legal charge
dated January 24, 2002, Mitel Networks Limited entered into a real property loan
facility with Barclays Bank PLC in the amount of (pound)7.5 million which is
secured by the real property located in the Mitel Business Park, Portskewett
(Caldicot), Monmouthshire. The loan bears interest at 7.36%, is payable in
quarterly installments of (pound)0.3 million with the balance due on December
18, 2006.

d) Business Overdraft and Ancillary Facilities with Barclays Bank PLC

      On June 24, 2002, Mitel Networks Limited and Barclays Bank PLC entered
into an overdraft facility of (pound)1 million and ancillary facilities totaling
(pound)2.3 million, comprised of a bonds, guarantees and indemnities facility of
(pound)2 million and a documentary credit facility of (pound)0.3 million. The
overdraft facility bears interest at the Bank's base rate plus 1.5%. These
facilities are guaranteed by Mitel Networks. These Facilities are to support the
working capital requirements of Mitel Networks Limited, are repayable on demand
and are scheduled for review on September 30, 2002.

e) Business Overdraft and Ancillary Facilities with Lloyd's TSB Bank PLC

      On October 8, 2001, Mitel Networks Limited and Lloyd's TSB Bank PLC
entered into an overdraft facility of (pound)10 million and ancillary facilities
totaling (pound)3 million, comprised of a bonds, guarantees and indemnities
facility of (pound)2 million and a documentary credit facility of (pound)0.1
million. The overdraft facility bore interest at the Bank's base rate plus 1%.
These facilities were obtained on a temporary basis in anticipation of the
mortgage financings described above and therefore expired on January 31, 2002.

      Subsequently, on March 11, 2002, Mitel Networks Limited and Lloyd's TSB
Bank PLC entered into ancillary facilities totaling (pound)1.9 million,
comprised of a bonds, guarantees and indemnities facility of (pound)1.6 million
and a documentary credit facility of (pound)0.1 million. On June 24, 2002, these
facilities were replaced by the Barclays Bank PLC business overdraft and
ancillary facilities described above.


                                      -84-
<PAGE>

Agreements with BreconRidge:

a) Promissory Notes Receivable From and Promissory Notes Payable To BreconRidge


      The following table sets forth promissory notes payable to and promissory
notes receivable from BreconRidge in connection with the sale of the
manufacturing net assets on August 31, 2001, as at April 28, 2002:


                                                     Amount         Due Date
--------------------------------------------------------------------------------
Promissory notes payable to:
   BreconRidge Manufacturing Solutions
     Corporation                                  US $262,055    August 31, 2002
   BreconRidge Manufacturing Solutions Inc.       US $107,060    August 31, 2002

Promissory notes receivable from:
   Ridgeway Research Corporation                 US $2,628,449   August 31, 2003
   BreconRidge Manufacturing Solutions, Inc.      US $511,637    August 31, 2003
   BreconRidge Manufacturing Solutions
     Limited                                     US $2,312,852   August 31, 2003


The promissory notes payable and the promissory notes receivable originally bore
interest at the Bank of Canada prime rate plus 0.5%. On May 10, 2002, the
interest rate of the promissory notes was changed to LIBOR as set on August 31,
2001 plus 1.5%, compounded semi-annually. On August 31, 2002, the two promissory
notes payable to BreconRidge Manufacturing Solutions Corporation (US $262,055)
and BreconRidge Manufacturing Solutions Inc. (US $107,060) were set off against
the two promissory notes receivable from Ridgeway Research Corporation and
BreconRidge Manufacturing Solutions Inc., resulting in new principal balances
receivable of US $2,366,394 and US $404,577, respectively.


      The promissory notes receivable are secured by a first charge on the
manufacturing assets transferred to BreconRidge pursuant to the terms of a
General Security Agreement, dated August 31, 2001. If an event of default occurs
under the terms of the General Security Agreement, the unpaid balance of the
principal amount and accrued interest becomes immediately due and payable at the
option of the lender.

b) Supply Agreement with BreconRidge

      On August 31, 2001 Mitel Networks, Mitel Networks, Inc. and Mitel Networks
Limited, two of its wholly-owned subsidiaries, entered into a supply agreement
with BreconRidge under which BreconRidge supplies certain products and services
to Mitel Networks. The initial term of the agreement is three years and, unless
otherwise terminated, will be automatically renewed on the same terms and
conditions for an additional term of three years, and thereafter for additional
one-year periods. Either party has the right to terminate the agreement by
giving prior written notice of one hundred and eighty (180) days at any time
during a renewal term, or give notice of its intent not to renew no less than
one hundred and eighty (180) days prior to the expiration of a renewal term.
Subject to certain exceptions, the supply agreement is exclusive during the
initial term with respect to current products and new product introductions.
Under the terms of the supply agreement, BreconRidge manufactures the majority
of Mitel Networks' products and provides repair and other related services.

      The supply agreement with BreconRidge does not contain any minimum
purchase requirements. Under the terms of the supply agreement, Mitel Networks
is not obligated to


                                      -85-
<PAGE>

purchase products from BreconRidge in any specific quantity, unless and until a
binding purchase order has been issued. Mitel Networks may be obligated to
purchase certain excess inventory levels from BreconRidge that could result from
Mitel Networks' actual sales varying from forecast. Furthermore, BreconRidge is
required to purchase Mitel Networks' raw material inventory, before turning to
third party suppliers for raw material procurement. BreconRidge has committed to
certain cost reductions through August 1, 2004 on purchases of traditional
communications platform products.

      BreconRidge is prohibited from discontinuing its manufacture of any
products or from refusing for any reason other than an event of force majeure or
in the event of an uncured default to manufacture and supply the products to
Mitel Networks. The agreement may be terminated by either party at any time
following the expiration of the initial term on not less than 180 days prior
notice or in the event of an uncured material breach by or change in control of
the other party.

c) Sublease Agreement between Mitel Networks and BreconRidge

      On August 31, 2001 Mitel Networks entered into a sublease agreement to
lease to BreconRidge certain of its Ottawa manufacturing and office facility
totaling 158,780 square feet. The term of the agreement is five years expiring
on August 31, 2006. BreconRidge has the option to extend the sublease for an
additional five years. The annual basic rent is $1,573,020.

      The sublease agreement was amended on May 31, 2002 to include additional
space of 4,026 square feet thereby increasing the annual basic rent to
$1,625,358.

d) Lease Agreement between Mitel Networks Limited and the U.K. subsidiary of
BreconRidge

      On September 14, 2001, Mitel Networks Limited entered into a lease
agreement with the U.K. subsidiary of BreconRidge for 94,161 square feet (8,751
square meters) of office and manufacturing space located in the Portskewett
Business Park located in Portskewett, Monmouthshire, U.K. The term of the lease
is fifteen years expiring on August 30, 2016 with cancellation options on the
fifth and tenth years available to Mitel Networks and BreconRidge. The annual
basic rent is (pound)517,884.

d) Asset Sale Agreement between Mitel Networks and BreconRidge

      Mitel Networks entered into an Asset Sale Agreement with BreconRidge dated
August 31, 2001 under which Mitel Networks sold its Canadian manufacturing
assets located in Ottawa, Canada, comprising office, testing and manufacturing
equipment, for total consideration of U.S.$2,628,449 in the form of a promissory
note receivable. The promissory note bears interest at LIBOR plus 1.5% and is
due August 31, 2003.

e) Asset Sale Agreement between Mitel Networks Limited and the U.K. subsidiary
of BreconRidge

      Mitel Networks Limited, a wholly-owned subsidiary of Mitel Networks,
entered into an Asset Sale Agreement with the U.K. subsidiary of BreconRidge
dated August 31, 2001 under which Mitel Networks Limited sold its manufacturing
assets located in Portskewett,


                                      -86-
<PAGE>

Monmouthshire, U.K., comprising office, testing and manufacturing equipment, for
total consideration of U.S.$2,312,853 in the form of a promissory note
receivable. The promissory note bears interest at LIBOR plus 1.5% and is due
August 31, 2003.

f) Asset Sale Agreement between Mitel Networks, Inc., and the U.S. Subsidiary of
BreconRidge

      Mitel Networks, Inc., a wholly-owned subsidiary of Mitel Networks, entered
into an Asset Sale Agreement with the U.S. subsidiary of BreconRidge dated
August 31, 2001 under which MNI sold to its manufacturing assets located in
Ogdensburg, New York, for total consideration of U.S. $511,637 in the form of a
promissory note receivable. The promissory note bears interest at LIBOR plus
1.5% and is due August 31, 2003.

Agreements with Mitel Knowledge:

a) Demand Promissory Note with Mitel Knowledge


      On December 21, 2002, Mitel Networks borrowed $5 million from Mitel
Knowledge in the form of a demand promissory note bearing interest at prime plus
0.5% to finance its operations and working capital requirements. During the
first two quarters of Fiscal 2003, Mitel Networks repaid $4 million of the
original amount leaving a balance outstanding of $1 million as at October 27,
2002.


b) Research and Development Agreement Between Mitel Networks and Mitel Knowledge


      Mitel Networks entered into a Research and Development Agreement with
Mitel Knowledge dated March 27, 2001, under which Mitel Knowledge owned
substantially all of Mitel Networks' intellectual property, excluding
trademarks, and retains Mitel Networks' services to perform research and
development in consideration for which Mitel Knowledge funds certain of Mitel
Networks' research and development activities. The initial term of the agreement
was five years with automatic subsequent annual renewals unless earlier
terminated upon the agreement of the parties . Mitel Knowledge granted to Mitel
Networks a license to exploit the intellectual property in Canada, South and
Central America, Mexico and the Caribbean in exchange for a license fee. In
addition, Mitel Networks agreed to transfer to Mitel Knowledge any investment
tax credits, but in no event less than Can $10,000,000, earned on the research
and development activities to the extent that such investment tax credits were
not required to reduce Mitel Networks' Canadian federal tax payable.

      The Research and Development Agreement provided for a call right pursuant
to which Mitel Networks had the right to require Mitel Knowledge to sell all of
its rights, title, interest in, and benefits from, the intellectual property,
including improvements and new technology, to Mitel Networks upon the occurrence
of the earliest of the following events: (a) the third anniversary of the
agreement, (b) Mitel Networks passing a resolution to proceed with an initial
public offering of its shares in Ontario or any other jurisdiction which results
in the listing of its shares on a recognized stock exchange, or (c) the
termination of the agreement on its terms. The agreement provided that purchase
price for the intellectual property will be paid by the issuance of common
shares from Mitel Networks' treasury with the number of shares to be determined
in accordance with a formula described in the Research and Development
Agreement.



                                      -87-
<PAGE>


      Effective November 1, 2002, the parties agreed to terminate the Research
and Development Agreement, and Mitel Networks exercised its right to purchase
the intellectual property from Mitel Knowledge.


c) Research and Development Cost-Sharing Agreement between Mitel Knowledge and
Mitel Networks Overseas Limited, then known as Mitel Networks Barbados Limited


      On March 27, 2001, Mitel Knowledge and Mitel Networks Overseas Limited
entered into an agreement under which the two parties jointly performed research
and development and shared the costs of their joint efforts. The agreement
provided that Mitel Knowledge would own all intellectual property developed by
either party. In exchange for Mitel Networks Overseas Limited bearing certain of
the jointly incurred research and development costs, Mitel Knowledge granted to
Mitel Networks Overseas Limited a royalty-free, exclusive license to exploit the
intellectual property in the United States, Europe, Middle East, Africa and Asia
Pacific regions.

      In conjunction with the termination of the Research and Development
Agreement between Mitel Networks and Mitel Knowledge on November 1, 2002, the
Research and Development Cost-Sharing Agreement between Mitel Knowledge and
Mitel Networks Overseas Limited was terminated. A similar agreement was put in
place between Mitel Networks and Mitel Networks Overseas Limited.


d) Intellectual Property License Agreement between Mitel Networks Overseas
Limited, a wholly-owned subsidiary of Mitel Networks and Mitel Knowledge

      In connection with the Research and Development Agreement described above,
Mitel Networks Overseas Limited entered into an Intellectual Property License
Agreement with Mitel Knowledge dated March 27, 2001 pursuant to which Mitel
Knowledge granted Mitel Networks Overseas Limited an exclusive, fully paid-up
license to exploit Mitel Networks' intellectual property in the United States
for total consideration of $26,644,635 in the form of a promissory note. The
promissory note bears interest at 7.44%, compounded semi-annually, and is
payable to Mitel Knowledge on demand.


      In conjunction with the termination of the Research and Development
Agreement between Mitel Networks and Mitel Knowledge on November 1, 2002, the
Intellectual Property License Agreement between Mitel Knowledge and Mitel
Networks Overseas Limited was terminated.


e) Assignment and Assumption Agreement between Mitel Networks, Mitel Knowledge
and Mitel Networks Overseas Limited

      Prior to February 16, 2001, Zarlink and Mitel Networks, Inc. (at the time
a wholly owned subsidiary of Zarlink and now a wholly owned subsidiary of Mitel
Networks) entered into the Cost Sharing Restructuring Agreement pursuant to
which Mitel Networks, Inc. granted to Zarlink an exclusive license to the U.S.
intellectual property that existed at April 1, 2000. On February 16, 2001, as
part of the acquisition transactions, the Cost Sharing Restructuring Agreement
was assigned to Mitel Networks. Effective March 27, 2001, and in connection with
the Intellectual Property License Agreement described above, Mitel Networks,
Mitel Knowledge


                                      -88-
<PAGE>

and Mitel Networks Overseas Limited entered into the Assignment and Assumption
Agreement pursuant to which Mitel Networks transferred to Mitel Knowledge and
Mitel Knowledge transferred to Mitel Networks Overseas Limited all of Mitel
Networks' rights, obligations and interest in the Cost Sharing Restructuring
Agreement.

f) Assignment and Assumption Agreement between Mitel Networks and Mitel
Knowledge

      Prior to the acquisition transactions, Zarlink and Mitel Networks Limited
(at the time, a wholly owned subsidiary of Zarlink and now a wholly owned
subsidiary of Mitel Networks) entered into certain agreements (the "Mitel
Networks Limited Agreements") pursuant to which Zarlink granted certain rights
to its intellectual property to Mitel Networks Limited. In connection with the
acquisition transactions, Mitel Networks and Mitel Knowledge entered into the
Assignment and Assumption agreement pursuant to which Mitel Networks transferred
its right, title and interest in the Mitel Networks Limited Agreements to Mitel
Knowledge.

g) Acquisition and Disposition of Mitel Knowledge Preferred Shares

      In connection with the acquisition transactions, Mitel Networks Limited
and Mitel Networks, Inc., both wholly-owned subsidiaries of Mitel Networks,
acquired a total of 37,401,000 preferred shares of Mitel Knowledge for total
cash consideration of $37,401,000. The preferred shares were redeemed by MKC on
January 23, 2002 in a non-cash transaction, in exchange for the settlement of an
equal amount of demand promissory notes payable to Mitel Knowledge.

Agreements with Other Affiliates of Dr. Terence H. Matthews:

a) Demand Promissory Notes payable to Wesley Clover Corporation (formerly 10750
Newfoundland Limited)

      The following table sets forth demand promissory notes outstanding at July
28, 2002, issued to finance Mitel Networks' operations and working capital
requirements. These notes are subordinated to bank debt.

                                   Principal   Date of issuance    Interest rate
--------------------------------------------------------------------------------

Wesley Clover Corporation         $6 million    April 22, 2002         Prime
Wesley Clover Corporation         $4 million     May 10, 2002          Prime
Wesley Clover Corporation         $5 million     June 7, 2002          Prime
Wesley Clover Corporation         $5 million     June 21, 2002         Prime
Wesley Clover Corporation         $1 million     July 25, 2002         Prime

b) Lease Agreement between Mitel Networks and Mitel Research Park Corporation

      On March 27, 2001, Mitel Networks and Mitel Research Park Corporation
entered into a lease agreement Pursuant to which Mitel Networks leases its
headquarters facilities from Zarlink located in Ottawa, Ontario totaling 512,391
square feet. The initial term of the lease is ten years expiring on February 15,
2011. The terms of the lease reflect current market conditions. Annual


                                      -89-
<PAGE>

base rent is $13.00 per square foot for office space and $9.00 per square foot
for non-office space. Mitel Networks is responsible for payment of operating
costs in addition to the base rent.

c) Alliance Agreement between Mitel Networks, March Networks, Mitel Networks
Limited and MNIL, subsidiaries of Mitel Networks

      The agreement is effective September 21, 2001 with an initial term of two
years which may be extended for additional subsequent one-year periods upon
mutual consent of the parties. Each party may terminate the agreement for its
convenience on 60 days prior written notice.

      The agreement provides for joint development of new projects to be
determined by the parties, and marketing of each of Mitel Networks' and March
Networks' Internet Protocol-based products and services. The parties are to
establish an Alliance Management Committee comprised of three representatives
from each of Mitel Networks and March Networks. The Alliance Management
Committee is responsible for the overall management of the alliance to determine
joint activities in the areas of product development, product marketing, and
product and system integration to ensure where appropriate interoperability
between the product portfolios of Mitel Networks and March Networks. With regard
to any of these activities the Alliance Management Committee is also responsible
for monitoring joint activities, reviewing promotional activities, approving
specifications and pricing for any jointly developed products, and to allocate
each parties' liability for shared expenses.

      Either party has the ability to propose joint product development to the
Alliance Management Committee which will then evaluate and approve or reject the
proposal. If the committee approves a proposal, then the parties will negotiate
a binding Joint Development Agreement setting out, among other matters, the
technology to be developed, each party's responsibilities, ownership of
intellectual property to be developed under the project if such arising
intellectual property is not to be jointly owned.

      Mitel Networks and March Networks will jointly brand, promote, market and
distribute each other's Internet Protocol-based products and services. The terms
and conditions under which each party will distribute the other party's products
are to be set out in a separate Distribution Agreement.

d) Global Marketing and Distribution Agreement between Mitel Networks and March
Networks

      On February 15, 2002, Mitel Networks and March Networks entered into a
Global Marketing and Distribution Agreement. The purpose of the agreement is to
appoint each party as the other party's non-exclusive reseller to actively
promote the sales of certain of its products either directly or through
distributors and resellers. Each party is obligated to use reasonable commercial
efforts to market the other party's products. The reseller is obligated to
provide first line technical support to its customer. The supplier of the
products is responsible for second line technical support.

      The initial term of the agreement is two years. Neither party has any
obligation to renew after the expiry of the initial term. Either party may
terminate the agreement for its convenience upon the provision of 60 days prior
written notice. In addition, either party has the right to terminate the
agreement if the Alliance Agreement between the parties is terminated.


                                      -90-
<PAGE>

Agreements with Zarlink:

a) Acquisition Agreement between Zarlink, Mitel Systems and Dr. Terence H.
Matthews

The Acquisition Agreement dated January 2, 2001 made between Zarlink, Mitel
Systems and Dr. Terence H. Matthews sets out the provisions under which
companies controlled by Dr. Matthews purchased all of the issued and outstanding
shares of Mitel Research Park Corporation and 90% of the issued and outstanding
shares of Mitel Networks. The closing date of the transaction was February 16,
2001.

b) Amended Supply Agreement between Mitel Networks and Zarlink

      Mitel Networks entered into a non-exclusive supply agreement dated
February 16, 2001 with Zarlink pursuant to which Zarlink supplies semiconductor
components to Mitel Networks. The initial term of the agreement is ten years
with subsequent automatic annual renewals

      Zarlink is obligated to place all its know how, improvements and new
technology in escrow with respect to the manufacture of hybrid devices and Voice
over Internet Protocol products only. The escrowed materials are to be released
in the event of: bankruptcy; receivership; issuance of a last-time buy
notification; discontinuance of manufacture; transference of the hybrid or Voice
over Internet Protocol business in whole or in part to another party, if the
party fails to assume the obligations of Zarlink with respect to the hybrid or
Voice over Internet Protocol products; a material breach of the agreement by
Zarlink that adversely affects the continuing supply of products, which remains
uncured 30 days after written notification of the breach.

      Under the terms of the agreement, Zarlink grants to Mitel Networks a
license in the Zarlink intellectual property, Zarlink improvements, and Zarlink
developed new technology relating to the components. Mitel Networks has the
right to grant sublicenses only to semiconductor second source suppliers for
hybrid and semiconductor components to be used in specified Company products and
Voice over Internet Protocol products, to the extent that Zarlink intellectual
property has been incorporated into the components and used by Mitel Networks.
The supply agreement was amended by letter agreement dated October 24, 2001. The
amending agreement provides for an expansion of the foregoing license grant in
that it allows Mitel Networks to in the case of licensed intellectual property
existing as of February 16, 2001 or created thereafter to complete the
development of the MT92102 Voice over Internet Protocol device, to allow Mitel
Networks to sublicense such intellectual property to a third party foundry to
permit the manufacture of the MT92102 Voice over Internet Protocol device for
sale by such foundry to Mitel Networks for its business as well as to the
foundry's other customers for their business requirements but restricted to
applications based on Mitel Networks' converged access products.

      The amending agreement further provided for payment of non-recurring
engineering expenses to Zarlink for the completion of the MT92102 device.


                                      -91-
<PAGE>

c) Lease Between Mitel Networks Limited and Mitel Semiconductor Limited, a
subsidiary of Zarlink

      Mitel Networks Limited entered into a lease agreement dated February 2,
2001 with Mitel Semiconductor Limited, a wholly-owned subsidiary of Zarlink
under which Mitel Networks Limited leases 49,500 square feet of the Building at
Portskewett Business Park Portskewett Monmouthshire on then current market
terms. The term of the lease is five years. Both parties have the right to
terminate the lease on February 2, 2004 or at any time thereafter with at least
twelve months prior written notice. The base rent is (pound)272,250 per annum.

d) Intellectual Property License Agreement between Zarlink and Mitel Networks

      On February 16, 2001, Mitel Networks and Zarlink entered into an
Intellectual Property License Agreement dated February 16, 2001 pursuant to
which Zarlink licensed to Mitel Networks the intellectual property retained by
Zarlink which Mitel Networks requires to continue the operations of the
Predecessor Business. Under the agreement, Zarlink grants to Mitel Networks a
non personal, limited, assignable, royalty free, perpetual, non exclusive
worldwide license for the licensed intellectual property to make, use, develop,
offer for sale, or otherwise exploit for the licensed products. Zarlink is
precluded from assigning any of the licensed intellectual property in whole or
in part, or from granting a security interest therein, to any party engaged in
the sale of products or services that are competitive with Mitel Networks. Mitel
Networks is authorized to grant sublicenses of the intellectual property to
permit it to carry on its business, except that it cannot sublicense the
licensed intellectual property to allow the manufacturing of semiconductors
other than for use in its business.

      The term of the license is for the entire term of the property rights
under which the licenses are granted. If Zarlink is wound up or otherwise ceases
its operations, ceases to carry on business, or takes any material steps with
regard to bankruptcy proceedings, then all right, title and interest in and to
the licensed intellectual property shall be deemed to be transferred over to
Mitel Networks.

e) Amendment to Zarlink Intellectual Property License Agreement with Mitel
Networks

      The Intellectual Property License between Zarlink and Mitel Networks dated
February 16, 2001 was amended on October 24, 2001. The amendment provides for an
expansion of the license granted to Mitel Networks with respect to licensed
intellectual property existing as of February 16, 2001 or created thereafter to
complete the development of the MT92102 Voice over Internet Protocol device in
that it allows Mitel Networks to sublicense such intellectual property to a
third party foundry to permit the manufacture of the MT92102 Voice over Internet
Protocol device for sale by such foundry to Mitel Networks for its business, as
well as to the foundry's other customers for their business requirements, but
restricted to applications based on Mitel Networks' converged access products.

f) Patent Sublicense Agreement between Mitel Networks and Zarlink

      On April 1, 1998, Zarlink and Lucent Technologies Inc. entered into a
patent license agreement that allows Zarlink to sublicense its rights to use
certain Lucent patents to any third party that acquires a part of its business.
Accordingly, as part of the acquisition transactions,


                                      -92-
<PAGE>

Mitel Networks, Mitel Systems and Zarlink entered into a Patent Sublicense
Agreement dated February 16, 2001 pursuant to which Zarlink grants to Mitel
Networks under the Lucent patents a non exclusive and non transferable
sublicense to make, have made, use, sell, and lease Mitel Networks' products.
The Sublicense expires on the earlier of September 30, 2002, or the date Mitel
Networks ceases the operations of the Predecessor Business.

      Mitel Networks and Mitel Systems grant to Zarlink royalty free licenses
for any patents that they acquire ownership or control of during the term of the
Patent Sublicense Agreement. The term of the sublicense from Mitel Networks to
Zarlink is for the duration of the term of the Lucent sublicense agreement and
is only for the purpose of Zarlink sub-licensing such patents to Lucent and its
wholly owned subsidiaries for the duration of the term of the Patent Sublicense
Agreement solely for use in information handling systems.

      The payment for the sublicenses is US $3,374,014. The amount of
US$1,529,014 was paid on execution of the Sublicense Agreement and the amount of
US$1,845,000 was paid on January 1, 2002.

g) Non Competition and Non Solicitation Agreement between Zarlink, Mitel
Systems, Mitel Networks and its subsidiaries, Mitel Research Park Corporation,
Mitel Knowledge and Dr. Terence H. Matthews

      Non Competition and Non Solicitation Agreement dated February 16, 2001
between Mitel Corporation (now known as Zarlink), Mitel Semiconductor V.N. Inc.,
Mitel Semiconductor Limited, Mitel Semiconductor, Inc., 3755461 Canada Inc. (now
known as Mitel Systems), Mitel Research Park Corporation, Mitel Knowledge, Mitel
Inc. (now known as Mitel Networks, Inc.), Mitel Communications Solutions Inc.
(now Mitel Networks Solutions, Inc.), Mitel Telecom Limited (now known as Mitel
Networks Limited), Dr. Terence H. Matthews, entered into further to the
Acquisition Agreement referred to in (a) above ("Purchaser"). The agreement
provides that Zarlink on behalf of itself and Mitel Semiconductor V.N. Inc.,
Mitel Semiconductor Limited, and Mitel Semiconductor, Inc. covenants with the
Purchaser, that for a period of five years they will not carry on or be
associated with any undertaking which is competitive with the Predecessor
Business, except that they may hold securities in a competitive business
provided such securities do not exceed 5% of the outstanding equity securities
of such company.

      Mitel Systems covenants on behalf of itself and all future subsidiaries
that for a period of five years it will not grant or permit in any manner any
firm to compete with the semiconductor business as presently carried on or
presently contemplated to be carried on by Zarlink, or permit any party to use
any of Zarlink's licensed intellectual property except as permitted under the
Intellectual Property License Agreement between Zarlink and Mitel Networks dated
February 16, 2001. The foregoing restriction does not preclude the Purchaser
from investing in a corporation, firm or entity which competes with Zarlink or
any entity within Zarlink's semiconductor group provided that such interest does
not exceed 33% of the outstanding voting equity and provided that no use of
licensed intellectual property is granted other than as is permitted pursuant to
the Intellectual Property License Agreement.


                                      -93-
<PAGE>

      Dr. Matthews covenants with Zarlink that for a period of five years he
will not compete with the semiconductor business as carried on as of the date of
the acquisition or as contemplated at that time to be carried on other than as
permitted under the terms of the Intellectual Property License Agreement. The
foregoing prohibition does not limit Dr. Matthews from investing or retaining
his investments, partnering or otherwise being involved with a company or firm
that competes with Zarlink's semiconductor group provided that no use of the
licensed intellectual property is permitted by Dr. Matthews to such competitor
other than as permitted in the Intellectual Property License Agreement.

      Each of Zarlink and Mitel Systems are prohibited from canvassing or
soliciting the other party's employees for a period of two years. This
prohibition does not apply in the event of a general recruitment campaign to
which an employee may respond.

Agreements with Key Employees:

a) Amended and Restated Employment Agreement between Mitel Networks and Paul
Butcher

      Effective as of February 16, 2001, Mitel Networks executed an Amended and
Restated Employment Agreement with Paul Butcher pursuant to which Mr. Butcher
was employed as Chief Operating Officer of Mitel Networks, reporting to the
Chief Executive Officer. The agreement is for an indefinite term, subject to
termination in accordance with its terms. In addition to a base salary, car
allowance, stock options and senior management benefits and perquisites, Mr.
Butcher is entitled to receive a bonus payment on each anniversary of his
February 16th start date provided that specific objectives, to be defined by
Mitel Networks, are met. The agreement details the compensation that Mr. Butcher
would receive were his employment to terminate under various circumstances, and
contains provisions addressing confidentiality, non-disclosure, non-competition
and ownership of intellectual property. The Agreement is governed by the laws of
the Province of Ontario, Canada.

      By way of a private letter agreement between Mr. Butcher and Dr. Terence
H. Matthews dated March 1, 2002, Dr. Matthews granted to Mr. Butcher options to
purchase common shares in Mitel Networks from the holdings of Mitel Systems.
Such options vest in 25% increments on the first, second, third and fourth
anniversaries of the Start Date.

b) Amended and Restated Employment Agreement between Mitel Networks and Donald
Smith

      Effective as of April 17, 2001, Mitel Networks executed an Amended and
Restated Employment Agreement with Donald Smith pursuant to which Mr. Smith was
employed as Chief Executive Officer of Mitel Networks, reporting to the Chairman
of the Board of Directors. The agreement is for an indefinite term, subject to
termination in accordance with its terms. In addition to a base salary, car
allowance, stock options and senior management benefits and perquisites, Mr.
Smith is entitled to receive an annual bonus payment in an amount determined by
the Compensation Committee of Mitel Networks' board of directors. The agreement
details the compensation that Mr. Smith would receive were his employment to
terminate under various circumstances, and contains provisions addressing
confidentiality, non-disclosure, non-competition and ownership of intellectual
property. The Agreement is governed by the laws of the Province of Ontario,
Canada.


                                      -94-
<PAGE>

      By way of a private letter agreement between Mr. Smith and Dr. Terence H.
Matthews dated March 1, 2002, Dr. Matthews granted to Mr. Smith options to
purchase common shares in Mitel Networks from the holdings of Mitel Systems.
Such options vest in 25% increments on the first, second, third and fourth
anniversaries of Mr. Smith's April 2, 2001, start date.

Agreements With Others:

a) Union Agreement between Mitel Communications Solutions, Inc. (now known as
Mitel Networks Solutions, Inc.) and the International Brotherhood of Electrical
Workers


      Mitel Networks' indirect wholly-owned U.S. subsidiary, Mitel Networks
Solutions, Inc., has negotiated a national union contract with the International
Brotherhood of Electrical Workers that has a term expiring September 30, 2003.
The union contract assures Mitel Networks of obtaining the services of its
unionized field technician employees in the U.S. and includes a provision which
precludes the employees from going on strike. The terms and conditions of the
contract are typical in the industry. By a letter agreement between Mitel
Networks and the International Brotherhood of Electrical Workers, dated July 1,
2002, the International Brotherhood of Electrical Workers agreed to a temporary
10% reduction in work hours for the period from July 1, 2002 through September
30, 2002. The union has subsequently agreed to a second cost-saving measure,
whereby members will take a number of unpaid days off between the beginning of
October 2002 and the end of January 2003 at which point the temporary hour
reduction program will resume until Mitel Networks' financial position has
improved.

b) Integrated Communications Solutions R&D Project Agreement between Mitel
Networks Corporation, Mitel Knowledge Corporation, March Networks Corporation
and Her Majesty the Queen in Right of Canada

On October 10, 2002, Mitel Networks, in conjunction with March Networks and
Mitel Knowledge, signed an agreement for funding from the Canadian Government
for up to $60 million of March Networks' and Mitel Networks' research and
development activities over a three year period. Each party is severally liable
for its portion of the development work. The agreement contains certain
restrictions on the exploitation of the developed intellectual property outside
of Canada. In exchange for funding received from the Government of Canada, Mitel
Networks is required to issue warrants to Her Majesty the Queen in Right of
Canada for the zero dollar purchase of common shares, with the warrants to be
issued as of September 30 in each of 2002, 2003 and 2004, and valued in
accordance with fair market value.


D. Exchange Controls

      There are no government laws, decrees or regulations in Canada which
restrict the export or import of capital or which affect the remittance of
dividends, interest or other payments to nonresident holders of Mitel Networks'
common shares. However, any such remittance to a resident of the United States
is generally subject to non-resident tax pursuant to Article X of the 1980
Canada-United States Income Tax Convention. See "Item 10.E. Taxation".

      There are currently no limitations of general application imposed by
Canadian federal or provincial laws on the rights of non-resident or foreign
owners of Canadian securities to hold or vote Mitel Networks' common shares.
There are also no such limitations imposed by the articles


                                      -95-
<PAGE>

of incorporation with respect to Mitel Networks' common shares. However, under
the Investment Canada Act, the acquisition or control (as defined) of a
corporation carrying on a business in Canada by a non-Canadian (as defined) is
subject to notification to and, depending on the value of the transaction and/or
the industry sector, review by Investment Canada, an agency of the Canadian
Federal Government, in order to determine whether such acquisition is likely to
be of benefit to Canada. The Investment Canada Act exempts certain small
acquisitions (as defined) from the review procedure.

Competition Act

      Under the Competition Act (Canada), certain transactions are subject to
the pre-notification requirements of the Competition Act whereby notification of
the transaction and specific information in connection therewith must be
provided to the Commissioner of Competition. A transaction may not be completed
until the applicable statutory waiting periods have expired, namely 14 days or
42 days for a short-form or long-form filing, respectively. As well, where the
parties elect to file a short-form notification, the Commissioner may "bump" the
filing to a long-form, thereby restarting the clock once the parties submit
their filing.

      A proposed transaction is subject to pre-notification if the parties to
the transaction together with their affiliates exceed two thresholds. First, the
parties and their affiliates must have total assets or total revenues from sales
in, from or into Canada that exceed $400 million in aggregate value. Having met
this first threshold, the parties must then provide pre-notification if any one
of the following additional thresholds is met: (1) for an acquisition of assets
in Canada, where the aggregate value of the assets or the gross revenues from
sales in or from Canada that are being acquired exceeds $35 million ("$35
million threshold"); (2) in the case of an acquisition of shares of a company in
Canada, where (i) the $35 million threshold is met in respect of the assets or
revenues of Mitel Networks whose shares are being acquired and (ii) as a result
of the proposed acquisition, the person acquiring the shares, together with its
affiliates, would own more than 20% (or, if the person making the acquisition
already owns 20% or more of the voting shares of the target, then 50%) of the
voting shares of a corporation that are publicly traded or, in the case of a
company of which the shares are not publicly traded, the threshold is 35% of the
voting shares (and 50% if the acquirer owns 35% or more of the voting shares of
the subject company prior to making the acquisition) and the $35 million
threshold is exceeded; or (3) in the case of a proposed amalgamation of two or
more corporations where one or more of the amalgamating corporations carries on
an operating business (either directly or indirectly), where the aggregate value
of the assets in Canada that would be owned by the continuing corporation
resulting from the amalgamation would exceed $70 million or the gross revenues
from sales in or from Canada generated from the assets of the amalgamated entity
would exceed $70 million.

      Finally, all merger transactions, regardless of whether they are subject
to pre-merger notification, are subject to the substantive provisions of the
Competition Act, namely, whether the proposed merger prevents or lessens, or is
likely to prevent or lessen, competition substantially in a relevant market and
can be reviewed on this standard by the Commissioner of Competition for up to
three years after closing.


                                      -96-
<PAGE>

E. Taxation

      The following discussion is not intended to be, nor should it be construed
to be, legal or tax advice to any holder or prospective holder of common shares
of Mitel Networks and no opinion or representation with respect to the Canadian
or United States federal, state, provincial, local or other income tax
consequences to any such holder or prospective holder is made. Accordingly,
holders and prospective holders of common shares of Mitel Networks should
consult their own tax advisors about the federal, state, provincial, local and
foreign tax consequences of purchasing, owning and disposing of common shares of
Mitel Networks.

CANADIAN FEDERAL INCOME TAX CONSEQUENCES

      This summary is based upon the current provisions of the Income Tax Act
(Canada), the regulations thereunder, the current publicly announced
administrative and assessing policies of the Canada Customs and Revenue Agency,
and all specific proposals (the "Tax Proposals") to amend the Income Tax Act and
regulations announced by the Minister of Finance (Canada) prior to the date
hereof. This discussion is not exhaustive of all possible Canadian federal
income tax consequences and, except for the Tax Proposals, does not take into
account or anticipate any changes in law, whether by legislative, governmental
or judicial action, nor does it take into account provincial or foreign tax
considerations which may differ significantly from those discussed herein.

      The summary applies to beneficial owners of common shares who, for the
purposes of the Income Tax Act, are residents of the United States and are not
resident in Canada, and who hold common shares of Mitel Networks as capital
property.

Dividends

      The Income Tax Act provides that dividends and other distributions deemed
to be dividends paid or deemed to be paid by a Canadian resident corporation
(such as Mitel Networks) to a non-resident of Canada shall be subject to a
non-resident withholding tax equal to 25% of the gross amount of the dividend or
deemed dividend.

      Provisions in the Income Tax Act relating to dividend and deemed dividend
payments to and gains realized by non-residents of Canada who are residents of
the United States are subject to the 1980 Canada-United States Income Tax
Convention.

      Article X of the 1980 Canada-United States Income Tax Convention provides
that the rate of Canadian non-resident withholding tax on dividends or deemed
dividends paid to a United States corporation that beneficially owns at least
10% of the voting shares of the corporation paying the dividend shall not exceed
5% of the dividend or deemed dividend, and in any other case, the rate of
non-resident withholding tax shall not exceed 15% of the dividend or deemed
dividend.

Disposition of Shares

      The Income Tax Act provides that a non-resident person is subject to tax
in Canada on the disposition of "taxable Canadian property". Common shares of
Mitel Networks are


                                      -97-
<PAGE>

considered to be "taxable Canadian property" as defined in the Income Tax Act.
Therefore, under the Income Tax Act, a non-resident would be subject to tax in
Canada on the disposition of common shares of Mitel Networks. Article XIII of
the 1980 Canada-United States Income Tax Convention provides that gains realized
by a United States resident on the disposition of shares of a Canadian
corporation may not generally be taxed in Canada unless the value of the
Canadian corporation is derived principally from real property situated in
Canada.

      Generally, certain filing and reporting obligations exist where a
non-resident of Canada disposes of taxable Canadian property. In particular, the
non-resident must make an application to the Canada Customs and Revenue Agency
in advance of the disposition for the purpose of obtaining a certificate issued
by the Canada Customs and Revenue Agency pursuant to section 116 of the Income
Tax Act. If the non-resident fails to secure such certificate from the Canada
Customs and Revenue Agency in advance of the disposition, the purchaser is
required to withhold and remit to the Canada Customs and Revenue Agency 25% of
the amount otherwise payable to the non-resident.

UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

      The following discussion is based on the U.S. Internal Revenue Code of
1986, as amended, Treasury Regulations, published Internal Revenue Service
rulings, published administrative positions of the Internal Revenue Service and
court decisions that are currently applicable, any or all of which could be
materially and adversely changed, possibly on a retroactive basis, at any time.
In addition, this discussion does not consider the potential effects, both
adverse and beneficial, of any recently proposed legislation that, if enacted,
could be applied, possibly on a retroactive basis, at any time. In addition,
this discussion does not cover any state, local or foreign tax consequences. The
following is a discussion of United States federal income tax consequences,
under current law, generally applicable to a U.S. Holder (as defined below) of
common shares of Mitel Networks who holds such shares as capital assets. This
discussion does not address all potentially relevant federal income tax matters
and it does not address consequences peculiar to persons subject to special
provisions of federal income tax law, such as those described below that are
excluded from the definition of a U.S. Holder.

U.S. Holder

      As used herein, a "U.S. Holder" includes a holder of common shares of
Mitel Networks who is a citizen or resident of the United States, a corporation
created or organized in or under the laws of the United States or of any
political subdivision thereof, any entity which is taxable as a corporation for
United States tax purposes and any other person or entity whose ownership of
common shares of Mitel Networks is effectively connected with the conduct of a
trade or business in the United States. A U.S. Holder does not include persons
subject to special provisions of federal income tax law, such as tax-exempt
organizations, qualified retirement plans, financial institutions, insurance
companies, real estate investment trusts, regulated investment companies,
broker-dealers, nonresident alien individuals or foreign corporations whose
ownership of common shares is not effectively connected with the conduct of a
trade or business in the United States and shareholders who acquired their
shares through the exercise of employee stock options or otherwise as
compensation.


                                      -98-
<PAGE>

Dividends

      Except as otherwise discussed below under "Passive Foreign Investment
Company Considerations," U.S. Holders receiving dividend distributions
(including constructive dividends) with respect to common shares of Mitel
Networks are required to include in gross income for United States federal
income tax purposes the gross amount of such distributions to the extent that
Mitel Networks has current or accumulated earnings and profits, without
reduction for any Canadian income tax withheld from such distributions. Such
Canadian tax withheld may be credited, subject to certain limitations, against
the U.S. Holder's United States federal tax liability or, alternatively, may be
deducted in computing the U.S. Holder's federal taxable income by those who
itemize deductions. See "Foreign Tax Credit." To the extent that distributions
exceed current or accumulated earnings and profits of Mitel Networks, they will
be treated first as a return of capital up to the U.S. Holder's adjusted basis
in the common shares and thereafter as a gain from the sale or exchange of the
common shares. Preferential tax rates for long-term capital gains are applicable
to a U.S. Holder that is an individual, estate or trust. There are currently no
preferential tax rates for long-term capital gains of a U.S. Holder that is a
corporation.

      In general, dividends paid on common shares will not be eligible for the
dividends received deduction provided to corporations receiving dividends from
certain United States corporations. A U.S. Holder which is a corporation may,
under certain circumstances, be entitled to a 70% deduction of the United States
source portion of dividends received from Mitel Networks (unless Mitel Networks
is a "foreign personal holding company" as defined in Section 552 of the U.S.
Internal Revenue Code of 1986, or a "passive foreign investment company" as
defined below) if such U.S. Holder owns shares representing at least 10% of the
voting power and value of Mitel Networks. The availability of this deduction is
subject to several complex limitations that are beyond the scope of this
discussion.

Foreign Tax Credit

      A U.S. Holder who pays (or who has had withheld from distributions)
Canadian income tax with respect to the ownership of common shares of Mitel
Networks may be entitled, at the election of the U.S. Holder, to either a tax
credit or a deduction for such foreign tax paid or withheld. This election is
made on a year-by-year basis and generally applies to all foreign income taxes
paid by (or withheld from) the U.S. Holder during that year. There are
significant and complex limitations that apply to the credit, among which is the
general limitation that the credit cannot exceed the proportionate share of the
U.S. Holder's United States income tax liability that the U.S. Holder's foreign
source income bears to his or its worldwide taxable income. In the determination
of the application of this limitation, the various items of income and deduction
must be classified into foreign and domestic sources. Complex rules govern
income such as "passive income", "high withholding tax interest", "financial
services income", "shipping income" and certain other classifications of income.
The availability of the foreign tax credit and the application of the
limitations on the foreign tax credit are fact specific and holders and
prospective holders of common shares should consult their own tax advisors
regarding their individual circumstances.


                                      -99-
<PAGE>

Disposition of Shares

      Except as otherwise discussed below under "Passive Foreign Investment
Company Considerations," a gain or loss realized on a sale of common shares will
generally be a capital gain or loss, and will be long-term if the shareholder
has a holding period of more than one year. However, gain realized upon a sale
of common shares may under certain circumstances be treated as ordinary income,
if Mitel Networks were determined to be a "collapsible corporation" within the
meaning of Section 341 of the U.S. Internal Revenue Code of 1986 based on the
facts in existence on the date of the sale. The amount of gain or loss
recognized by a selling U.S. Holder will be measured by the difference between
(i) the amount realized on the sale and (ii) his or its tax basis in the common
shares. Gains and losses are netted and combined according to special rules in
arriving at the overall capital gain or loss for a particular tax year.
Deductions for net capital losses are subject to significant limitations.
Individual U.S. Holders may carryover unused capital losses to offset capital
gains realized in subsequent years. For U.S. Holders that are corporations
(other than corporations subject to Subchapter S of the U.S. Internal Revenue
Code of 1986), any unused capital losses may only be carried back three and
forward five years from the year in which such losses are realized.

Foreign Personal Holding Company Considerations

      Special rules apply to a U.S. Holder of a Foreign Personal Holding Company
or "FPHC". Mitel Networks will not be classified as a FPHC for U.S. federal
income tax purposes unless (i) five or fewer individuals who are U.S. citizens
or residents own or are deemed to own 50% or more of the total voting power of
all classes of stock entitled to vote or the total value of Mitel Networks
stock; and (ii) at least 60% of Mitel Networks' gross income consists of
"foreign personal holding company" income, which generally includes passive
income such as dividends, interest, gains from the sale or exchange of stock or
securities, rents and royalties. Mitel Networks believes that it is not a FPHC;
however, no assurance can be provided that Mitel Networks will not be classified
as a FPHC in the future.

Passive Foreign Investment Company Considerations

      If Mitel Networks is a "passive foreign investment company" or "PFIC" as
defined in Section 1297 of the U.S. Internal Revenue Code of 1986, U.S. Holders
will be subject to U.S. federal income taxation under one of two alternative tax
regimes at the election of each such U.S. Holder. Section 1297 of the U.S.
Internal Revenue Code of 1986 defines a PFIC as a corporation that is not formed
in the United States and either (i) 75% or more of its gross income for the
taxable year is "passive income", which includes interest, dividends and certain
rents and royalties or (ii) the average percentage, by fair market value (or, if
Mitel Networks elects, adjusted tax basis), of its assets that produce or are
held for the production of "passive income" is 50% or more. The rules applicable
to a PFIC that is also a "controlled foreign corporation", as defined in Section
957 of the U.S. Internal Revenue Code of 1986, are more complex and are beyond
the scope of this discussion.

      A U.S. Holder who elects in a timely manner to treat Mitel Networks as a
"qualified electing fund" or "QEF" (an "Electing U.S. Holder") will be subject
to current federal income tax under Section 1293 of the U.S. Internal Revenue
Code of 1986 for any taxable year in which


                                     -100-
<PAGE>

Mitel Networks is a PFIC (or is treated as such with respect to the Electing
U.S. Holder) on his or its pro-rata share of Mitel Networks' (i) "net capital
gain" (the excess of net long-term capital gain over net short-term capital
loss), which will be taxed as long-term capital gain to the Electing U.S.
Holder; and (ii) "ordinary earnings" (the excess of earnings and profits over
net capital gain), which will be taxed as ordinary income to the Electing U.S.
Holder, in each case, for the shareholder's taxable year in which (or with
which) Mitel Networks' taxable year ends, regardless of whether such amounts are
actually distributed.

      The QEF election generally also allows the Electing U.S. Holder to (i)
treat any gain realized on the disposition of his or its common shares (or
deemed to be realized on the pledge of his or its common shares) as capital
gain; (ii) treat his share of Mitel Networks' net capital gain, if any, as
long-term capital gain instead of ordinary income; and (iii) either avoid
interest charges resulting from PFIC status altogether, or make an annual
election, subject to certain limitations, to defer payment of current taxes on
his share of Mitel Networks' annual realized net capital gain and ordinary
earnings subject, however, to an interest charge on such deferred taxes. If the
Electing U.S. Holder is an individual, such an "interest charge" would be
treated as "personal interest" and not deductible as an itemized deduction.

      If a U.S. Holder does not make a QEF election for the first year during
which he or it holds (or is deemed to have held) the common shares in question
and Mitel Networks is a PFIC (a "Non-electing U.S. Shareholder"), then special
taxation rules under Section 1291 of the U.S. Internal Revenue Code of 1986 will
apply to (i) gains realized on the disposition (or deemed to be realized by
reason of a pledge) of his or its common shares and (ii) certain "excess
distributions", as specifically defined by Mitel Networks.

      A Non-electing U.S. Shareholder generally will be required to pro-rate all
gains realized on the disposition of his or its common shares and all excess
distributions over the entire holding period of the common shares. All gains or
excess distributions allocated to prior years of the U.S. Holder (provided that
such years are not prior to the first day of the first taxable year of Mitel
Networks during such U.S. shareholder's holding period and beginning after
January 1, 1987 for which it was a PFIC) will be taxed at the highest tax rate
applicable to ordinary income for each such prior year. A Non-electing U.S.
Shareholder also will be liable for interest on the foregoing tax liability for
each such prior year calculated as if such liability had been due with respect
to each such prior year. The balance of the gain or the excess distribution will
be treated as ordinary income in the year of the disposition or distribution,
and no interest charge will be incurred with respect to such balance.

      Certain special, generally adverse, rules will apply with respect to the
common shares of Mitel Networks while Mitel Networks is a PFIC whether or not it
is treated as a QEF. For example under Section 1298(b)(6) of the U.S. Internal
Revenue Code of 1986, a U.S. Holder who uses PFIC shares as security for a loan
(including a margin loan) will, except as may be provided in regulations, be
treated as having made a taxable disposition of such shares. Moreover, under
Section 1291(f) of the U.S. Internal Revenue Code of 1986 the Department of the
Treasury has authority to issue regulations, and has issued proposed
regulations, that would treat as taxable certain transfers that are generally
not otherwise taxed, such as gifts, exchanges pursuant to corporate
reorganizations, and transfers at death, although it is not clear that such
authority extends to transfers by Electing U.S. Holders.


                                     -101-
<PAGE>

      Mitel Networks does not believe that it will be a PFIC for the current
fiscal year or for future years. Whether Mitel Networks is a PFIC in any year
and the tax consequences relating to PFIC status will depend on the composition
of Mitel Networks' income and assets, including cash. U.S. Holders should be
aware, however, that if Mitel Networks becomes a PFIC, it may not be able or
willing to satisfy record-keeping requirements that would enable U.S. Holders to
make a QEF election. U.S. Holders or potential shareholders should consult their
own tax advisor concerning the impact of these rules on their investment in
Mitel Networks.

      The foregoing discussion is based on existing provisions of the U.S.
Internal Revenue Code of 1986, existing and proposed regulations thereunder, and
current administrative rulings and court decisions, all of which are subject to
change. Any such changes could affect the validity of the discussion. In
addition, the implementation of certain aspects of the PFIC rules requires the
issuance of regulations which in many instances have not yet been promulgated
and which may have retroactive effect. There can be no assurances that any of
these proposals will be enacted or promulgated, and if so, the form they will
take or the effect that they may have on this discussion. Accordingly, and due
to the complexity of the PFIC rules, U.S. persons who are shareholders or
prospective shareholders of Mitel Networks are strongly urged to consult their
own tax advisors.

F. Dividends and Paying Agents

      Mitel Networks has not paid cash dividends on its common shares, and
intends to continue this policy for the foreseeable future in order to retain
earnings for the development and growth of Mitel Networks' business. Mitel
Networks' dividend policy will be reviewed periodically depending on Mitel
Networks' financial position, capital requirements, general business conditions
and on other factors that may become relevant in the future.

G. Statement by Experts

      Not applicable.

H. Documents on Display

      Mitel Networks is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, such as to file reports and other
information with the SEC. Shareholders may read and copy any of Mitel Networks'
reports and other information at, and obtain copies upon payment of prescribed
fees from, the Public Reference Room maintained by the SEC at 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549. The public may obtain information on
the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

      Mitel Networks is not required to file reports and other information with
any securities commissions in Canada.

      As a foreign private issuer, Mitel Networks is exempt from the rules under
the Securities Exchange act of 1934, as amended, prescribing the furnishing and
content of proxy statements to shareholders. Mitel Networks has included in this
registration statement certain information disclosed in its Proxy Statement
prepared under applicable Canadian law.


                                     -102-
<PAGE>

      Mitel Networks will provide without charge to each person, including any
beneficial owner, on the written or oral request of such person, a copy of any
or all documents referred to above which have been or may be incorporated by
reference in this registration statement (not including exhibits to such
incorporated information that are not specifically incorporated by reference
into such information). Requests for such copies should be directed to Mitel
Networks at the following address: Mitel Networks Corporation, 350 Legget Drive,
Ottawa, Ontario, Canada, K2K 2W7 Attention: Corporate Secretary, telephone
number: 613-592-2122.

I. Subsidiary Information

      Not applicable.

Item 11. Quantitative and Qualitative Disclosures About Market Risk

      Market risk represents the risk of loss that may impact the financial
statements of Mitel Networks due to adverse changes in financial markets. Mitel
Networks is exposed to market risk from changes in foreign exchange rates and
interest rates. Inflation has not had a significant impact on Mitel Networks'
results of operations.

Foreign Currency Risk

      To manage its foreign currency risk, Mitel Networks uses certain
derivative financial instruments including foreign exchange forward contracts
and foreign exchange swap contracts from time to time, that have been authorized
pursuant to policies and procedures approved by the board of directors. Mitel
Networks does not hold or issue financial instruments for trading or speculative
purposes. Mitel Networks currently uses foreign currency forward and swap
contracts to reduce the exposure to foreign currency risk. The most significant
foreign exchange exposures for Mitel Networks relate to the U.S. dollar and the
U.K. pound sterling. At April 28, 2002, Mitel Networks recorded unrealized gains
of $0.1 million and unrealized losses of $0.1 million on its forward contracts.
The unrealized gains and losses are calculated as the difference between the
actual contract rates and the applicable current market rates that would be used
to terminate the forward contracts on April 28, 2002, if it became necessary to
unwind these contracts. Additional potential losses in the net fair value of
these contracts, assuming a 5% appreciation in the Canadian dollar against all
currencies, at April 28, 2002, would have been immaterial. Management believes
that the established hedges are effective against its foreign currency
denominated assets and liabilities, and that potential future losses from these
hedges being marked to market would be largely offset by gains on the underlying
hedged positions.

Interest Rate Risk

      In accordance with Company policy, cash equivalent and short-term
investment balances are primarily comprised of high-grade commercial paper and
money market instruments with original maturity dates of less than one month.
Due to the short-term maturity of its investments, Mitel Networks is not subject
to significant interest rate risk.

      Mitel Networks is exposed to interest rate risk on borrowings from its
credit facility and demand loans from companies controlled by Dr. Terence H.
Matthews. The credit facility bears interest based on LIBOR, U.S. base rate,
Canadian dollar prime rate, or Canadian dollar


                                     -103-
<PAGE>

Bankers' Acceptances. The related party loans bear interest based on prime rate.
Based on projected advances under the credit facility and related party loans,
adverse changes in interest rates of 100 basis points and 200 basis points would
increase interest expense by $0.9 million and $1.8 million, respectively, on an
annual basis. This risk is mitigated by Mitel Networks' ability, at its option,
to lock in the rate of interest on its credit facility for a period of up to one
year. The interest rates on Mitel Networks' obligations under capital leases and
mortgage loans are fixed and therefore not subject to interest rate risk.

      The estimated potential losses discussed previously assume the occurrence
of certain adverse market conditions. They do not consider the potential effect
of favorable changes in market factors and do not represent projected losses in
fair value that Mitel Networks expects to incur. Any future financial impact
would be based on actual developments in global financial markets. Management
does not foresee any significant changes in the strategies used to manage
interest and foreign exchange rate risks in the near future.

Item 12. Description of Securities Other than Equity Securities

      Not applicable.

                                     PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies

      Not applicable.

Item 14. Material Modifications to the Rights of Security Holders and Use of
Proceeds

      Not applicable.

Item 15. [Reserved]

Item 16. [Reserved]

                                    PART III

Item 17. Financial Statements

      Not applicable, as Mitel Networks has elected to provide financial
statements pursuant to "Item 18. Financial Statements".

Item 18. Financial Statements

      Mitel Networks' consolidated financial statements commence on page F-1 of
this Registration Statement. These financial statements are expressed in
Canadian dollars and were prepared in accordance with U.S. GAAP.


                                     -104-
<PAGE>

Item 19. Exhibits

1.    Articles of Incorporation and bylaws as currently in effect:

      1.1   Articles of Incorporation and related amendments*

      1.2   Bylaws*

2.    Instruments defining the rights of holders of equity securities being
      registered:

      2.1   See Articles of Incorporation described above in Exhibit 1.1

      2.2   Specimen Common Share certificate*

4.    Material contracts:

      4.1   Amended and Restated Shareholders' Agreement between Mitel Networks
            Corporation, Mitel Systems Corporation, Zarlink Semiconductor Inc.
            and Power Technology Investment Corporation dated August 31, 2002*

      4.2   Subscription Agreement between Mitel Networks Corporation and Power
            Technology Investment Corporation dated August 31, 2001 and related
            amendment No. 1 dated May 3, 2002*

      4.3   Amended and Restated Loan Agreement between Mitel Networks
            Corporation, the Lenders from time to time and Bank of Montreal as
            Administrative Agent dated January 21, 2002*

      4.4   Chattel Mortgage Loan Agreement between Mitel Networks Limited and
            Barclays Bank PLC dated October 22, 2001*

      4.5   Real Property Loan Facility between Mitel Networks Limited and
            Barclays Bank PLC dated December 13, 2001, secured by a legal charge
            dated January 24, 2002*

      4.6   Business Overdraft and Ancillary Facility Agreement between Mitel
            Networks Limited and Barclays Bank PLC dated June 24, 2002*

      4.7   Business Overdraft and Ancillary Facility Agreements between Mitel
            Networks Limited and Lloyd's TSB Bank PLC dated October 8, 2001 and
            March 11, 2002*

      4.8   Promissory notes receivable and promissory notes payable between
            Mitel Networks Corporation, Mitel Networks, Inc., Mitel Networks
            Limited, BreconRidge Manufacturing Solutions Limited, BreconRidge
            Manufacturing Solutions Inc. and BreconRidge Manufacturing Solutions
            Limited dated August 31, 2001*


                                     -105-
<PAGE>

      4.9   Supply Agreement between Mitel Networks Corporation and its
            subsidiaries and Ridgeway Research Corporation and its subsidiaries
            dated August 30, 2001* +

      4.10  Sublease Agreement between Mitel Networks Corporation and Ridgeway
            Research Corporation dated August 31, 2001 and First Amendment of
            Sublease Agreement between Mitel Networks Corporation and Ridgeway
            Research Corporation (now known as BreconRidge Manufacturing
            Solutions Corporation) dated May 31, 2002*

      4.11  Lease Agreement between Mitel Networks Limited and BreconRidge
            Manufacturing Solutions Limited dated September 14, 2001*

      4.12  Asset Sale Agreement between Mitel Networks Corporation and Ridgeway
            Research Corporation dated August 31, 2001*

      4.13  Asset Sale Agreement between Mitel Networks Limited and BreconRidge
            Manufacturing Solutions Limited dated August 31, 2001* +

      4.14  Asset Sale Agreement between Mitel Networks, Inc. and BreconRidge
            Manufacturing Solutions, Inc. dated August 31, 2001*

      4.15  Promissory Note between Mitel Networks Corporation and Mitel
            Knowledge Corporation dated December 21, 2001*

      4.16  Research and Development Agreement between Mitel Networks
            Corporation and Mitel Knowledge Corporation dated March 27, 2001 and
            related addendum No. 1 dated November 23, 2001*

      4.17  Research and Development Cost-sharing Agreement between Mitel
            Networks Overseas Limited, then known as Mitel Networks (Barbados)
            Limited, a subsidiary of Mitel Networks Corporation, and Mitel
            Knowledge Corporation dated March 27, 2001*

      4.18  Intellectual Property License Agreement between Mitel Networks
            Overseas Limited, then known as Mitel Networks (Barbados) Limited, a
            subsidiary of Mitel Networks Corporation, and Mitel Knowledge
            Corporation dated March 27, 2001*

      4.19  Assignment and Assumption Agreement between Mitel Networks Overseas
            Limited, then known as Mitel Networks (Barbados) Limited, Mitel
            Networks Corporation and Mitel Knowledge Corporation dated March 27,
            2001*

      4.20  Assignment and Assumption Agreement between Mitel Networks
            Corporation and Mitel Knowledge Corporation dated February 16, 2001*


                                     -106-
<PAGE>

      4.21  Acquisition by Mitel Networks, Inc. and Mitel Networks Limited of
            preferred shares in Mitel Knowledge Corporation in February 2001 and
            March 2001*

      4.22  Acquisition Agreement by and between Mitel Corporation (now known as
            Zarlink Semiconductor Inc.), 3755461 Canada Inc. (now known as Mitel
            Systems Corporation) and Dr. Terence H. Matthews ("Acquisition
            Agreement"), dated January 2, 2001.*

            The following exhibits to the Acquisition Agreement have been
            omitted. Mitel Networks Corporation will furnish supplementally a
            copy of any omitted schedule to the Securities and Exchange
            Commission upon request:

            Schedule 1.1(nn) Financial Statements Schedule
            Schedule 1.1(nnn) Permitted Encumbrances
            Schedule 2.2 Purchase Price Allocation Schedule
            Schedule 2.3 Audit Report Schedule
            Schedule 3.4 Authorized and Issued Capital - Vendor Group
            Schedule 3.6 Loan Agreement Particulars
            Schedule 3.7 Vendor Group Subsidiaries
            Schedule 3.8 Violations
            Schedule 3.9 Locations
            Schedule 3.11 Real and Leased Property
            Schedule 3.13 Real Property Leases
            Schedule 3.16(a)-(g) Business Intellectual Property
            Schedule 3.19 Material Contracts
            Schedule 3.20 Licenses and Permits
            Schedule 3.21 Consents
            Schedule 3.25 Tax Matters
            Schedule 3.26 Legal and Regulatory Proceedings
            Schedule 3.28 Environmental Matters
            Schedule 3.29 Employee Plans Excluding United States
            Schedule 3.30 Employee Benefit Plans - United States
            Schedule 3.31 Collective Agreements
            Schedule 3.32 Employees and Contractors
            Schedule 3.34 Customers and Suppliers
            Schedule 3.35 Product Warranties
            Schedule 3.36 Grants
            Schedule 6.1(a) Restructuring
            Schedule 6.2(a) Current Corporate Structure
            Schedule 6.2(b) Reorganization
            Schedule 6.2(d)(i) Lease Agreement
            Schedule 6.2(d)(ii) Phase V Lease
            Schedule 6.2(e) License Agreement
            Schedule 6.3(a) Transition Plan Agreement
            Schedule 6.11 Non-Competition Agreement
            Schedule 6.22 Employees


                                     -107-
<PAGE>

            Schedule 6.23 Tangible Personal Property
            Schedule 7.1(i) Form of Opinion of Vendor's Counsel
                            (Canada, UK and US)
            Schedule 7.1(m) Supply Agreement
            Schedule 7.1(n) Shareholders Agreement
            Schedule 7.1(p) Form of Release
            Schedule 7.3(f) Form of Opinion of Purchaser's Counsel

      4.23  Supply Agreement between Mitel Networks Corporation and Mitel
            Corporation (now known as Zarlink Semiconductor Inc.) dated February
            16, 2001 and related amendment dated October 24, 2001* +

      4.24  Lease Agreement between Mitel Networks Limited and Mitel
            Semiconductor Limited, a subsidiary of Zarlink Semiconductor Inc.
            dated February 2, 2001*

      4.25  Intellectual Property License Agreement between Mitel Networks
            Corporation and Mitel Corporation (now known as Zarlink
            Semiconductor Inc.) dated February 16, 2001* +

      4.26  Amendment to the Intellectual Property License Agreement between
            Mitel Networks Corporation and Zarlink Semiconductor Inc. dated
            October 24, 2001*

      4.27  Patent Sub-License Agreement between Mitel Networks Corporation and
            Mitel Corporation (now known as Zarlink Semiconductor Inc.) dated
            February 16, 2001 under which Mitel Corporation (now known as
            Zarlink Semiconductor Inc.) licenses certain rights under a Patent
            License Agreement with Lucent Technologies Inc. dated April 1, 1998*
            +

      4.28  Non Competition and Non Solicitation Agreement between Mitel
            Corporation (now known as Zarlink Semiconductor Inc.), Mitel
            Semiconductor V.N. Inc., Mitel Semiconductor Limited, Mitel
            Semiconductor Inc., 3755461 Canada Inc., Mitel Networks Corporation
            and Mitel Research Park Corporation dated February 16, 2001*

      4.29  Promissory Notes between Mitel Networks Corporation and Wesley
            Clover Corporation, formerly 10750 Newfoundland Limited, dated
            between April 22, 2002 and July 25, 2002*

      4.30  Lease Agreement between Mitel Networks Corporation and Mitel
            Research Park Corporation dated March 27, 2001*

      4.31  Strategic Alliance Agreement between Mitel Networks Corporation and
            March Networks Corporation dated September 21, 2001*

      4.32  Global Distribution Agreement between Mitel Networks Corporation and
            March Networks Corporation dated February 15, 2002* +


                                     -108-
<PAGE>

      4.33  Amended and Restated Employment Contract between Mitel Networks
            Corporation and Donald Smith dated April 17, 2001* +

      4.34  Amended and Restated Employment Contract between Mitel Networks
            Corporation and Paul Butcher dated February 16, 2001* +

      4.35  Union Agreement between Mitel Communications Solutions, Inc. (now
            known as Mitel Networks Solutions, Inc.) and International
            Brotherhood of Electrical Workers Union expiring on September 30,
            2003* +


      4.36  Integrated Communications Solutions R&D Project Agreement between
            Mitel Networks Corporation, Mitel Knowledge Corporation, March
            Networks Corporation and Her Majesty the Queen in Right of Canada
            dated October 10, 2002 +


      8.1   Subsidiaries of Mitel Networks Corporation*

----------
*     Previously filed as part of this Registration Statement.


+     Portions of this document have been submitted to the Secretary of the
      Securities and Exchange Commission for application for "Confidential
      Treatment."



                                     -109-
<PAGE>

Index to Financial Statements

Mitel Networks Corporation Audited Consolidated Financial Statements for the
fiscal year ended April 28, 2002 and for the ten-week period ended April 27,
2001:

-    Independent Auditors' Report - Deloitte & Touche LLP                   F-2
-    Independent Auditors' Report - Ernst & Young LLP                       F-3
-    Consolidated Balance Sheets                                            F-4
-    Consolidated Statements of Operations                                  F-5
-    Consolidated Statements of Shareholders' Equity                        F-6
-    Consolidated Statement of Cash Flows                                   F-7
-    Notes to Consolidated Financial Statements                             F-8

Audited Combined Statement of Operations of the Communications Systems Division
of Zarlink for the forty-six week period ended February 16, 2001:

-    Independent Auditors' Report                                           F-33
-    Combined Statement of Operations                                       F-34
-    Notes to Combined Statement of Operations                              F-35

Financial Statement Schedules:

      (Note: Schedules other than that listed below are omitted as they are not
      applicable or not required, or the information is included in the
      consolidated financial statements or notes thereto)

-    Schedule II - Valuation of Qualifying Accounts


                                     -110-
<PAGE>

                                    SIGNATURE

      The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this registration statement on its behalf.

                                                 MITEL NETWORKS CORPORATION

                                                 /s/ DONALD W. SMITH
                                                 -------------------------------
                                                 Name:  Donald W. Smith
                                                 Title:  Chief Executive Officer


Date: December 6, 2002



                                     -111-


<PAGE>

[PHOTO OMITTED]                           MITEL NETWORKS
                                           CORPORATION

CONSOLIDATED FINANCIAL STATEMENTS
(in accordance with U.S. GAAP)

FOR THE YEAR ENDED
APRIL 28, 2002

(Audited)


                                      F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Directors of Mitel Networks Corporation:

We have audited the consolidated  balance sheet of Mitel Networks Corporation (a
majority-owned  subsidiary of Mitel Systems  Corporation) and subsidiaries as of
April  28,  2002  and  the  related   consolidated   statements  of  operations,
shareholders'  equity and cash flows for the year then  ended.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

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

In our opinion,  these consolidated  financial statements present fairly, in all
material  respects,  the financial  position of Mitel Networks  Corporation  and
subsidiaries as of April 28, 2002, and the results of their  operations and cash
flows for the year then ended in conformity with accounting principles generally
accepted in the United States of America.

On June 10, 2002, we reported  separately to the  shareholders of Mitel Networks
Corporation  on our audit,  conducted  in  accordance  with  Canadian  generally
accepted  auditing  standards,  of  financial  statements  for the same  period,
prepared in accordance with Canadian generally accepted accounting principles.

                                                /s/ Deloitte & Touche LLP

                                                Deloitte & Touche LLP
Ottawa, Canada                                  Chartered Accountants

June 10, 2002 except as to Notes 4 and 24,
which are as of December 6, 2002



                                      F-2
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Directors of Mitel Networks Corporation:

We have audited the consolidated  balance sheet of Mitel Networks Corporation (a
majority-owned  subsidiary of Mitel Systems  Corporation) and subsidiaries as of
April 27, 2001 and the  consolidated  statements  of  operations,  shareholders'
equity and cash flows for the ten weeks then ended.  These financial  statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express an opinion on these financial statements based on our audit.

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

In our opinion,  these consolidated  financial statements present fairly, in all
material respects,  the financial  position of Mitel Networks  Corporation as at
April 27, 2001 and the results of its  operations and its cash flows for the ten
week period  ended  April 27,  2001 in  accordance  with  accounting  principles
generally accepted in the United States of America.

On June 8, 2001, we reported  separately to the  shareholders  of Mitel Networks
Corporation  on our audit,  conducted  in  accordance  with  Canadian  generally
accepted  auditing  standards,  of  financial  statements  for the same  period,
prepared in accordance with Canadian generally accepted accounting principles.

                                              /s/ Ernst & Young LLP

Ottawa, Canada                                Ernst & Young LLP
August 2, 2002                                Chartered Accountants


                                      F-3

                                                 [LOGO] MITEL  |  it's about YOU
<PAGE>

                                                                         US GAAP

                           Mitel Networks Corporation
            a majority-owned subsidiary of Mitel Systems Corporation
                     (incorporated under the laws of Canada)
                           CONSOLIDATED BALANCE SHEETS
             (in millions of Canadian dollars, except share amounts)

--------------------------------------------------------------------------------
                                                                  As at
                                                           April 28,   April 27,
                                                             2002         2001
--------------------------------------------------------------------------------
ASSETS

Current assets:
  Cash and cash equivalents                                 $  5.7       $  8.4
  Short-term investments                                        --         37.4
  Accounts receivable (net of provisions
   of $7.7 in 2002 and $5.5 in 2001)                         114.0        107.2
  Inventories                                                 69.3         64.1
  Other receivables                                           12.3         19.8
  Prepaid expenses                                            11.4          8.8
--------------------------------------------------------------------------------
                                                             212.7        245.7

Long-term receivables                                         10.9          2.9
Property and equipment                                        46.4         45.5
Intangible and other assets                                   55.3        124.9
--------------------------------------------------------------------------------
                                                            $325.3       $419.0
--------------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Bank indebtedness                                         $ 51.1       $   --
  Accounts payable and accrued liabilities                    73.7         98.5
  Income and other taxes payable                               1.9          5.8
  Deferred revenue                                            46.6         36.8
  Due to related parties                                      38.0         62.1
  Current portion of long-term debt                            5.8           --
--------------------------------------------------------------------------------
                                                             217.1        203.2

Long-term debt                                                23.6           --
Pension liability                                             10.3         10.3
--------------------------------------------------------------------------------
                                                             251.0        213.5
--------------------------------------------------------------------------------

Redeemable common shares, without par
 value - 14,000,000 shares authorized,
 issued and outstanding at April 28, 2002                     43.0           --
--------------------------------------------------------------------------------

Commitments and contingencies

Shareholders' equity:
 Common shares, without par value - Authorized:
   unlimited; Issued and outstanding: 96,924,924
   at April 28, 2002 and 100,000,000 at April 27, 2001       261.1        251.3
  Deferred stock-based compensation                           (0.8)          --
  Accumulated deficit                                       (230.0)       (45.3)
  Accumulated other comprehensive income (loss)                1.0         (0.5)
--------------------------------------------------------------------------------
                                                              31.3        205.5
--------------------------------------------------------------------------------
                                                            $325.3       $419.0
--------------------------------------------------------------------------------

        (See accompanying notes to the consolidated financial statements)


                                      F-4

                                                 [LOGO] MITEL  |  it's about YOU
<PAGE>

                                                                         US GAAP

                           Mitel Networks Corporation
            a majority-owned subsidiary of Mitel Systems Corporation
                      CONSOLIDATED STATEMENTS OF OPERATIONS
      (in millions of Canadian dollars, except share and per share amounts)

--------------------------------------------------------------------------------
                                                    Year            Ten Weeks
                                                    Ended             Ended
                                               April 28, 2002     April 27, 2001
--------------------------------------------------------------------------------
Revenue
  Products                                      $      464.5       $       91.9
  Services                                              95.7               29.5
--------------------------------------------------------------------------------
                                                       560.2              121.4
--------------------------------------------------------------------------------

Cost of sales
  Products                                             278.8               53.2
  Services                                              52.2               11.2
--------------------------------------------------------------------------------
                                                       331.0               64.4
--------------------------------------------------------------------------------

Gross margin                                           229.2               57.0
--------------------------------------------------------------------------------

Expenses:
  Selling, general and administrative                  228.5               47.0
  Research and development                              92.2               20.1
  Special charges                                       11.7                 --
  Purchased in-process research and development           --               20.7
  Loss on sale of manufacturing operations               2.4                 --
  Amortization of acquired intangibles                  68.6               12.9
--------------------------------------------------------------------------------
                                                       403.4              100.7
--------------------------------------------------------------------------------

Operating loss                                        (174.2)             (43.7)

Interest expense                                        (4.7)              (0.2)
Other expense, net                                      (0.6)              (0.5)
--------------------------------------------------------------------------------

Loss before income taxes                              (179.5)             (44.4)

Income tax expense                                      (0.2)              (0.9)
--------------------------------------------------------------------------------

Net loss                                        $     (179.7)      $      (45.3)
--------------------------------------------------------------------------------

Net loss per common share:
      Basic and diluted                         $      (1.73)      $      (0.45)
--------------------------------------------------------------------------------

Weighted average number of common
 shares outstanding
      Basic and diluted                          106,848,314        100,000,000
--------------------------------------------------------------------------------

        (See accompanying notes to the consolidated financial statements)


                                      F-5

                                                 [LOGO] MITEL  |  it's about YOU
<PAGE>

                                                                         US GAAP

                           Mitel Networks Corporation
            a majority-owned subsidiary of Mitel Systems Corporation
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
             (in millions of Canadian dollars, except share amounts)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                        Accumulated
                                                  Common Shares           Deferred                         Other           Total
                                             -----------------------    Stock-based     Accumulated    Comprehensive   Shareholders'
                                               Shares        Amount     Compensation      Deficit      Income (Loss)      Equity
------------------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>             <C>         <C>              <C>            <C>             <C>
Balance at February 16, 2001                          --     $   --      $   --           $   --         $   --          $   --

Net loss                                              --         --          --            (45.3)            --           (45.3)
Loss on currency translation                          --         --          --               --           (0.5)           (0.5)
------------------------------------------------------------------------------------------------------------------------------------
Comprehensive loss                                    --         --          --            (45.3)          (0.5)          (45.8)
------------------------------------------------------------------------------------------------------------------------------------

Issuance of common stock                     100,000,000      251.3          --               --             --           251.3
------------------------------------------------------------------------------------------------------------------------------------

Balance at April 27, 2001                    100,000,000      251.3          --            (45.3)          (0.5)          205.5

Net loss                                              --         --          --           (179.7)            --          (179.7)
Gain on currency translation                          --         --          --               --            1.5             1.5
------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss)                           --         --          --           (179.7)           1.5          (178.2)
------------------------------------------------------------------------------------------------------------------------------------

Non-cash capital contribution                         --        7.5          --               --             --             7.5
Common shares issued:
 Cash                                          5,606,180       22.5          --               --             --            22.5
 Acquisitions                                    607,441        2.4          --               --             --             2.4
 Professional services received                   62,709        0.3          --               --             --             0.3
 Exercise of stock options                         3,562         --          --               --             --              --
 Employee stock purchase plan                    645,032        2.6          --               --             --             2.6
 Common share issue costs                             --       (0.8)         --               --             --            (0.8)
 Share purchase loans                                 --       (9.3)         --               --             --            (9.3)
 Share purchase loan repayments                       --        5.6          --               --             --             5.6
Redeemable common shares
  reclassified to mezzanine
  equity                                     (10,000,000)     (25.9)         --               --             --           (25.9)
Redeemable common share accretion                     --         --          --             (1.1)            --            (1.1)
Stock-based dividends                                 --        3.9          --             (3.9)            --              --
Deferred stock-based compensation                     --        1.0        (1.0)              --             --              --
Amortization of deferred
  stock-based compensation                            --         --         0.2               --             --             0.2
------------------------------------------------------------------------------------------------------------------------------------

Balance at April 28, 2002                     96,924,924     $261.1      $ (0.8)          $(230.0)       $  1.0          $ 31.3
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

        (See accompanying notes to the consolidated financial statements)


                                      F-6

                                                 [LOGO] MITEL  |  it's about YOU
<PAGE>

                                                                         US GAAP

              Mitel Networks Corporation majority-owned subsidiary
                          of Mitel Systems Corporation
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                        (in millions of Canadian dollars)

--------------------------------------------------------------------------------
                                                             Year      Ten Weeks
                                                            Ended        Ended
                                                           April 28,   April 27,
                                                             2002         2001
--------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN)

Operating activities:
  Net loss                                                  $(179.7)     $(45.3)
  Adjustments to reconcile net loss to
   net cash from operating activities:
    Amortization and depreciation                             89.3         17.8
    Purchased in-process research and development               --         20.7
    Stock-based compensation                                   0.2           --
    Allowance for doubtful accounts                            2.6          0.3
    Inventory obsolescence                                     2.6          1.2
    Loss on sale of manufacturing operations                   1.9           --
    Adjustments to other non-cash items, net                   0.4          0.1
    Change in non-cash operating assets
      and liabilities, net                                   (14.1)        (1.3)
--------------------------------------------------------------------------------

Net cash used in operating activities                        (96.8)        (6.5)
--------------------------------------------------------------------------------

Investing activities:
  Additions to property and equipment                        (18.3)        (2.4)
  Acquisition                                                 (0.8)          --
  Realized foreign exchange loss on
    hedging activities                                        (1.5)          --
  Realized foreign exchange gain on
    hedging activities                                         1.4           --
--------------------------------------------------------------------------------

Net cash used in investing activities                        (19.2)        (2.4)
--------------------------------------------------------------------------------

Financing activities:
  Proceeds from bank indebtedness                             51.4           --
  Proceeds from related party loans                           52.0         15.4
  Repayment of related party loans                           (56.4)          --
  Proceeds from long-term debt                                28.1           --
  Repayment of long-term debt                                 (1.9)          --
  Proceeds from sale lease-back                                3.4           --
  Repayment of capital lease liabilities                      (0.4)          --
  Debt issue costs                                            (0.3)          --
  Proceeds from issue of redeemable
    common shares                                             16.0           --
  Proceeds from issue of common shares - net                  21.6           --
--------------------------------------------------------------------------------

Net cash from financing activities                           113.5         15.4
--------------------------------------------------------------------------------

Effect of currency translation on cash
  and cash equivalents                                        (0.2)        (0.1)
--------------------------------------------------------------------------------

Increase (decrease) in cash and cash
  equivalents                                                 (2.7)         6.4

Cash and cash equivalents, beginning
  of period                                                    8.4          2.0
--------------------------------------------------------------------------------

Cash and cash equivalents, end of
  period                                                    $  5.7       $  8.4
--------------------------------------------------------------------------------

        (See accompanying notes to the consolidated financial statements)


                                      F-7

                                                 [LOGO] MITEL  |  it's about YOU
<PAGE>

                           MITEL NETWORKS CORPORATION
            a majority-owned subsidiary of Mitel Systems Corporation
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
      (in millions of Canadian dollars, except share and per share amounts)

1.    NATURE OF OPERATIONS

      Mitel  Networks  Corporation  (the  "Company")  is a  global  provider  of
      next-generation  IP  telephony,  video  and data  solutions  that  creates
      advanced  communication  solutions and applications in the areas of speech
      recognition,   wireless   mobility,   unified   messaging,   and  customer
      interaction  solutions.  Through  direct and indirect  channels as well as
      strategic  technology  partnerships,  the Company  currently serves a wide
      range  of  vertical   markets,   including  the  education,   hospitality,
      healthcare,  and  government  segments,  principally in the United States,
      Europe, Canada, the Asia/Pacific region and Latin America regions.

2.    BACKGROUND AND BASIS OF PRESENTATION

      The Company was incorporated  under the laws of Canada on January 12, 2001
      and  is  a   majority-owned   subsidiary  of  Mitel  Systems   Corporation
      ("Systems"), a private company. On February 16, 2001, the Company acquired
      the "Mitel" name and  substantially  all of the assets and subsidiaries of
      the   Communications   Systems   Division  (the   "Division")  of  Zarlink
      Semiconductor Inc. ("Zarlink"), formerly Mitel Corporation,  excluding the
      Canadian real estate and most intellectual property assets. Zarlink, which
      retained its semiconductor division, sold 90 percent (or 90,000,000 common
      shares) of the Company to Mitel Systems Corporation ("Systems"), a private
      company and unaffiliated  third party, for total  consideration of $232.9.
      Zarlink retained a 10 percent  ownership (or 10,000,000  common shares) in
      the  Company  (see also  note  16).  At the same  time,  the  intellectual
      property  assets  related to the Division  were acquired by a company (the
      "Funding Company") controlled by the Company's controlling shareholder and
      Chairman of the Board of  Directors  (the  "Principal  Shareholder").  The
      Company's assets and liabilities were revalued using push-down  accounting
      to reflect  the  purchase  price  adjustments  recorded  by  Systems.  The
      purchase  price  adjustments  were based on fair  values  assigned  to net
      assets as  determined  by an  independent  valuation  firm using  standard
      valuation  techniques.  The fair market  values of patents,  developed and
      in-process  technologies were determined using the income approach,  which
      discounts management's best estimate of future cash flows to present value
      using  a  discount  rate  of 16%  for  developed  technology  and  21% for
      in-process technology, as adjusted to reflect additional risks inherent in
      the development life cycle. The fair market value of the acquired customer
      base was estimated  based on market prices in actual  transactions  and on
      asking prices for assets  currently  available  for sale.  The fair market
      value of the acquired  workforce was estimated based on a replacement cost
      approach.  Acquired  intangible  assets are  amortized on a  straight-line
      basis over their estimated  useful life of two years. The approximate fair
      value of the assets and liabilities acquired amounted to $355.8 (including
      $20.7 of acquired in-process technology) and $122.9,  respectively and are
      detailed as follows:

      Current assets                                                      $173.6
      Fixed assets                                                          36.0
      Intangible assets                                                    141.7
      Other long-term assets                                                 4.5
      --------------------------------------------------------------------------
      Total assets                                                         355.8
      --------------------------------------------------------------------------

      Current liabilities                                                  113.5
      Pension liability                                                      9.4
      --------------------------------------------------------------------------
      Total liabilities                                                    122.9
      --------------------------------------------------------------------------

      Cash consideration                                                  $232.9
      --------------------------------------------------------------------------


                                      F-8

                                                 [LOGO] MITEL  |  it's about YOU
<PAGE>

                                                                         US GAAP

      The effects of the push-down  accounting  adjustments on the book value of
      the Company's  major classes of assets and  shareholders'  equity accounts
      are as follows:

      Current assets                                               $(16.1)
      Fixed assets                                                  (34.8)
      Intangible assets                                             154.9
      Other long-term assets                                         (2.2)
      --------------------------------------------------------------------
      Total assets                                                  101.8

      Current liabilities                                            (9.4)
      Pension liability                                              (7.3)
      --------------------------------------------------------------------

      Common stock                                                 $ 85.1
      --------------------------------------------------------------------

      The results of operations of the acquired business have been included from
      the date of  acquisition,  resulting  in a ten-week  fiscal  period to the
      Company's first fiscal year end.

3.    ACCOUNTING POLICIES

      These consolidated  financial  statements have been prepared by management
      in accordance with United States generally accepted accounting principles.

      a) Fiscal Year End

      The  Company's  fiscal  year end was the last  Sunday in April for  Fiscal
      2002.  Normally  this results in a fifty-two  week year with four thirteen
      week  quarters.  For the ten-week  period ended April 27, 2001, the fiscal
      year end was the last Friday in April.

      b) Basis of Consolidation

      The consolidated  financial statements include the accounts of the Company
      and of its majority-owned subsidiary companies.  Intercompany transactions
      and balances have been eliminated on consolidation.

      c) Use of Estimates

      The  preparation  of the Company's  consolidated  financial  statements in
      conformity  with  generally  accepted   accounting   principles   requires
      management  to make  estimates  and  assumptions  that affect the reported
      amounts of assets and liabilities and disclosure of contingent  assets and
      liabilities at the date of the consolidated  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 the
      allowance for doubtful accounts,  inventory  allowances,  special charges,
      depreciation and amortization,  warranty costs,  sales returns,  taxes and
      contingencies. Estimates and assumptions are reviewed periodically and the
      effects  of  revisions  are  reflected  in  the   consolidated   financial
      statements  in the period  they are  determined  to be  necessary.  Actual
      results could differ from these estimates.

      d) Foreign Currency Translation

      Assets and liabilities of the Company's foreign  operations are translated
      from foreign  currencies  into Canadian  dollars at the exchange  rates in
      effect at the balance  sheet date while  revenue,  expenses  and cash flow
      amounts are  translated  at average  exchange  rates for the  period.  The
      resulting   translation   adjustments  are  recorded  as  a  component  of
      accumulated other comprehensive income (loss) in shareholders' equity.

      Other monetary assets and liabilities, which are denominated in currencies
      foreign to the local currency of any one operation,  are translated to the
      local  currency at the exchange rates in effect at the balance sheet date,
      and  transactions  included in earnings are translated at average exchange
      rates  during the period.  Exchange  gains and losses  resulting  from the
      translation of these  accounts are included in other expense,  net, in the
      Consolidated Statements of Operations.


                                      F-9

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                                                                         US GAAP

      e) Revenue Recognition

      The Company  recognizes  product  revenue when  persuasive  evidence of an
      arrangement  exists,  delivery has  occurred,  title and risk of loss have
      been  transferred  to the  customer,  fee is  fixed or  determinable,  and
      collection is reasonably assured.

      Indirect channels

      The Company makes sales to  distributors  and resellers based on contracts
      with terms  ranging  from one to three years.  For  products  sold through
      these distribution channels, revenue is recognized at the time the risk of
      loss is transferred  according to contractual terms and if all contractual
      obligations  have  been  satisfied.  These  arrangements  usually  involve
      multiple elements, including post-contract technical support and training.
      Costs related to insignificant  technical support  obligations,  including
      second-line telephone support for certain products, are accrued. For other
      technical support and training obligations,  revenue from product sales is
      allocated to each element based on vendor specific  objective  evidence of
      relative fair values,  generally  representing the prices charged when the
      element is sold separately,  with any discount allocated  proportionately.
      Revenue  attributable  to undelivered  elements is deferred and recognized
      upon performance or ratably over the contract period.

      The Company's  standard  warranty  period extends  fifteen months from the
      date  of sale  and  extended  warranty  periods  are  offered  on  certain
      products.  At the time  product  revenue  is  recognized  an  accrual  for
      estimated warranty costs is recorded as a component of cost of sales based
      on prior  claims  experience.  Sales  to the  Company's  resellers  do not
      provide for return or price protection  rights while sales to distributors
      provide for such rights. Product return rights are limited to a percentage
      of sales  over a  maximum  three-month  period.  A reserve  for  estimated
      product  returns and price  protection  rights based on past experience is
      recorded  as  a  reduction  of  sales  at  the  time  product  revenue  is
      recognized.  The Company offers various cooperative  marketing programs to
      assist  its  distribution  channels  to  market  the  Company's  products.
      Allowances  for such  programs are  recorded as marketing  expenses at the
      time of shipment based on contract terms and prior claims experience.

      Direct channels


      The Company sells products, including installation and related maintenance
      and support services, directly to customers. Installation services are not
      essential to the functionality of the products.  For products sold through
      direct  channels,  revenue is recognized at the time of delivery  based on
      prior  experience of successful  compliance with customer  specifications,
      except in  circumstances  when  experience of successful  compliance  with
      customer  specifications  has not been  demonstrated,  revenue is deferred
      until such compliance is achieved. Revenue from installation is recognized
      as services  are  rendered  and when  contractual  obligations,  including
      customer  acceptance,  have been  satisfied.  Revenue is also derived from
      professional service contracts with terms that range from two to six weeks
      for standard  solutions and for longer periods for  customized  solutions.
      Revenue from  customer  support and  maintenance  contracts is  recognized
      ratably over the  contractual  period,  generally  one year.  Revenue from
      professional  services  is  recognized  on a  time  and  materials  basis.
      Billings in advance of services are included in deferred revenue.  Revenue
      from  installation  services provided in advance of billing is included in
      unbilled accounts receivable.


      Certain  arrangements  with direct  customers  provide  for free  customer
      support and maintenance  services extending twelve months from the date of
      installation.  Customer  support and  maintenance  contracts are also sold
      separately.  When customer  support or  maintenance  services are provided
      free  of  charge,   such  amounts  are  unbundled  from  the  product  and
      installation  revenue  at their  fair  market  value  based on the  prices
      charged when the element is sold  separately and  recognized  ratably over
      the contract period.  Consulting and training revenues are recognized upon
      performance.

      The Company  provides  long-term  outsourcing  services  of  communication
      systems.  Under these arrangements,  systems management services ("Managed
      Services") and communication equipment are provided to customers for terms
      that typically range from one to ten years.  Revenue from Managed Services
      is recognized  ratably over the contract period. The Company retains title
      and risk of loss associated  with the equipment  utilized in the provision
      of the Managed Services. Accordingly, the equipment is capitalized as part
      of  property  and  equipment  and is  amortized  to cost of sales over the
      contract period.


                                      F-10

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                                                                         US GAAP

      f) Cash and Cash Equivalents

      All highly liquid investments with original  maturities of three months or
      less are classified as cash and cash  equivalents.  The fair value of cash
      equivalents approximates the amounts shown in the financial statements.

      g) Inventories

      Inventories  are valued at the lower of cost  (calculated  on a  first-in,
      first-out  basis) or net realizable  value for finished goods, and current
      replacement  cost for raw  materials.  Until the disposal of the Company's
      manufacturing  operations  on August  31,  2001 (see note 4),  the cost of
      finished  goods  and  work  in  process  included   material,   labor  and
      manufacturing overhead. The Company provides inventory allowances based on
      estimated excess and obsolete inventories.

      h) Property and Equipment

      Capital assets are initially recorded at cost. Depreciation is provided on
      a  straight-line  basis over the  anticipated  useful lives of the assets.
      Estimated   lives  range  from  three  to  ten  years  for  equipment  and
      twenty-five years for buildings. Amortization of leasehold improvements is
      computed using the shorter of the remaining lease terms or five years. The
      Company  performs  reviews for the impairment of property and equipment in
      accordance with Statement of Financial  Accounting  Standards ("SFAS") 121
      whenever  events or changes in  circumstances  indicate  that the carrying
      amount of an asset may not be recoverable.

      i) Intangible Assets

      Intangible  assets  include  patents,   trademarks,   acquired   developed
      technology,  customer base and  workforce.  Amortization  is provided on a
      straight-line  basis  over five years for  patents  and over two years for
      other   intangible   assets.   The  carrying  value  of  these  assets  is
      periodically  reviewed by management for potential  permanent  impairment.
      The Company evaluates  intangible assets for impairment in accordance with
      SFAS 121 whenever  events or changes in  circumstances  indicate  that the
      carrying amount of an asset may not be recoverable.

      In June 2001, the Financial  Accounting Standards Board ("FASB") SFAS 141,
      "Business  Combinations",  and SFAS 142,  "Goodwill  and Other  Intangible
      Assets".  SFAS 141 requires that the purchase method of accounting be used
      for all business combinations initiated after June 30, 2001. SFAS 141 also
      includes  guidance on the initial  recognition and measurement of goodwill
      and other intangible assets arising from business  combinations  completed
      after June 30, 2001. The Company has adopted SFAS 141 effective  April 29,
      2002.  SFAS 142 requires  goodwill and intangible  assets with  indefinite
      useful lives to be tested for  impairment  and written down when impaired,
      rather than being  amortized as previous  standards  required.  Intangible
      assets  with  finite  lives  will  continue  to be  amortized  over  their
      estimated  useful  lives.  On  adoption  of the new rules,  the Company is
      expected to reclassify to goodwill the acquired workforce totaling $7.6 at
      April 28, 2002 previously  classified as purchased  intangible assets, and
      to cease its amortization.  Application of the non-amortization provisions
      of SFAS 142 to  goodwill  is expected to result in an increase in earnings
      before income taxes of $7.6 in Fiscal 2003. The reassessment of the useful
      life of identifiable intangibles will be completed in the first quarter of
      Fiscal  2003  and  the  transitional  goodwill  impairment  test  will  be
      completed before October 27, 2002.

      j) Derivative Financial Instruments

      The Company uses derivatives,  including foreign currency forward and swap
      contracts,  to minimize the short-term impact of currency  fluctuations on
      foreign currency receivables and payables. These financial instruments are
      recorded at fair market value with the related foreign  currency gains and
      losses recorded in other expense,  net, in the consolidated  statements of
      operations.  The  Company  does  not hold or  issue  derivative  financial
      instruments for speculative or trading purposes.

      The Company also utilizes  non-derivative  financial instruments including
      letters of credit and commitments to extend credit.


                                      F-11

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                                                                         US GAAP

      k) Income Taxes

      Income taxes are accounted for using the asset and liability method. Under
      this approach, deferred tax assets and liabilities are determined based on
      differences  between the carrying  amounts and the tax basis of assets and
      liabilities,  and are measured using enacted tax rates and laws.  Deferred
      tax assets are  recognized  only to the extent that it is more likely than
      not,  in the  opinion of  management,  that the future tax assets  will be
      realized in the future.

      l) Research and Development

      Research  costs are  charged to  expense in the  periods in which they are
      incurred.  Software  development  costs are  deferred and  amortized  when
      technological feasibility has been established, or otherwise, are expensed
      as incurred.  The Company has not deferred any software  development costs
      to date,  except  intangible  assets acquired on February 16, 2001 arising
      from push-down accounting.

      m) Defined Benefit Pension Plan

      Pension  expense is  actuarially  determined  using the projected  benefit
      method  prorated on service and  management's  best estimate  assumptions.
      Pension plan assets are valued at fair value. The excess of any cumulative
      net  actuarial  gain (loss) over ten percent of the greater of the benefit
      obligation and the fair value of plan assets is amortized over the average
      remaining service period of active employees.

      n) Stock-Based Compensation Plan

      The Company has a stock-based  compensation plan described in note 17. The
      Company  generally  grants  stock  options for a fixed number of shares to
      employees  with an exercise  price  equal to the fair market  value of the
      shares at the date of grant.  The Company accounts for stock option grants
      in accordance with Accounting  Principles Board Opinion No. 25 ("APB 25"),
      "Accounting for Stock Issued to Employees,"  and related  interpretations.
      Under APB 25, the Company  generally  recognizes no  compensation  expense
      with  respect  to  employee  awards.  Under  SFAS No.  123  ("SFAS  123"),
      "Accounting  for  Stock-Based   Compensation",   the  Company   recognizes
      compensation expense in connection with grants to non-employees and former
      employees  and also applies  variable  plan  accounting  to such  unvested
      grants.  The Company discloses in note 17 the required pro forma effect on
      net loss and loss per share of determining  compensation cost using a fair
      value based method as is required by SFAS 123.

      o) Earnings (Loss) per Common Share

      Basic  earnings  (loss) per common  share is computed  using the  weighted
      average  number of common shares  outstanding  during the period.  Diluted
      earnings  (loss) per common  share is computed  using the  treasury  stock
      method and assumes  that, if a dilutive  effect is produced,  all dilutive
      securities  had been exercised at the later of the beginning of the fiscal
      period and the security issue date.

      p) Other Comprehensive Income (Loss)

      Other  comprehensive  income  (loss) is  recorded  directly  to a separate
      section of shareholders'  equity in accumulated other  comprehensive  loss
      and includes  unrealized  gains and losses excluded from the  Consolidated
      Statements of  Operations.  These  unrealized  gains and losses consist of
      foreign  currency  translation  adjustments,  which are not  adjusted  for
      income taxes since they  primarily  relate to  indefinite  investments  in
      non-Canadian subsidiaries.

      q) Advertising Costs

      The cost of  advertising is expensed as incurred,  except for  cooperative
      advertising  obligations  which are expensed at the time the related sales
      are recognized. Advertising costs are recorded as part of selling, general
      and  administrative  expenses.  The  Company  incurred  $13.2  and $3.1 in
      advertising  costs  during the year ended April 28, 2002 and the  ten-week
      period ended April 27, 2001, respectively.

      r) Comparative Figures

      Certain of the 2001 comparative  figures have been reclassified to conform
      to the Fiscal 2002 presentation.


                                      F-12

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                                                                         US GAAP

      s) Recent Accounting Pronouncements

      The Emerging Issue Task Force ("EITF") issued Issue 01-9,  "Accounting for
      Consideration Given by a Vendor to a Customer (Including a Reseller of the
      Vendor's  Products)".  EITF  01-9  addresses  the  accounting  and  income
      statement  classification of costs that a vendor incurs to or on behalf of
      a reseller in connection with the reseller's  purchase or promotion of the
      vendor's  products.  The Company has adopted this standard as of April 29,
      2002.  The  adoption  of this  standard  did not  have any  impact  on the
      classification of the Company's advertising costs.

      In July 2001, the FASB issued SFAS 143,  "Accounting for Asset  Retirement
      Obligations".  The standard  applies to  obligations  associated  with the
      retirement of tangible  long-lived  assets.  The standard is effective for
      fiscal  periods  beginning  after June 15, 2002 and will be adopted by the
      Company  as of May 2003.  It is not  expected  that the  adoption  of this
      standard will have a material impact on the Company's  financial position,
      results of operations or cash flows.

      In August 2001, the FASB issued SFAS 144,  "Accounting  for the Impairment
      or Disposal of  Long-Lived  Assets".  The standard is effective for fiscal
      periods  beginning  after  December  15, 2001 and has been  adopted by the
      Company as of April 29, 2002. It is not expected that the adoption of this
      standard will have a material impact on the Company's  financial position,
      results of operations or cash flows.

      In July 2002, the FASB issued SFAS 146,  "Accounting for Costs  Associated
      with  Exit of  Disposal  Activities".  The  standard  will  require  Mitel
      Networks to recognize costs  associated  with exit or disposal  activities
      when they are  incurred  rather than when we commit to an exit or disposal
      plan. Examples of costs covered by this guidance include lease termination
      costs,  employee severance costs that are associated with a restructuring,
      discontinued  operations,   plant  closings  or  other  exit  or  disposal
      activities. The provisions of this standard are effective for fiscal years
      beginning  after  December  31,  2002 and will impact any exit or disposal
      activities  initiated  after  January  1,  2003.  This  standard  does not
      currently impact Mitel Networks.

4.    RELATED PARTY TRANSACTIONS

      Significant  related party  transactions  with companies  controlled by or
      related to the  Principal  Shareholder,  not  otherwise  disclosed  in the
      financial statements, include the following:

      Research and development

      Effective  February  16,  2001,  the Company  entered  into a research and
      development  agreement with the Funding  Company,  under which the Company
      receives funding to perform research and development.  The Funding Company
      owns the  intellectual  property for the products  developed  and licenses
      certain of the intellectual property rights to the Company in exchange for
      royalties  based on a percentage of sales of products  developed under the
      programs.  Effective  March 27, 2001,  a  wholly-owned  subsidiary  of the
      Company and the Funding  Company  entered into a research and  development
      cost-sharing  agreement  pursuant to which the two parties agreed to share
      the costs of research and  development and in exchange the Company obtains
      a license to additional  intellectual  property rights.  In addition,  the
      Company will transfer to the Funding  Company any  investment  tax credits
      ("ITCs")  earned on the  research and  development  activity to the extent
      that such ITCs are not required to reduce the Company's  Canadian  federal
      tax  payable.  The  initial  term  of the  agreement  is five  years  with
      automatic  subsequent annual renewals unless the parties mutually agree to
      terminate the agreement.

      During Fiscal 2002, the Company  received $10.0 (ten weeks ended April 27,
      2001 - $1.5) in research and development  funding, net of royalty expenses
      of $0.3 (ten weeks ended April 27, 2001 - $0.6), that was recorded as part
      of due to related  parties.  As at April 28, 2002,  net  balances  payable
      pursuant to this  agreement  amounted  to $15.5  (April 27, 2001 - balance
      receivable of $2.5).


      The  Company  has an option to acquire  the  intellectual  property  under
      certain terms and conditions, at a price equal to the sum of (a) the value
      on February 16, 2001 of the  intellectual  property asset of $3.8 acquired
      by the Funding Company from Zarlink,  and (b) the cumulative  research and
      development  funding of $11.5  received from the Funding  Company,  net of
      royalty  expenses,  to be satisfied by the issuance of common  shares from
      treasury  with an  assigned  fixed  value of $5.25  per  share,  which was
      greater than the fair value of the Company's common shares at the time the
      agreement  was  entered  into.  Had the  Company  exercised  the option to
      acquire the  intellectual  property



                                      F-13

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                                                                         US GAAP

      for the  products  developed  under the  programs  up to the end of Fiscal
      2002,  2,917,796  shares (2001 - 1,019,269  shares) would have been issued
      pursuant to the terms of the agreement.


      Effective  November 1, 2002,  the  Company  approved  the  exercise of the
      option to acquire the intellectual  property from the Funding Company at a
      price of  approximately  $12.5 that will be  satisfied  by the issuance of
      approximately  4,555,169  common shares from treasury with a fair value of
      $2.75  per  share,  which  is based  upon an  independent  valuation.  The
      purchase  price was  determined in accordance  with the formula  described
      above.  As a  result,  the  research  and  development  agreement  and the
      research and development cost-sharing agreement have been terminated. This
      transaction will result,  in Fiscal 2003, in the  reclassification  of the
      liability to issue common  shares of $15.3  recorded in the due to related
      parties balance at April 28, 2002 to common shares.


      Disposal of manufacturing operations

      On  August  31,  2001,  the  Company  sold its  manufacturing  operations,
      comprising  plant,  equipment,  workforce  and  certain  liabilities  to a
      company   controlled  by  the  Principal   Shareholder   (the  "Affiliated
      Supplier")  for total net  consideration  of $7.8 in the form of long-term
      promissory  notes receivable of $8.4 and promissory notes payable of $0.6.
      The total net  consideration  approximated  the fair value of the disposed
      manufacturing   tangible  net  assets.  The  long-term   promissory  notes
      receivable  are  secured  by a first  charge on the  manufacturing  assets
      transferred,  bear  interest at LIBOR rate plus 1.5 percent and are due on
      August  31,  2003.   Interest  income  related  to  the  promissory  notes
      receivable  amounted to $0.3 in Fiscal 2002 (period ended April 27, 2001 -
      $nil).  The promissory  notes payable bear interest at LIBOR rate plus 1.5
      percent,  are due on August 31,  2002 and were  recorded in due to related
      parties.  Interest expense recorded in the current year in connection with
      these promissory notes payable was immaterial. The transaction resulted in
      a loss on disposal of $2.4 that was recorded in operating expenses.

      In  connection  with the  disposal of the  manufacturing  operations,  the
      Company entered into a supply  agreement dated August 31, 2001 whereby the
      Affiliated Supplier will provide certain products and services under terms
      and conditions  reflecting  prevailing  market  conditions at the time the
      agreement  was entered  into.  The initial term of the  agreement is three
      years and will be, unless otherwise  terminated,  automatically renewed on
      the same terms and  conditions  for an additional  term of three years and
      thereafter  shall be  automatically  renewed  for  additional  consecutive
      one-year periods. Under the terms of the supply agreement,  the Affiliated
      Supplier is required to purchase the  Company's  raw  material  inventory,
      before  turning to third party  suppliers  for raw  material  procurement.
      During Fiscal 2002, the Company  purchased $127.4 of products and services
      and sold $31.2 of raw  material  inventory  under this  agreement  (period
      ended  April 27,  2001 - $nil).  As at April 28,  2002,  balances  payable
      pursuant to this  agreement  amounted to $18.3 (April 27, 2001 - $nil) and
      balances receivable pursuant to this agreement amounted to $7.1 (April 27,
      2001 - $nil).


      On August 31, 2001, the Company also entered into service  agreements with
      the Affiliated Supplier to provide human resource, finance and information
      systems support  services during the transition  period ended December 31,
      2001 and to provide facilities management services for the period covering
      the  term  of  the  premise  lease  agreements.  Amounts  charged  to  the
      Affiliated  Supplier  were equal to, and  recorded as a reduction  of, the
      costs  incurred  to  provide  the  related  services  in the  consolidated
      statement of operations. During Fiscal 2002, the Company provided services
      valued at $9.3 under  these  agreements  (period  ended  April 27,  2001 -
      $nil).  As at  April  28,  2002,  balances  receivable  pursuant  to these
      agreements were not material (April 27, 2001 - $nil).


      Leased properties

      In  March  2001,  the  Company  entered  into a  lease  agreement  for its
      Ottawa-based  headquarter facilities of 512,391 square feet with a company
      controlled  by the  Principal  Shareholder,  under  terms  and  conditions
      reflecting  prevailing market conditions at the time the lease was entered
      into. The lease agreement is for 10 years expiring in March 2011.

      On August 31, 2001, the Company entered into sublease  agreements with the
      Affiliated  Supplier for certain  office and  manufacturing  facilities in
      Ottawa and in the United Kingdom  totaling 252,941 square feet under terms
      and conditions  reflecting  prevailing  market  conditions at the time the
      leases were entered into. The Ottawa  sublease  agreement is for a term of
      five years  expiring  in August  31,  2006 and the  United  Kingdom  lease
      agreement  is for a term of fifteen  years  expiring  in August  2016 with
      cancellation options on the fifth and tenth years available to the Company
      and the Affiliated  Supplier.  See note 14 for disclosure of related party
      rental expense,  sublease income,  committed future minimum lease payments
      and future sublease income.


                                      F-14

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                                                                         US GAAP

      Other

      On April 27, 2001,  the Company held a $37.4  preferred  share  short-term
      investment in, and $41.8 of non-interest  bearing demand  promissory notes
      payable to the  Funding  Company in  connection  with the  disposal of the
      Division by Zarlink on February 16, 2001.  The  promissory  notes  payable
      were recorded in due to related  parties at April 27, 2001.  During Fiscal
      2002,  the  short-term   investment  was  redeemed  in  exchange  for  the
      settlement  of an equal amount of demand  promissory  notes  payable.  The
      remaining  promissory  notes  outstanding at April 27, 2001 were repaid in
      Fiscal 2002.

      On April 27,  2001,  the Company  also held $7.5 of  non-interest  bearing
      demand  promissory notes payable to Zarlink and Systems in connection with
      the  disposal  of the  Division  by Zarlink on February  16,  2001.  These
      promissory  notes were  included  in due to  related  parties at April 27,
      2001. In June 2001, Zarlink and Systems made a contribution to the capital
      of the Company in exchange for the settlement of the promissory notes.

      During the fiscal year ended April 28, 2002 and the ten-week  period ended
      April 27,  2001,  the  Company  borrowed,  from time to time,  funds  from
      companies   controlled  by  the  Principal   Shareholder  to  finance  its
      operations.  At April 28,  2002,  demand loans  payable  amounted to $11.0
      (April 27,  2001 - $15.4) and bore  interest at prime rate  (currently  at
      3.75 percent) plus 0.5 percent.  The loan balance outstanding at April 27,
      2001 bore  interest  at the  Deutsche  Banc Alex  Brown  call rate of 5.75
      percent plus 0.75  percent.  Interest  expense  incurred on these  related
      party loans  amounted to $1.9 in Fiscal 2002 (ten weeks ended April 2001 -
      $nil).

      In September 2001, the Company entered into a strategic alliance agreement
      and a global distribution agreement with a company (the "Partner Company")
      controlled by the Principal  Shareholder to broaden its product  portfolio
      and its  distribution  channel.  Under  the  terms of the  agreement,  the
      parties  agree  to  cooperate  in the  performance  of  joint  development
      activities  and each party will bear its own costs  arising in  connection
      with the  performance of its  obligations.  Both parties will share common
      costs incurred in the performance of joint activities. The Partner Company
      develops,  manufactures and distributes  broadband  integrated  technology
      solutions  enabling  businesses and service  providers to deliver enhanced
      multimedia  communication  services.   During  Fiscal  2002,  the  Company
      purchased $2.3 in products and services from the Partner Company and had a
      balance payable of $0.4 recorded in the due to related parties pursuant to
      this agreement at April 28, 2002 (April 27, 2001 - $nil).

      Other sales to, purchases from and net balances  receivable from companies
      related to the Principal  Shareholder  and arising in the normal course of
      the Company's  business amounted to $0.3, $0.4 and $0.8,  respectively for
      the year ended April 28, 2002  (period  ended April 27, 2001 - $nil,  $nil
      and $0.1, respectively).


                                      F-15

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<PAGE>

                                                                         US GAAP

5.    SPECIAL CHARGES

      During Fiscal 2002, the Company executed  restructuring programs to reduce
      its sales,  marketing,  administrative and R&D workforce.  In August 2001,
      the  Network  Access  Solutions  R&D program  was  cancelled  based on the
      decision to exit non-core operations. Accordingly, pre-tax special charges
      of $11.7  related to these  actions  were  recorded  in Fiscal  2002.  The
      workforce  reduction  costs  included  in the special  charges  related to
      severance and benefits associated with 278 terminated employees throughout
      the world.  Although these restructuring  programs were completed at April
      28, 2002,  payments of the liabilities are expected to be completed in the
      first quarter of Fiscal 2003. As a result of the workforce reduction,  the
      Company  recorded  a loss on  disposal  of  capital  assets  of $0.6.  The
      following  table  summarizes  details  of  Fiscal  2002  special  charges,
      including a description of the type and amount of the liabilities assumed,
      and activity in the provision  account from the date of the charge through
      April 28, 2002. Activity represents payments made or amounts written-off:

                                                                    Provision
                                 Cash/     Special                Balance as at
Description                    Non-Cash    Charge     Activity   April 28, 2002
--------------------------------------------------------------------------------
Workforce reduction              Cash       $10.5       $7.2          $3.3
Loss on disposal of
  capital assets               Non-Cash       0.6        0.6            --
Legal costs                      Cash         0.6        0.4           0.2
--------------------------------------------------------------------------------
                                            $11.7       $8.2          $3.5
--------------------------------------------------------------------------------

6.    SEGMENT INFORMATION

      General description

      The Company  reports its  operations in two segments:  the  Communications
      Solutions   segment   ("Solutions")  and  the  Customer  Services  segment
      ("Services").   The  Solutions  segment   represents  the  Company's  core
      business,  consisting of enterprise voice,  video and data  communications
      systems  and  software  as  well  as  communications  applications.  These
      Solutions are provided  through the Company's  dealer and reseller network
      and are used by large enterprises,  small and medium businesses as well as
      government,  education and healthcare organizations.  The Services segment
      consists of direct  product  sales and  services,  professional  services,
      maintenance and technical  support  services.  These services are provided
      through the Company's  direct sales offices  throughout  North America and
      the United Kingdom.


      The Company's Chief  Executive  Officer ("CEO") has been identified as the
      chief operating  decision maker.  The CEO evaluates the performance of the
      segments and  allocates  resources  based on  information  provided by the
      Company's  internal  management system which reports  segmented  operating
      income  (loss)  representing  sales  less  the cost of  sales  and  direct
      expenses  incurred  within the  operating  segments.  The Company does not
      allocate  general and  administrative  expenses,  amortization of acquired
      intangibles,  stock-based compensation expense and one-time charges to its
      segments  as  management  does not use this  information  to  measure  the
      performance  of the operating  segments.  These  unallocated  expenses are
      included  in  corporate  and  other  in the  reconciliation  of  operating
      results. In addition,  total asset information by segment is not presented
      because the CEO does not use such segmented measure to allocate  resources
      and  assess  performance.   Depreciation  of  property  and  equipment  is
      allocated  to each  segment  based on  available  segmented  property  and
      equipment information. Inter-segment sales are based on fair market values
      and are eliminated on consolidation.  The accounting  policies of reported
      segments  are the same as those  described  in the summary of  significant
      accounting policies.



                                      F-16

                                                 [LOGO] MITEL  |  it's about YOU
<PAGE>

                                                                         US GAAP

      Business segments

      The following table sets forth information by business segment:

<TABLE>
<CAPTION>
                                                                                                            Corporate
                                                                               Solutions      Services       and Other       Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>            <C>           <C>            <C>
Year ended April 28, 2002

  External revenue                                                               $248.7         $311.5        $   --         $560.2
  Inter-segment revenue                                                            51.4             --         (51.4)            --
------------------------------------------------------------------------------------------------------------------------------------
  Total revenue                                                                   300.1          311.5         (51.4)         560.2
------------------------------------------------------------------------------------------------------------------------------------

  Depreciation of property and equipment                                            8.0            4.6           8.1           20.7
------------------------------------------------------------------------------------------------------------------------------------

  Segment operating income (loss)                                                 (96.2)          54.2            --          (42.0)
  Corporate and unallocated shared expenses                                          --             --         (49.3)         (49.3)
  Stock-based compensation                                                           --             --          (0.2)          (0.2)
  Special charges                                                                    --             --         (11.7)         (11.7)
  Loss on sale of manufacturing operations                                           --             --          (2.4)          (2.4)
  Amortization of intangible assets                                                  --             --         (68.6)         (68.6)
------------------------------------------------------------------------------------------------------------------------------------
  Operating income (loss)                                                         (96.2)          54.2        (132.2)        (174.2)
------------------------------------------------------------------------------------------------------------------------------------

Ten weeks ended April 27, 2001

  External revenue                                                               $ 47.9         $ 73.5        $   --         $121.4
  Inter-segment revenue                                                            14.8             --         (14.8)            --
------------------------------------------------------------------------------------------------------------------------------------
  Total revenue                                                                    62.7           73.5         (14.8)         121.4
------------------------------------------------------------------------------------------------------------------------------------

  Depreciation of property and equipment                                            2.4            0.4           2.0            4.8
------------------------------------------------------------------------------------------------------------------------------------

  Segment operating income (loss)                                                 (11.4)          12.5            --            1.1
  Corporate and unallocated shared expenses                                          --             --         (11.2)         (11.2)
  In-process research and development                                                --             --         (20.7)         (20.7)
  Amortization of intangible assets                                                  --             --         (12.9)         (12.9)
------------------------------------------------------------------------------------------------------------------------------------
  Operating income (loss)                                                         (11.4)          12.5         (44.8)         (43.7)
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                      F-17

                                                 [LOGO] MITEL  |  it's about YOU
<PAGE>

                                                                         US GAAP

      Product information

      The  following  table sets forth net sales for groups of similar  products
      and services:

                                                             Year      Ten Weeks
                                                            Ended        Ended
                                                           April 28,   April 27,
                                                             2002         2001
--------------------------------------------------------------------------------

Products:
 Communications platforms and desktop appliances             $383.3       $ 64.3
 OEM products                                                  29.3         14.2
 Software applications                                         26.3          6.1
 Other (1)                                                     25.6          7.3
--------------------------------------------------------------------------------
                                                              464.5         91.9
--------------------------------------------------------------------------------

Services:
 Maintenance, support and training                             74.0         23.3
 Professional services                                         10.9          5.1
 Managed services                                              10.8          1.1
--------------------------------------------------------------------------------
                                                               95.7         29.5
--------------------------------------------------------------------------------

  Total                                                      $560.2       $121.4
--------------------------------------------------------------------------------

      (1)   Other products  include mainly  Network  Access  Solutions  products
            representing  four  percent  and five  percent  of total  revenue in
            Fiscal  2002 and for the  ten-week  period  ended  April  27,  2001,
            respectively.

      Geographic information

      Revenues from external  customers are attributed to geographic areas based
      on location of the customers.  Geographic  long-lived asset information is
      based on the physical  location of the assets as at the end of each fiscal
      period. The following table sets forth information by geographic areas:

<TABLE>
<CAPTION>
                                                     Year Ended April 28, 2002                    Ten Weeks Ended April 27, 2001
                                              -----------------------------------------      ---------------------------------------
                                                             Property                                       Property
                                                                and         Intangible                         and        Intangible
                                              Revenue        Equipment        Assets         Revenue        Equipment       Assets
------------------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>             <C>            <C>             <C>             <C>             <C>
Canada                                         $ 35.8          $ 22.0         $ 11.2          $  8.4          $ 22.3          $ 25.2
United States                                   289.6             1.2           16.5            59.7             2.6            37.3
United Kingdom                                  196.5            18.4            9.1            44.1            14.4            20.6
Barbados                                           --              --           18.5              --              --            41.8
Other foreign countries                          38.3             0.5             --             9.2              --              --
------------------------------------------------------------------------------------------------------------------------------------
                                               $560.2          $ 42.1         $ 55.3          $121.4          $ 39.3          $124.9
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

      Concentrations

      The Company sells its products and services to a broad set of  enterprises
      ranging  from large,  multinational  enterprises,  to small and  mid-sized
      enterprises,  government agencies,  health care organizations and schools.
      Management  believes that the Company is exposed to minimal  concentration
      risk since the majority of its business is conducted with companies within
      numerous  industries.  The Company performs periodic credit evaluations of
      its  customers'   financial  condition  and  generally  does  not  require
      collateral for its accounts  receivable.  In some cases,  the Company will
      require payment in advance or security in the form of letters of credit or
      third-party  guarantees.  No single  customer  accounted  for more than 10
      percent of the Company's  revenue for the year ended April 28, 2002 or for
      the ten weeks ended April 27, 2001.

      As a result of the disposal of the manufacturing  operations  described in
      note 4, the Affiliated Supplier exclusively manufactures substantially all
      of the Company's  Communications  Solutions products at facilities located
      in Canada,  the United States and the United  Kingdom.  The Company is not
      obligated  to  purchase  products  from  the  Affiliated


                                      F-18

                                                 [LOGO] MITEL  |  it's about YOU
<PAGE>

                                                                         US GAAP

      Supplier  in any  specific  quantity,  except as the  Company  outlines in
      forecasts  or orders  for  products  required  to be  manufactured  by the
      Affiliated Supplier. In addition, the Company may be obligated to purchase
      certain excess  inventory  levels from the Affiliated  Supplier that could
      result from the Company's  actual sales of product  varying from forecast.
      As at April 28, 2002,  there was no excess  inventory  level for which the
      Company was committed.  The Company's supply agreement with the Affiliated
      Supplier results in a concentration  that, if suddenly  eliminated,  could
      have an adverse  effect on the  Company's  operations.  While the  Company
      believes that alternative sources of supply would be available, disruption
      of its primary  source of supply could create a temporary,  adverse effect
      on product  shipments.  The Company is not aware of any other  significant
      concentration  of business  transacted  with a  particular  supplier  that
      could,  if  suddenly  eliminated,  have a material  adverse  affect on the
      Company's financial position, results of operations or cash flows.

7.    OTHER RECEIVABLES

      Included  in other  receivables  is an amount of $11.6  (2001 - $16.1) for
      unbilled accounts.

8.    INVENTORIES

                                                  April 28,         April 27,
                                                    2002              2001
      --------------------------------------------------------------------------
      Raw materials                                 $12.7            $32.0
      Work-in-process                                  --              5.8
      Finished goods                                 56.6             26.3
      --------------------------------------------------------------------------
                                                    $69.3            $64.1
      --------------------------------------------------------------------------

      In  connection  with the  disposal of its  manufacturing  operations,  the
      Company recorded a lower of cost or market  adjustment of its inventory in
      the amount of $2.1 (2001 - $nil) to reduce the  carrying  value of its raw
      material inventory.

9.    PROPERTY AND EQUIPMENT

                                                  April 28,        April 27,
                                                    2002             2001
      --------------------------------------------------------------------------
      Cost:
        Land                                        $ 0.7            $ 0.7
        Buildings                                     5.9              6.0
        Equipment                                    62.2             43.1
      --------------------------------------------------------------------------
                                                     68.8             49.8
      --------------------------------------------------------------------------
      Less accumulated depreciation:
        Buildings                                     0.1              0.1
        Equipment                                    22.3              4.2
      --------------------------------------------------------------------------
                                                     22.4              4.3
      --------------------------------------------------------------------------
                                                    $46.4            $45.5
      --------------------------------------------------------------------------

      As at April 28, 2002,  equipment  included leased assets with cost of $3.3
      and  accumulated  depreciation  of  $0.6  and  equipment  utilized  in the
      provision  of  Managed  Services  (see note  2(e))  with cost of $12.2 and
      accumulated  depreciation of $2.9. Depreciation expense recorded in Fiscal
      2002 amounted to $20.7 (ten weeks ended April 27, 2001 - $4.8).


                                      F-19

                                                 [LOGO] MITEL  |  it's about YOU
<PAGE>

                                                                         US GAAP

10.   INTANGIBLE AND OTHER ASSETS

                                                     April 28,     April 27,
                                                       2002          2001
      --------------------------------------------------------------------------
      Cost:
        Developed technology                          $ 90.0        $ 85.5
        Workforce                                       20.1          27.4
        Customer base                                   21.9          21.8
        Patents, trademarks and other                    2.9           3.1
      --------------------------------------------------------------------------
                                                      $134.9        $137.8
      --------------------------------------------------------------------------
      Less accumulated amortization:
        Developed technology                            52.7           8.1
        Workforce                                       12.4           2.6
        Customer base                                   13.6           2.1
        Patents, trademarks and other                    0.9           0.1
      --------------------------------------------------------------------------
                                                        79.6          12.9
      --------------------------------------------------------------------------
                                                      $ 55.3        $124.9
      --------------------------------------------------------------------------

      On August 31, 2001, the Company  disposed of its  manufacturing  workforce
      with cost of $7.4 and accumulated amortization of $2.0 (see also note 4).

11.   BANK INDEBTEDNESS

      The  Company  has a 364 day  revolving  credit  facility  of $60.0 (or the
      equivalent  amount in U.S.  dollars) that is subject to a borrowing  base.
      The facility  bears  interest at the prime rate or U.S. base rate plus 0.5
      percent or LIBOR or Bankers'  Acceptances  plus 1.5 percent and is secured
      by a  general  assignment  of  substantially  all the  Company's  accounts
      receivable.  The credit facility  matures on January 23, 2003 and contains
      certain  restrictions  and  financial  covenants.  At April 28, 2002,  the
      Company was in compliance with the restrictions  and financial  covenants.
      At April 28,  2002,  the  Company  had  borrowed  cash of $51.1 under this
      facility and $0.6 was committed under letter of credit arrangements.

      In addition,  during the year ended April 28, 2002,  the Company's  United
      Kingdom ("U.K.")  subsidiary  entered into a $2.3  ((pound)1.0)  overdraft
      facility and indemnity facilities totaling $9.1 ((pound)4.0) available for
      letters of credit and other  guarantees.  At April 28,  2002,  $0.6 of the
      U.K.   facilities  was  committed   under  letters  of  credit  and  other
      indemnities.

12.   ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

                                                     April 28,     April 27,
                                                       2002          2001
      --------------------------------------------------------------------------
      Trade payables                                  $15.6          $20.3
      Employee-related payables                        13.6           15.5
      Goods received not invoiced                       8.7           13.8
      Other accrued liabilities                        35.8           48.9
      --------------------------------------------------------------------------
                                                      $73.7          $98.5
      --------------------------------------------------------------------------


                                      F-20

                                                 [LOGO] MITEL  |  it's about YOU
<PAGE>

                                                                         US GAAP

13.   LONG-TERM DEBT

                                                       April 28,       April 27,
                                                         2002            2001
--------------------------------------------------------------------------------

Capital leases, at interest rates varying from
9.1% to 11.4%, payable in monthly installments,
with maturity dates ranging from 29 to 31 months,
secured by the leased assets                            $ 2.9          $  --

Chattel mortgage loan, bearing interest at 7.7%,
payable in monthly installments and due in
October 2004, secured by certain United Kingdom
equipment [(pound)5.0]                                    9.6             --

Mortgage loan, bearing interest at 7.4%, payable
in quarterly installments of (pound)0.3 with the
balance due in December 2006, secured by the
United Kingdom real estate properties [(pound)7.5]       16.9             --
--------------------------------------------------------------------------------
                                                         29.4             --
Less: current portion                                     5.8             --
--------------------------------------------------------------------------------
                                                        $23.6          $  --
--------------------------------------------------------------------------------

      Pursuant to the terms of the building  mortgage  agreement,  the Company's
      U.K. subsidiary must comply with certain financial covenants. At April 28,
      2002, the subsidiary was in compliance with these financial covenants.

      Interest expense related to long-term debt,  including  obligations  under
      capital  leases,  was $0.9 in Fiscal  2002 (2001 - $nil).  Future  minimum
      lease  payments  under capital  leases total $3.4 of which $1.2,  $1.2 and
      $1.0 relate to fiscal years 2003 to 2005, respectively.  Interest costs of
      $0.5 are included in the total future lease payments.  Scheduled principal
      mortgage  repayments  during the next five fiscal years are:  2003 - $4.9;
      2004 - $5.3; 2005 - $3.5; 2006 - $1.5; 2007 and beyond - $11.3.

14.   COMMITMENTS

      Operating leases

      The Company leases  certain  equipment and  facilities  under  arms-length
      operating leases. The Company is also committed under related party leases
      and subleases  for certain  facilities  (see note 4).  Rental  expense and
      income on operating leases were as follows:

                                                      Year          Ten Weeks
                                                     Ended            Ended
                                                April 28, 2002    April 27, 2001
      --------------------------------------------------------------------------

      Rental expense
        Arms-length                                  $15.6            $ 3.1
        Related party                                  9.6              1.0
      --------------------------------------------------------------------------
        Total                                        $25.2            $ 4.1
      --------------------------------------------------------------------------

      Rental income
        Arms-length                                  $ 1.7            $ 0.2
        Related party                                  4.1               --
      --------------------------------------------------------------------------
        Total                                        $ 5.8            $ 0.2
      --------------------------------------------------------------------------


                                      F-21

                                                 [LOGO] MITEL  |  it's about YOU
<PAGE>

                                                                         US GAAP

      Future operating  minimum lease payments and future sublease income are as
      follows:

                           Future Lease Payments         Future Lease Income
                        ---------------------------   --------------------------
Fiscal year             Arms-length   Related Party   Arms-length  Related Party
--------------------------------------------------------------------------------

2003                       $14.0          $ 8.7          $ 1.7         $ 4.0
2004                        10.2            8.7            1.7           4.0
2005                         5.5            8.7            1.7           4.0
2006                         3.0            8.7            1.6           4.0
2007                         2.2            8.7            0.2           2.9
Thereafter                  14.9           34.1            1.4          24.5
--------------------------------------------------------------------------------

Total                      $49.8          $77.6          $ 8.3         $43.4
--------------------------------------------------------------------------------

      Capital expenditures

      As at April 28, 2002,  capital  expenditure  commitments to the Affiliated
      Supplier  and  other  unrelated   parties   amounted  to  $0.7  and  $nil,
      respectively (2001 - $nil and $5.2, respectively).

15.   CONTINGENCIES

      The Company is a defendant in a small number of claims or potential claims
      that have arisen in the normal course of its  business.  In the opinion of
      the Company's legal counsel, any monetary liability or financial impact of
      such  claims or  potential  claims to which the  Company  might be subject
      after  final  adjudication  would  not be  material  to  the  consolidated
      financial  position  of the  Company  or the  consolidated  results of its
      operations.

16.   REDEEMABLE COMMON SHARES

      Pursuant  to  a  subscription   agreement   dated  August  31,  2001  (the
      "Commencement  Date") entered into with an unrelated  private  corporation
      (the  "Investor"),  the Company  issued  4,000,000  common shares for cash
      consideration  of $16.0.  Under the terms of the  subscription  agreement,
      within thirty days following the occurrence of certain  triggering events,
      including (i) the Company's failure to complete an initial public offering
      of its common  shares  ("IPO") on or before the fifth  anniversary  of the
      subscription  agreement;  (ii) a  change  in the  Principal  Shareholder's
      status as an officer or director of the Company prior to an IPO; (iii) the
      disposal by the Principal  Shareholder of more than twenty-five percent of
      his  investment  in the Company to an unrelated  party prior to an IPO, or
      (iv) the disposal by the Principal  Shareholder  of any common shares held
      in the  Company  at a price  below  $4.00 per share  prior to an IPO,  the
      Investor  has the right (the "Put Right") to require the Company to redeem
      all or part of its  common  shares  at a price of  $4.00  per  share  plus
      interest  accrued at an annual rate of 7 percent  commencing on August 31,
      2001 and  compounded  semi-annually.  The  Investor  also  has  additional
      non-interest  bearing Put Rights that can be exercised at a price of $4.00
      per share at any time  after  the  occurrence  of either of the  following
      events:  (i) the  Company's  failure to receive,  before April 30, 2003, a
      commitment for a grant from the  "Technology  Partnership  Canada" program
      (the "TPC Program") of the Government of Canada in the amount of $45.0; or
      (ii) the absence of a  commitment  by the  Principal  Shareholder,  before
      April 30,  2003,  to provide a minimum of $45.0 in funding to the Company.
      Accordingly,  the common shares,  including an amount of $0.8 accreted for
      accrued  interest for Fiscal 2002, were recorded in the mezzanine  section
      of the April 28, 2002  Consolidated  Balance Sheet. The accreted  interest
      was recorded as an increase to accumulated deficit as at April 28, 2002.

      If, at any time prior to the Company  having  completed a single equity or
      equity  component  financing of at least $20.0,  the Company issues common
      shares or common share  equivalents (the  "Securities") to any party under
      terms that are more  favourable  than the rights of the Investor under the
      amended and restated shareholders'  agreement,  the Investor has the right
      to  exchange  its shares for that  number of such  Securities  as would be
      issued at a $4.00  subscription  price,  with  certain  additional  rights
      attaching  to  the  Securities.  If,  at any  time  prior  to the  Company
      completing  an  aggregate  $40.0 in  equity  financing  subsequent  to the
      Commencement  Date, the Company issues  Securities to any party at a price
      or exercise  price below $4.00 per share,  the  Investor  has the right to
      require the Company to issue,  for nominal  consideration,  an  additional
      number of  Securities  necessary to maintain  the then  current  ownership
      percentage of the Investor in the Company.


                                      F-22

                                                 [LOGO] MITEL  |  it's about YOU
<PAGE>

                                                                         US GAAP

      In  connection  with  the  subscription  agreement  described  above,  the
      original shareholders agreement dated February 16, 2001 previously entered
      into by the Company,  Systems and Zarlink, was amended on August 31, 2001.
      Pursuant to the amended and restated shareholders agreement, within thirty
      days following the failure by the Company to complete an IPO of its common
      shares on or prior to the fifth anniversary of the date of the amended and
      restated  shareholders  agreement,  Zarlink  has the right to require  the
      Company to redeem all or part of its 10,000,000  common shares held in the
      Company at a price of $2.85 per share. Accordingly, the common shares held
      by Zarlink with an original  carrying value of $25.9 were  reclassified in
      the mezzanine section of the April 28, 2002 Consolidated  Balance Sheet as
      redeemable common shares. In addition,  an amount of $0.3 accreted for the
      excess of the  redemption  amount  over the  original  carrying  value was
      recorded as at April 28,  2002.  The  accreted  amount was  recorded as an
      increase in accumulated deficit as at April 28, 2002.

      Pursuant to the amended and restated  shareholders  agreement dated August
      31,  2001,  no  Securities  shall  be  issued,  other  than  for  employee
      stock-based compensation or in connection with a business acquisition,  to
      any persons before the Securities have first been offered to the Investor,
      Zarlink and Systems  (the  "Offerees").  The  Offerees are not entitled to
      acquire  more  than  their  proportionate  share of the  Securities  being
      offered calculated as at the date of offer of the Securities.

17.   SHARE CAPITAL

      The Company's  authorized capital stock consists of an unlimited number of
      common  shares.  The holders of common shares are entitled to one vote per
      share and are entitled to  dividends  when and if declared by the Board of
      Directors.

      During   Fiscal  2002,   the  Company   issued  62,709  shares  for  total
      consideration of $0.3 in the form of professional  services received.  The
      carrying  value of the  shares  represents  the fair  market  value of the
      services received.

      Equity offerings

      On June 8, 2001,  February 15, 2002 and on February 28, 2002,  the Company
      completed  three  equity  offerings  to  certain  employees  and  eligible
      investors.   The  Company  issued   5,606,180   common  shares  for  total
      consideration  of $22.5,  of which $13.2 was received in cash and $9.3 was
      covered by employee  interest-free  loans  repayable to the Company over a
      maximum  two-year  period from the date of each offering.  As at April 28,
      2002, outstanding employee share purchase loans receivable,  in the amount
      of $3.7 (2001 - $nil), were recorded against shareholders' equity.

      Employee Share Purchase Plan

      In May 2001, the Company and its  shareholders  approved an Employee Stock
      Purchase Plan ("ESPP")  allowing U.S.  employees to purchase common shares
      of  the  Company   through  a  single  lump  sum  payment  and/or  payroll
      deductions.  Of the  6,000,000  common shares  authorized  under the ESPP,
      3,000,000 common shares were available for purchase at $4.00 (U.S.  $2.58)
      per share during a first offering  period that started on May 14, 2001 and
      ended April 28, 2002. As at April 28, 2002,  employees  purchased  645,032
      common shares under the plan for total cash  consideration  of $2.6. Under
      the terms of the plan,  offerings  under a second  optional  period ending
      April 30,  2003,  the  expiration  date of the existing  plan,  are at the
      discretion of the Board of Directors.

      Stock Option Plan

      In March 2001,  the  Company's  shareholders  approved the Mitel  Networks
      Corporation  Employee  Stock  Option  Plan  applicable  to  the  Company's
      employees, directors,  consultants and suppliers and authorized 25,000,000
      shares for issuance  thereunder.  The options are generally granted at the
      then-current fair market value of the common shares of the Company and may
      be  exercised  in equal  portions  during the years  following  the first,
      second, third and fourth anniversaries of the date of grant, and expire on
      the  earlier  of the fifth  anniversary  and  termination  of  employment.
      Available for grant at April 28, 2002 were  8,126,701  (2001 - 10,735,850)
      shares.  Following is a summary of the Company's stock option activity and
      related information:


                                      F-23

                                                 [LOGO] MITEL  |  it's about YOU
<PAGE>

                                                                         US GAAP

<TABLE>
<CAPTION>
                                                                         Ten Weeks Ended
                                       Year Ended April 28, 2002          April 27, 2001
                                      ----------------------------  --------------------------
                                                      Weighted                     Weighted
                                       Number of      Average       Number of      Average
                                        Options    Exercise Price    Options    Exercise Price
----------------------------------------------------------------------------------------------
<S>                                   <C>              <C>         <C>              <C>
Outstanding options:
  Balance, beginning of period        14,264,150       $3.50               --       $  --
  Granted                              4,357,778       $3.90       14,359,250       $3.50
  Exercised                               (3,562)      $3.50               --       $  --
  Forfeited                           (1,745,067)      $3.58          (95,100)      $3.50
----------------------------------------------------------------------------------------------
Balance, end of period                16,873,299       $3.60       14,264,150       $3.50
----------------------------------------------------------------------------------------------
Weighted average fair value
price of options granted during
the year using the minimum
value option pricing model                             $1.60                        $0.82
----------------------------------------------------------------------------------------------
</TABLE>

      A summary of options outstanding at April 28, 2002 is as follows:

                       Total Outstanding                Total Exercisable
                 -----------------------------    ------------------------------
                              Weighted Average                  Weighted Average
                  Number of      Remaining        Number of        Remaining
Exercise Price     Options    Contractual Life     Options      Contractual Life
--------------------------------------------------------------------------------

    $3.50        13,630,537      3.9 years        3,463,369        3.9 years
    $4.00         3,242,762      4.5 years           18,601        4.3 years
--------------------------------------------------------------------------------

                 16,873,299                       3,481,970
--------------------------------------------------------------------------------

      Earnings (loss) per share

      The following  table sets forth the  computation of basic and diluted loss
      per share:

                                                    Year           Ten Weeks
                                                   Ended             Ended
                                               April 28, 2002    April 27, 2001
--------------------------------------------------------------------------------

Net loss, as reported                          $     (179.7)      $      (45.3)
Stock-based dividend                                   (3.9)                --
Accreted interest on redeemable
  common shares (see note 16)                          (1.1)                --
--------------------------------------------------------------------------------
Net loss available to common shareholders      $     (184.7)      $      (45.3)
--------------------------------------------------------------------------------

Weighted average number of shares
  outstanding                                   106,848,314        100,000,000

--------------------------------------------------------------------------------
Loss per common share - basic and diluted      $      (1.73)      $      (0.45)
--------------------------------------------------------------------------------

      Options that are anti-dilutive  because the exercise price is greater than
      the  average  market  price of the common  shares are not  included in the
      computation  of diluted  earnings per share.  For Fiscal  2002,  4,987,004
      stock  options were  excluded  from the above  computation  of diluted EPS
      because they were anti-dilutive  (period ended April 27, 2001 - 14,264,150
      stock options). For Fiscal 2002, 2,917,796 shares issuable pursuant to the
      research and development  agreement with the Funding Company (described in
      note 4) were  excluded from the above  computation  of diluted EPS because
      they were anti-dilutive (period ended April 27, 2001 - 1,019,269 shares).

      Stock-based compensation

      The Company  applied the  intrinsic  value  based  method to record  stock
      compensation   expense   of  $0.1  as  part  of   selling,   general   and
      administrative expense in connection with 174,072 stock options granted to
      employees  in May 2001 at an  exercise  price per share of $3.50  when the
      fair value of the  underlying  common  shares,  based on third


                                      F-24

                                                 [LOGO] MITEL  |  it's about YOU
<PAGE>

                                                                         US GAAP

      party cash transactions during similar time periods,  was $4.00 per share.
      For all other stock options granted to employees in the periods disclosed,
      the  exercise  price of each stock  option  granted  was equal to the fair
      value of the underlying common share at the date of grant.

      During Fiscal 2002, the Company  granted 320,749 stock options at exercise
      prices of $3.50 and $4.00 per share to consultants and advisory directors,
      as well as employees who, subsequent to the options grants,  became former
      employees of the Company as a result of the disposal of the  manufacturing
      operations and other outsourcing  actions.  The fair market value of these
      stock options has been determined using a Black-Scholes model based on the
      fair value of the common  shares at the vesting date and, for the unvested
      shares, as at April 28, 2002 ($4.00). The following assumptions were used:
      five-year life, interest rate of 5 percent,  volatility of 100 percent and
      no dividends.  Unvested  stock options  granted to  non-employees  must be
      accounted  for based on variable  plan  accounting.  Under  variable  plan
      accounting, compensation expense is measured as of each reporting date, as
      the  amount  equal  to the  change  in fair  value of the  stock  options.
      Deferred stock  compensation  of $1.0 was recorded and is being  amortized
      over the  vesting  period of four years from the date of grant,  with $0.1
      amortized into selling,  general and  administrative  expense for the year
      ended April 28, 2002. The amount of deferred stock compensation expense to
      be recorded in future  periods could decrease if options for which accrued
      but unvested compensation has been recorded are forfeited.

      In addition, at April 28, 2002, there were 1,358,421 stock options held by
      employees of the Affiliated Supplier and another company controlled by the
      Principal Shareholder. The fair market value of the unvested stock options
      at the grant date was determined to be $3.9 based on a Black-Scholes model
      and recognized as a dividend to the Principal  Shareholder.  The following
      assumptions  were  used:  five-year  life,  interest  rate  of 5  percent,
      volatility of 100 percent and no dividends.

      The Company has adopted the  disclosure  requirements  of SFAS 123 and, as
      permitted under SFAS 123,  applies APB 25 and related  interpretations  in
      accounting for its stock  compensation plan. Had compensation cost for the
      Company's stock option plan been determined as prescribed by SFAS 123, pro
      forma  net  loss and pro  forma  net loss per  share  would  have  been as
      follows, using the following assumptions:

                                                      Year           Ten Weeks
                                                     Ended             Ended
                                                 April 28, 2002   April 27, 2001
--------------------------------------------------------------------------------

Net loss as reported                                $(179.7)         $ (45.3)
Estimated additional stock-based
  compensation                                         (2.9)            (0.4)
--------------------------------------------------------------------------------
Pro forma net loss                                   (182.6)           (45.7)
Stock-based dividend                                   (3.9)              --
Accreted interest on redeemable common
  shares (see note 16)                                 (1.1)              --
--------------------------------------------------------------------------------
Pro forma net loss available to common
  shareholders                                       (187.6)           (45.7)
--------------------------------------------------------------------------------

Pro forma net loss per share - basic
  and diluted                                       $ (1.76)         $ (0.46)
--------------------------------------------------------------------------------

Risk-free interest rate                                5.00%            5.33%
Dividends                                                 0%               0%
Expected life of the options                         5 years          5 years

      Pro forma results  disclosed are based on the provisions of SFAS 123 using
      a minimum value option  pricing  model,  which assumes no  volatility,  to
      calculate  the fair  value of  employee  stock  options.  These  pro forma
      results  are not likely to be  representative  of the effects on pro forma
      net income for future years.


                                      F-25

                                                 [LOGO] MITEL  |  it's about YOU
<PAGE>

                                                                         US GAAP

18.   OTHER EXPENSE, NET

                                                       Year         Ten Weeks
                                                       Ended          Ended
                                                  April 28, 2002  April 27, 2001
--------------------------------------------------------------------------------

Foreign exchange losses, net                          $  1.2          $  0.8
Interest income                                         (0.6)           (0.3)
--------------------------------------------------------------------------------
                                                      $  0.6          $  0.5
--------------------------------------------------------------------------------

19.   INCOME TAXES

      Details of income taxes were as follows:

                                                       Year         Ten Weeks
                                                       Ended          Ended
                                                  April 28, 2002  April 27, 2001
--------------------------------------------------------------------------------
Loss before income taxes:
Canadian                                              $(75.7)         $(31.0)
Foreign                                               (103.8)          (13.4)
--------------------------------------------------------------------------------
                                                      $(179.5)        $(44.4)
--------------------------------------------------------------------------------
Income tax expense:
Current
  Canadian                                            $   --          $  0.4
  Foreign                                                0.2             0.5
--------------------------------------------------------------------------------
                                                      $  0.2          $  0.9
--------------------------------------------------------------------------------

      The income tax  expense  reported  differs  from the  amount  computed  by
      applying the Canadian  rates to the loss before income taxes.  The reasons
      for these differences and their tax effects are as follows:

Expected tax rate                                          41%              38%
--------------------------------------------------------------------------------

Expected tax benefit                                   $(73.3)          $(16.9)
Foreign tax rate differences                             34.6              5.8
Tax effect of losses and temporary
  differences not recognized                             33.8              6.2
Tax effect from the recognition of
  previously unrecognized losses                         (5.2)            (8.7)
Corporate minimum taxes                                    --              0.5
Permanent differences                                    10.3             13.6
Other                                                      --              0.4
--------------------------------------------------------------------------------
Income tax expense                                     $  0.2            $ 0.9
--------------------------------------------------------------------------------


                                      F-26

                                                 [LOGO] MITEL  |  it's about YOU
<PAGE>

                                                                         US GAAP

      The tax effect of  components  of the deferred tax assets and  liabilities
      are as follows:

                                                          April 28,    April 27,
                                                            2002         2001
--------------------------------------------------------------------------------
Assets:
  Net operating loss carryforwards                          $51.3         $26.6
  Allowance for doubtful accounts                             2.9           3.6
  Inventory                                                   2.2           6.4
  Restructuring and other accrued liabilities                10.0          12.7
  Pension                                                     3.2           2.2
  Research and development costs                              5.1            --
  Lease obligations and long-term debt                        1.1           0.1
  Property and equipment                                       --           9.0
  Intangible and other assets                                 5.1            --
  Other                                                       0.1          (0.1)
--------------------------------------------------------------------------------
 Total deferred tax assets                                   81.0          60.5
--------------------------------------------------------------------------------

Liabilities:
  Property and equipment                                     (1.3)           --
  Intangible and other assets                                  --          10.5)
--------------------------------------------------------------------------------
 Total deferred tax liabilities                              (1.3)        (10.5)
--------------------------------------------------------------------------------

Total gross deferred tax assets net of
  total deferred tax liabilities                             79.7          50.0
Valuation allowance                                         (79.7)        (50.0)
--------------------------------------------------------------------------------
Total deferred tax assets                                   $  --         $  --
--------------------------------------------------------------------------------

      A  valuation  allowance  has been  established  due to lack of  history of
      profits.  As at April 28, 2002, the Company and its  subsidiaries  had tax
      loss  carryforwards  of  approximately  $264.3 (2001 - $77.6) available to
      reduce future years' income for tax purposes. These tax loss carryforwards
      relate to operations in Canada, United States, United Kingdom and Barbados
      and expire as  follows:  2005 - $16.6;  2006 - $1.6;  2007 - $5.6;  2008 -
      $55.1;  2009 to 2019 -  $185.4.  As a  result  of the  acquisition  of the
      Company on February 16, 2001, there are restrictions on the use of certain
      of these losses to offset taxable income in future periods.

      The Company does not expect the  unremitted  earnings of its  subsidiaries
      will be subject to income tax or withholding taxes as it plans to reinvest
      the earnings of its subsidiaries indefinitely.  Accordingly,  no provision
      has  been  made  for  potential   income  tax  or  withholding   taxes  on
      repatriation  of subsidiary  earnings.  For the year ended April 28, 2002,
      the loss before income taxes  attributable  to all foreign  operations was
      $103.8 (period ended April 27, 2001 - income of $3.5).

20.   ACQUISITION


      On June 22, 2001, the Company  acquired  certain assets of  privately-held
      e-smith,  Inc., a supplier of  open-source  network  server  software with
      operations  in  Ontario,  Canada  and  in the  United  States,  for  total
      consideration  of  $3.2,  consisting  of $0.8 in cash and  607,441  common
      shares of the Company  valued at $2.4. The fair value of the common shares
      was determined based on the most recent arms-length cash transaction.  The
      acquisition was accounted for using the purchase  accounting  method.  The
      purchase price was equal to the fair value of the net identifiable assets.
      The purchase transaction is summarized as follows:


      Net assets acquired, at approximate fair value:

      Capital assets                                                 $0.5
      Developed technology                                            2.9
      -------------------------------------------------------------------
                                                                      3.4
      Liabilities                                                    (0.2)
      -------------------------------------------------------------------

      Total net assets                                               $3.2
      -------------------------------------------------------------------

      Total consideration                                            $3.2
      -------------------------------------------------------------------


                                      F-27

                                                 [LOGO] MITEL  |  it's about YOU
<PAGE>

                                                                         US GAAP

      Pro forma financial information for the acquisition as if the business had
      been  acquired at the  beginning of the year is not  presented  due to the
      insignificant impact on the Company's results of operations.

21.   PENSION PLANS

      The Company and its  subsidiaries  maintain defined  contribution  pension
      plans  that cover  substantially  all  employees  and the  Company's  U.K.
      subsidiary  also  maintains a defined  benefit  pension plan.  The Company
      matches  the  contributions  of  participating  employees  to the  defined
      contribution  pension plans on the basis of the  percentages  specified in
      each  plan.  The  costs of the  defined  contribution  pension  plans  are
      expensed as incurred.  The defined benefit plan provides  pension benefits
      based on length of service and final average  earnings.  The pension costs
      of the defined benefit pension plan are actuarially  determined  using the
      projected  benefits  method  pro-rated on services and  management's  best
      estimate of the effect of future events. Pension plan assets are valued at
      fair value. The most recent actuarial  valuation of the plan was performed
      as at March 31, 2002.

      In June 2001, the defined benefit pension plan was closed to new employees
      and a defined contribution option was introduced to members of the defined
      benefit  pension  plan.  Members  were given the choice to continue in the
      defined benefit plan or transfer their assets to the defined  contribution
      plan.

      The Company's net benefit plan expense was as follows:

                                                           April 28,   April 27,
                                                             2002        2001
--------------------------------------------------------------------------------

Current service cost - defined contribution                  $4.9          $1.1
Current service cost - defined benefit                        2.6           1.5
Interest cost                                                 4.3           1.3
Expected return on plan assets                               (4.1)         (1.5)
--------------------------------------------------------------------------------
Net pension plan expense                                     $7.7          $2.4
--------------------------------------------------------------------------------

      United Kingdom Defined Benefit Pension Plan

      The actuarial  present value of the accrued  pension  benefits and the net
      assets available to provide for these benefits,  at market value,  were as
      follows:

                                                           April 28,   April 27,
                                                             2002        2001
--------------------------------------------------------------------------------
Change in accrued pension benefits:
  Benefit obligation at beginning of year                   $ 95.0       $ 94.1
  Service cost                                                 2.2          1.3
  Interest cost                                                4.3          1.1
  Plan participants' contributions                             2.2          0.4
  Actuarial gain                                              (3.1)        (0.4)
  Benefits paid                                               (5.8)        (0.9)
  Foreign exchange                                             2.5         (0.6)
--------------------------------------------------------------------------------
  Benefit obligation at end of year                           97.3         95.0
--------------------------------------------------------------------------------

Change in plan assets:
  Fair value of plan assets at beginning of year              83.3         83.6
  Actual return on plan assets                                (4.0)        (0.2)
  Employer contributions                                       3.4          0.9
  Employee contributions                                       2.2          0.4
  Benefits paid                                               (5.8)        (0.9)
  Foreign exchange                                             2.1         (0.5)
--------------------------------------------------------------------------------
  Fair value of plan assets at end of year                    81.2         83.3
--------------------------------------------------------------------------------

Unfunded status                                              (16.1)       (11.7)
Unrecognized net actuarial loss                                5.8          1.4
--------------------------------------------------------------------------------
Net pension benefit liability                               $(10.3)      $(10.3)
--------------------------------------------------------------------------------


                                      F-28

                                                 [LOGO] MITEL  |  it's about YOU
<PAGE>

                                                                         US GAAP

      The  following  assumptions  were used to determine  the periodic  pension
      expense and the net present value of the accrued pension benefits:

                                                           April 28,   April 27,
                                                             2002        2001
--------------------------------------------------------------------------------
Discount rate                                                6.25%       6.0%
Compensation increase rate                                   3.25%       3.0%
Investment returns assumption                                7.25%       7.0%
Average remaining service life of employees                15 years    15 years

22.   FINANCIAL INSTRUMENTS

      Fair value


      The Company's  financial  instruments  include cash and cash  equivalents,
      accounts receivable,  long-term receivables,  accounts payable,  long-term
      debt,  foreign exchange forward and swap contracts.  Due to the short-term
      maturity of cash and cash  equivalents,  accounts  receivable and accounts
      payable,  the carrying value of these instruments are reasonable estimates
      of their fair value.  Foreign exchange contracts are carried at fair value
      and  amounted  to $0.2 and $0.1  classified  as other  current  assets and
      accounts payable and accrued  liabilities,  respectively,  as at April 28,
      2002  (April  27,  2001 - $nil).  The fair value of the  foreign  exchange
      contracts  reflects the estimated  amount that the Company would have been
      required to pay if forced to settle all outstanding contracts at year-end.
      This  fair  value  represents  a  point-in-time  estimate  that may not be
      relevant in predicting the Company's  future  earnings or cash flows.  The
      fair value of long-term  receivables  and long-term debt was determined by
      discounting  future cash  receipts  and future  payments  of interest  and
      principal,  at  estimated  interest  rates that would be  available to the
      Company at year-end.  The fair value of financial instruments  approximate
      their carrying value with the following exceptions:

                                     April 28, 2002             April 27, 2001
                                  --------------------       -------------------
                                   Carrying      Fair         Carrying      Fair
                                    Amount      Value          Amount      Value
--------------------------------------------------------------------------------

Long-term receivables              $ 10.9      $ 10.8           $2.9        $3.2
Long-term debt                     $(29.4)     $(30.7)          $ --        $ --


      Credit risk

      The  Company's  financial  assets that are exposed to credit risk  consist
      primarily of cash and cash equivalents and accounts  receivable.  Cash and
      cash  equivalents  are invested in government  and  commercial  paper with
      investment  grade credit  rating.  The Company is exposed to normal credit
      risk from customers.  However, the Company's  orientation is global with a
      large  number of diverse  customers to minimize  concentrations  of credit
      risk.

      Interest rate risk

      The  Company  has  a  credit  facility  with  interest  rates  subject  to
      fluctuations  in the prime rate or the LIBOR / Bankers'  Acceptance  rate.
      The Company is not exposed to other significant  interest rate risk due to
      the short-term maturity of its monetary assets and current liabilities.

      Foreign currency risk


      The Company is exposed to currency rate fluctuations  related primarily to
      its future net cash flows of U.S. dollars, British pounds and Euro dollars
      from operations.  The Company uses foreign currency forward  contracts and
      foreign  currency  swaps to  minimize  the  short-term  impact of currency
      fluctuations on foreign  currency  receivables,  payables and intercompany
      balances.  Foreign  currency  contracts are recorded at fair market value.
      Related  foreign  currency gains and losses are recorded in other expense,
      net, in the  consolidated  statements  of  operations  and offset  foreign
      exchange gains or losses from the revaluation of intercompany balances and
      other current assets and liabilities  denominated in currencies other than
      the functional currency of the reporting entity.



                                      F-29

                                                 [LOGO] MITEL  |  it's about YOU
<PAGE>

                                                                         US GAAP


      The Company's foreign exchange  contracts mature within one month. For the
      year ended April 28, 2002,  other  expense,  net included a net unrealized
      loss of $0.1 (ten weeks  ended  April 27,  2001 - $nil) for changes in the
      fair  value of  foreign  exchange  contracts.  As of April 28,  2002,  the
      Company  had  outstanding  foreign  exchange  contracts  requiring  (i) to
      exchange  British  Pounds for  Canadian  dollars with  aggregate  notional
      amounts of $25.3,  (ii) to exchange Canadian dollars for U.S. dollars with
      a notional  amount of U.S.$4.4 and (iii) to exchange Euro dollars and U.S.
      dollars for British Pounds with aggregate notional amounts of (pound)$3.4.


      Non-derivative and off-balance sheet instruments


      Requests  for  providing   commitments  to  extend  credit  and  financial
      guarantees  are  reviewed and  approved by senior  management.  Management
      regularly  reviews  all  outstanding  commitments,  letters  of credit and
      financial  guarantees,  and the results of these reviews are considered in
      assessing  the adequacy of the Company's  reserve for possible  credit and
      guarantee  losses.  At April 28, 2002 and at April 27, 2001, there were no
      outstanding  commitments  to extend  credit to third  parties or financial
      guarantees  outstanding  other than  letters of credit.  Letters of credit
      amounted  to $1.2 as of April  28,  2002  (April  27,  2001 -  $nil).  The
      estimated fair value of letters of credit, which is equal to the fees paid
      to obtain the obligations,  was immaterial as of April 28, 2002 (April 27,
      2001 - $nil).


23.   SUPPLEMENTARY CASH FLOW INFORMATION

                                                      Year          Ten Weeks
                                                      Ended           Ended
                                                  April 28, 2002  April 27, 2001
--------------------------------------------------------------------------------
Change in non-cash operating assets
 and liabilities:
  Accounts receivable                                 $ (6.8)         $(10.9)
  Other receivables                                      6.7            (1.8)
  Inventories                                          (12.7)            2.1
  Prepaid expenses                                      (2.5)           (0.9)
  Long-term receivables                                  0.7             0.3
  Accounts payable and accrued liabilities             (28.3)            5.6
  Deferred revenue                                       9.3             2.0
  Due to related parties                                23.4              --
  Income and other taxes payable                        (3.9)            2.3
--------------------------------------------------------------------------------
                                                      $(14.1)         $ (1.3)
--------------------------------------------------------------------------------

Interest payments                                     $  2.8          $  0.1
--------------------------------------------------------------------------------

Income tax payments                                   $  3.1          $   --
--------------------------------------------------------------------------------

24.   SUBSEQUENT EVENTS

      Convertible debentures


      On August 16, 2002,  the Company  closed a private  offering of debentures
      convertible  into  shares  of the  Company  that  resulted  in total  cash
      proceeds of $10.1.  The term of the  convertible  debentures ends on April
      25, 2003,  but may be extended at the option of the board of directors for
      a further  period  ending  no later  than July 31,  2003.  The  debentures
      provide for  interest  to accrue at the rate of 6.5% per annum  payable on
      the  maturity  date or  upon  conversion  of the  debentures  and  accrued
      interest  into common shares of the Company.  The principal  amount of the
      debentures,   together  with  accrued  interest   outstanding   under  the
      debentures  is subject to  mandatory  conversion,  and will  automatically
      convert into shares in the Company (i) if an equity financing  pursuant to
      which equity  securities which are, or which are convertible  into, common
      shares in the Company are issued  occurs during the term, at an equivalent
      price per share,  or (ii) if no such financing  occurs during the term, at
      the end of the term, into fully-paid and  non-assessable  common shares of
      the Company,  at a price per common share equal to the lesser of $3.00 per
      share  and the price per share  determined  by an  independent  valuation.
      According to EITF 00-27, a contingent beneficial conversion feature may be
      triggered at the time of conversion if the  conversion  price per share is
      lower than the fair value of the  Company's  common shares of $2.75 on the
      commitment  date  (August  16,  2002),  which is  based on an  independent
      valuation.



                                      F-30

                                                 [LOGO] MITEL  |  it's about YOU
<PAGE>

                                                                         US GAAP



      Research and development funding

      The  Company,  in  conjunction  with the  Partner  Company and the Funding
      Company,  has signed an agreement for funding from the Canadian Government
      for up to $60 million of the Funding Company's and the Company's  research
      and  development  activities  over a three  year  period.  The  funding is
      provided  pursuant to an  initiative  of the  Government of Canada that is
      designed to promote economic growth in Canada through strategic investment
      in technological research, development and innovation. The Company expects
      to benefit from approximately 90% of any funds received under the program.
      Pursuant to the terms of the agreement,  in exchange for funding  received
      from the Government of Canada, the Company has committed to issue warrants
      to Her Majesty  the Queen in Right of Canada for the zero dollar  purchase
      of common  shares,  with the  warrants to be issued as of  September 30 in
      each of 2002,  2003 and 2004,  and valued in  accordance  with fair market
      value.  As of December 6, 2002,  the Company has received a total of $17.0
      and has issued warrants for the acquisition of a total of 6,182,588 common
      shares,  calculated  on a  per  share  fair  value  of  $2.75,  which  was
      determined by an independent valuation.  This cash receipt was recorded as
      an  increase  in share  capital in the Fiscal  2003  consolidated  balance
      sheet.



                                      F-31

                                                 [LOGO] MITEL  |  it's about YOU
<PAGE>

                               [GRAPHIC OMITTED]

                             COMMUNICATIONS SYSTEMS
                                  DIVISION OF
                           ZARLINK SEMICONDUCTOR INC.
                                (FORMERLY, MITEL
                                  CORPORATION)

COMBINED STATEMENT OF REVENUES
AND DIRECT EXPENSES
(in accordance with U.S. GAAP)

FOR THE FORTY-SIX WEEK PERIOD ENDED
FEBRUARY 16, 2001

(Audited)


                                      F-32

                                                 [LOGO] MITEL  |  it's about YOU
<PAGE>

          COMMUNICATIONS SYSTEMS DIVISION OF ZARLINK SEMICONDUCTOR INC.
               COMBINED STATEMENT OF REVENUES AND DIRECT EXPENSES
              For the Forty-six Week Period Ended February 16, 2001

                                      INDEX

Auditors' Report                                                               3

Combined Statement of Revenues and Direct Expenses for the
Forty-six Week Period Ended February 16, 2001                                  4

Notes to the Combined Statement of Revenues and Direct Expenses           5 - 11


                                      F-33

                                                 [LOGO] MITEL  |  it's about YOU
<PAGE>

AUDITORS' REPORT

To the Directors of Mitel Networks Corporation

We have  audited the combined  statement of revenues and direct  expenses of the
Communications  Systems Division (the "Division") of Zarlink  Semiconductor Inc.
("Zarlink")  (formerly  Mitel  Corporation)  for the forty-six week period ended
February  16,  2001.  This  financial  statement  is the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an  opinion on this
financial statement based on our audit.

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

In our opinion,  the combined statement of revenues and direct expenses presents
fairly,  in all  material  respects,  the  revenues  and direct  expenses of the
Division for the  forty-six  week period ended  February 16, 2001 in  accordance
with United States generally accepted accounting principles.

                                       /s/ Ernst & Young LLP
                                       --------------------------------------
Ottawa, Canada                         ERNST & YOUNG LLP
August 2, 2002                         Chartered Accountants


                                      F-34

                                                 [LOGO] MITEL  |  it's about YOU
<PAGE>

          COMMUNICATIONS SYSTEMS DIVISION OF ZARLINK SEMICONDUCTOR INC.
               COMBINED STATEMENT OF REVENUES AND DIRECT EXPENSES
              For the Forty-six Week Period Ended February 16, 2001
                        (in millions of Canadian dollars)

--------------------------------------------------------------------------------
Revenues

  Products                                                               $403.7
  Services                                                                111.3
--------------------------------------------------------------------------------
                                                                          515.0
--------------------------------------------------------------------------------

Cost of sales

  Products                                                                240.5
  Services                                                                 50.5
--------------------------------------------------------------------------------
                                                                          291.0
--------------------------------------------------------------------------------

Gross margin                                                              224.0
--------------------------------------------------------------------------------

Other direct expenses:

  Selling, general and administrative                                     202.2
  Research and development                                                 74.2
  Special charges                                                          14.8
  Amortization of acquired intangibles                                      2.7
--------------------------------------------------------------------------------
                                                                          293.9
--------------------------------------------------------------------------------
Operating loss before allocated corporate expenses                       $(69.9)
--------------------------------------------------------------------------------

              (See accompanying notes to the combined statement of
                         revenues and direct expenses)


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          COMMUNICATIONS SYSTEMS DIVISION OF ZARLINK SEMICONDUCTOR INC.
         NOTES TO THE COMBINED STATEMENT OF REVENUES AND DIRECT EXPENSES
                        (in millions of Canadian dollars)

1.    BACKGROUND AND BASIS OF PRESENTATION

      Background

      Mitel Networks Corporation (the "Company") was incorporated under the laws
      of Canada on January 12, 2001. On February 16, 2001, the Company, acquired
      the "Mitel" name and  substantially  all of the assets and subsidiaries of
      the   Communication   Systems   Division  (the   "Division")   of  Zarlink
      Semiconductor Inc. ("Zarlink"), formerly Mitel Corporation, excluding most
      real estate and intellectual property assets.  Zarlink, which retained its
      semiconductor  division, sold 90 percent of the shares of the Company (the
      "Separation") to Mitel Systems Corporation ("Systems"),  a private company
      and unaffiliated  third party.  Zarlink retained a 10 percent ownership in
      the Company.

      The Company,  now carrying on the businesses of the Division,  is a global
      provider of  next-generation  IP telephony,  video and data solutions that
      creates advanced communication  solutions and applications in the areas of
      speech  recognition,  wireless mobility,  unified messaging,  and customer
      interaction  solutions.  Through  direct and indirect  channels as well as
      strategic  technology  partnerships,  the Company  currently serves a wide
      range  of  vertical   markets,   including  the  education,   hospitality,
      healthcare,  and  government  segments,  principally in the United States,
      Europe, Canada, the Asia/Pacific region and Latin America regions.

      The  combined  statement  of revenues  and direct  expenses  includes  the
      historical  operations of the Division that were previously  carried on by
      Zarlink,  for the forty-six week period from Zarlink last fiscal year-end,
      March 31, 2000, to February 16, 2001.

      Basis of Presentation

      The combined  statement  of revenues and direct  expenses has been derived
      from the  financial  statements  and  accounting  records of  Zarlink  and
      represents  the  historical  results of operations  of the  Division.  The
      statement of revenues and direct expenses  includes  sales,  cost of sales
      and operating expenses directly related to the operations of the Division,
      and excludes any  allocation of Zarlink  corporate  overhead  expenses not
      directly attributable to the operations of the Division,  including legal,
      finance,  information systems and human resources.  The combined statement
      of revenues and direct expenses also excludes  interest  expense,  foreign
      exchange  gain and loss and  provision  for income  taxes.  Following  the
      Separation,  the Company has been performing these functions using its own
      resources or purchased services.

      The combined statement of revenue and direct expenses is presented instead
      of a full income  statement due to the  complexity  and the high degree of
      judgement that would be required to estimate the various excluded expenses
      described above.  Management believes the significant efforts and expenses
      required  to  complete  a full  carve-out  income  statement  would not be
      reasonable when measured  against the limited  usefulness such information
      would provide to the readers of the financial statement.

      Management  believes the assumptions  underlying the combined statement of
      revenues  and  direct  expenses  are  reasonable.  However,  the  combined
      statement  of  revenues  and  direct  expenses  included  herein  may  not
      necessarily  reflect the  Company's  revenues  and direct  expenses in the
      future or what its  revenues and direct  expenses  would have been had the
      Company been a stand-alone  company during the period presented due to the
      omission of various  operating  expenses  and any  planned  changes in the
      business.

      Cash Management and Working Capital

      Zarlink  used  centralized  cash  and  foreign  currency  risk  management
      strategies  with no  allocation  of cash  flows  or cash  balances  to its
      business segments.  As a result, a statement of cash flows of the Division
      for the forty-six  week period ended  February 16, 2001 is not  presented.
      Similarly,  Zarlink managed certain working capital items and the majority
      of its long-term  capital  assets and  liabilities on a legal entity basis
      with no allocation of these items to its


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<PAGE>

      business  segments.  Accordingly,  the combined  statement of revenues and
      direct  expenses  excludes any foreign  exchange gain or loss and interest
      expense  arising from the  revaluation  by Zarlink of its working  capital
      items denominated in currencies other than the functional  currency of the
      reporting entity.

      Pension Costs

      At the Separation, the Company assumed responsibility for pension benefits
      for the  active  employees  of the  Division.  Until the  Separation,  the
      Division's  employees  were  participants  in the Zarlink  pension  plans.
      Zarlink  managed its pension  plans on a legal  entity  basis and separate
      information  for the  Division is not readily  available.  Therefore,  the
      Division's  share of the  Zarlink  plans'  assets and  liabilities  is not
      disclosed  in the notes to the  combined  statement of revenues and direct
      expenses.  For purposes of the  statement of revenues and direct  expenses
      the pension  costs were based on  estimated  plan assets  being equal to a
      proportional  share of plan obligations  incurred by Zarlink for employees
      who performed services for the Division.

2.    ACCOUNTING POLICIES

      The combined  statement of revenues and direct  expenses has been prepared
      by  management  in  accordance  with  United  States  generally   accepted
      accounting principles.

      a) Principles of Combination

      The  combined  statement  of revenues  and direct  expenses  includes  the
      operations of the Division transferred to the Company,  arising from legal
      entities  located in Canada,  the United States and the United Kingdom for
      which no direct ownership relationship existed.  Intercompany transactions
      between  the  entities  comprising  the  Division  have  been  eliminated.
      Transactions  between the  Division  and other  businesses  of Zarlink are
      included in the combined statement of revenues and direct expenses and are
      disclosed as related party transactions.

      b) Use of Estimates

      The  preparation  of the  Division's  combined  statement  of revenues and
      direct  expenses in  conformity  with  United  States  generally  accepted
      accounting   principles   requires   management  to  make   estimates  and
      assumptions  that affect the  reported  amounts of revenues  and  expenses
      during the reporting  period.  Estimates are used for, but not limited to,
      the  accounting  for  the  allowance  for  doubtful  accounts,   inventory
      allowances,  special  charges,  depreciation  and  amortization,  warranty
      costs,  sales returns and  contingencies.  Estimates and  assumptions  are
      reviewed  periodically  and the effects of revisions  are reflected in the
      financial  statements  in the period they are  determined to be necessary.
      Actual results could differ from these estimates.

      c) Foreign Currency Translation

      Income and expenses of the  Division's  foreign  operations are translated
      from foreign  currencies into Canadian  dollars at average  exchange rates
      during the period.  Foreign  exchange  gains and losses  arising  from the
      revaluation  of monetary items are excluded from the statement of revenues
      and direct expenses.

      d) Revenue Recognition

      The Division  recognizes  product revenue when  persuasive  evidence of an
      arrangement  exists,  delivery has  occurred,  title and risk of loss have
      been  transferred  to the  customer,  fee is  fixed or  determinable,  and
      collection is reasonably assured.

      Indirect channels

      The Division makes sales to distributors  and resellers based on contracts
      with terms  ranging  from one to three years.  For  products  sold through
      these distribution channels, revenue is recognized at the time the risk of
      loss  is  transferred  and  if  all  contractual   obligations  have  been
      satisfied. These arrangements usually involve multiple elements, including
      post-contract   technical   support  and   training.   Costs   related  to
      insignificant   technical  support  obligations,   including   second-line
      telephone support for certain products,  are accrued.  For other technical
      support and training obligations,  revenue from product sales is allocated
      to each element based on vendor  specific  objective  evidence of relative
      fair values, generally representing the prices charged when the element is
      sold  separately,  with any discount


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      allocated proportionately. Revenue attributable to undelivered elements is
      deferred  and  recognized  upon  performance  or ratably over the contract
      period.

      The Division's  standard  warranty  period extends fifteen months from the
      date  of sale  and  extended  warranty  periods  are  offered  on  certain
      products.  At the time  product  revenue  is  recognized  an  accrual  for
      estimated warranty costs is recorded as a component of cost of sales based
      on prior  claims  experience.  Sales to the  Division's  resellers  do not
      provide for return or price protection  rights while sales to distributors
      provide for such rights. Product return rights are limited to a percentage
      of sales  over a  maximum  three-month  period.  A reserve  for  estimated
      product  returns and price  protection  rights based on past experience is
      recorded  as  a  reduction  of  sales  at  the  time  product  revenue  is
      recognized.  The Division offers various  cooperative  marketing programs.
      Allowances  for such  programs  are  recorded  as  expenses at the time of
      shipment based on contract terms and prior claims experience.

      Direct channels

      The  Division  sells   products,   including   installation   and  related
      maintenance and support services,  directly to customers. For product sold
      through  direct  channels,  revenue is  recognized at the time of delivery
      based  on  prior   experience  of  successful   compliance  with  customer
      specifications,  except in  circumstances  when  experience  of successful
      compliance with customer specifications has not been demonstrated, revenue
      is deferred until such compliance is achieved.  Revenue from  installation
      is recognized as services are rendered and when  contractual  obligations,
      including  customer  acceptance,  have  been  satisfied.  Revenue  is also
      derived from professional service contracts with terms that range from two
      to six weeks for standard  solutions and for longer periods for customized
      solutions.  Revenue  from  customer  support,  professional  services  and
      maintenance  contracts is recognized ratably over the contractual  period,
      generally  one year.  Billings  in advance of  services  are  included  in
      deferred revenue.  Revenue from installation  services provided in advance
      of billing is included in unbilled accounts receivable.

      Certain  arrangements  with direct  customers  provide  for free  customer
      support and maintenance  services extending twelve months from the date of
      installation.  Customer  support and  maintenance  contracts are also sold
      separately.  When customer  support or  maintenance  services are provided
      free  of  charge,   such  amounts  are  unbundled  from  the  product  and
      installation  revenue  at their  fair  market  value  based on the  prices
      charged when the element is sold  separately and  recognized  ratably over
      the contract period.  Consulting and training revenues are recognized upon
      performance.

      The Division  provides  long-term  outsourcing  services of  communication
      systems.  Under these arrangements,  systems management services ("Managed
      Services") and communication equipment are provided to customers for terms
      that typically range from one to ten years.  Revenue from Managed Services
      is recognized ratably over the contract period. The Division retains title
      and risk of loss associated  with the equipment  utilized in the provision
      of the Managed Services. Accordingly, the equipment is capitalized as part
      of  property  and  equipment  and is  amortized  to cost of sales over the
      contract period.

      e) Inventory Obsolescence Provision

      The Division provides  inventory  allowances based on estimated excess and
      obsolete inventories.

      f) Depreciation and Amortization Method

      Depreciation   of  property,   plant  and   equipment  is  provided  on  a
      straight-line  basis  over the  anticipated  useful  lives of the  assets.
      Estimated  useful  lives range from three to ten years for  equipment  and
      twenty-five years for buildings. Amortization of leasehold improvements is
      computed  using the  shorter of the  remaining  lease terms or five years.
      Amortization  of intangible  assets is recorded on a  straight-line  basis
      over five years for  patents and  trademarks  and over two years for other
      intangible assets.

      g) Research and Development

      Research  costs are  charged to  expense in the  periods in which they are
      incurred.  Software  development  costs are  deferred and  amortized  when
      technological feasibility has been established, or otherwise, are expensed
      as incurred.  The Division has not deferred any software development costs
      to date,  except  intangible  assets acquired on February 16, 2001 arising
      from push-down accounting.


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      h) Stock-Based Compensation

      During  the  forty-six  week  period  ended  February  16,  2001,  Zarlink
      accounted for stock option grants in accordance with Accounting Principles
      Board  Opinion  No.  25  ("APB  25"),  "Accounting  for  Stock  Issued  to
      Employees,"  and  related  Interpretations.  In  accordance  with  Zarlink
      policy, the exercise price of the Zarlink's stock options was equal to the
      market price of the  underlying  stock on the date of grant.  Accordingly,
      under rules of APB 25, no related  compensation  expense  was  recorded in
      Zarlink's results of operations,  and therefore the combined  statement of
      revenues  and direct  expenses  did not include  stock-based  compensation
      cost.

      i) Defined Benefit Pension Plan

      Pension  expense is  actuarially  determined  using the projected  benefit
      method  prorated on service and  management's  best estimate  assumptions.
      Pension plan assets are valued at fair value. The excess of any cumulative
      net  actuarial  gain (loss) over ten percent of the greater of the benefit
      obligation and the fair value of plan assets is amortized over the average
      remaining service period of active employees.

      j) Advertising Costs

      The cost of  advertising is expensed as incurred,  except for  cooperative
      advertising  obligations  which are expensed at the time the related sales
      are recognized.  The Division  incurred $14.5 in advertising  costs during
      the forty-six week period ended February 16, 2001.

      k) Rental Costs

      The Division  leased  equipment and  facilities  under  operating  leases.
      Rental  costs  amounted to $10.4  during the  forty-six  week period ended
      February 16, 2001.

3.    SEGMENT INFORMATION

      General description

      Prior to the Separation,  Zarlink  reported the operations of the Division
      as one of its business  segments  with no  additional  segregation  of the
      Division's operations.  Following the Separation from Zarlink, the Company
      started to report  its  operations  in two  segments:  the  Communications
      Solutions   segment   ("Solutions")  and  the  Customer  Services  segment
      ("Services").  The segmented  information of the Division presented herein
      is  based on this  segmentation.  The  Solutions  segment  represents  the
      Company's core business,  consisting of enterprise  voice,  video and data
      communications   systems   and   software   as  well   as   communications
      applications.  These Solutions are provided  through the Company's  dealer
      and reseller network and are used by large  enterprises,  small and medium
      businesses as well as government,  education and healthcare organizations.
      The  Services  segment  consists  of direct  product  sales and  services,
      professional services,  maintenance and technical support services.  These
      services  are  provided   through  the  Company's   direct  sales  offices
      throughout North America and Europe.

      The Company's Chief  Executive  Officer ("CEO") has been identified as the
      chief operating  decision maker.  The CEO evaluates the performance of the
      segments and  allocates  resources  based on  information  provided by the
      Company's  internal  management system which reports  segmented  operating
      income  (loss)  representing  sales  less  the cost of  sales  and  direct
      expenses  incurred  within the  operating  segments.  The Company does not
      allocate  general and  administrative  expenses,  amortization of acquired
      intangibles  and one-time  charges to its segments as management  does not
      use this information to measure the performance of the operating segments.
      These unallocated  expenses are included in other in the reconciliation of
      operating results. Inter-segment sales are based on fair market values and
      are  eliminated  on  consolidation.  The  accounting  policies of reported
      segments  are the same as those  described  in the summary of  significant
      accounting policies.


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      Business segments

      The following  table sets forth  information  by business  segment for the
      forty-six week period ended February 16, 2001:

                                        Solutions  Services   Other      Total
--------------------------------------------------------------------------------
External revenue                        $  244.7   $  270.3  $    --   $  515.0
Inter-segment revenue                       54.9         --    (54.9)        --
--------------------------------------------------------------------------------
Total revenue                           $  299.6   $  270.3  $ (54.9)  $  515.0
--------------------------------------------------------------------------------

Depreciation of capital assets
  (including assets under
  capital lease)                        $   12.0   $    2.9  $   6.6   $   21.5
--------------------------------------------------------------------------------

Segment operating income (loss)         $  (32.4)  $   25.4  $    --   $   (7.0)
Corporate and unallocated shared
  expenses                                    --         --    (45.4)     (45.4)
Special charges                               --         --    (14.8)     (14.8)
Amortization of acquired
  intangibles                                 --         --     (2.7)      (2.7)
--------------------------------------------------------------------------------
Operating income (loss)                 $  (32.4)  $   25.4  $ (62.9)  $  (69.9)
--------------------------------------------------------------------------------

      Product information

      The  following  table sets forth net sales for groups of similar  products
      and services for the forty-six week period ended February 16, 2001:

--------------------------------------------------------------------------------
Products:
  Communications platforms and desktop appliances                        $ 275.6
  OEM products                                                              63.6
  Software applications                                                     28.0
  Other (1)                                                                 36.5
--------------------------------------------------------------------------------
                                                                           403.7
--------------------------------------------------------------------------------

Services:
  Maintenance, support and training                                        102.7
  Professional services                                                      4.9
  Managed services                                                           3.7
--------------------------------------------------------------------------------
                                                                           111.3
--------------------------------------------------------------------------------

Total                                                                    $ 515.0
--------------------------------------------------------------------------------

      (1)   Other products  include mainly  Network  Access  Solutions  products
            representing 7 percent of total revenue.

      Geographic information

      Revenues from external  customers are attributed to geographic areas based
      on location of the  customers.  The following  table sets forth revenue by
      geographic areas for the forty-six week period ended February 16, 2001:

--------------------------------------------------------------------------------
Canada                                                                    $ 33.5
United States                                                              248.5
United Kingdom                                                             186.2
Other foreign countries                                                     46.8
--------------------------------------------------------------------------------

Total                                                                     $515.0
--------------------------------------------------------------------------------


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      Concentrations

      The Division sold its products and services to a broad set of  enterprises
      ranging  from large,  multinational  enterprises,  to small and  mid-sized
      enterprises,  government agencies,  health care organizations and schools.
      Management believes that the Division is exposed to minimal  concentration
      risk since the majority of its business is conducted with companies within
      numerous industries. No single customer accounted for more than 10 percent
      of the Division's revenue for the forty-six week period ended February 16,
      2001.

4.    AMORTIZATION OF ACQUIRED INTANGIBLES

      The Division recorded  amortization of acquired intangibles of $2.7 in the
      first two months of the  forty-six  week period  ended  February 16, 2001,
      related to two  business  acquisitions  completed  by Zarlink in May 1998.
      These two  acquisitions  were  integrated as part of the operations of the
      Division.  The first acquisition related to certain assets of the Customer
      Premises Equipment Business Unit of Centigram Communications  Corporation,
      also known as the Advanced  Messaging  business unit of the Division.  The
      second  acquisition  related to the  products,  technology,  research  and
      development   facilities   and  sales  and   marketing   organization   of
      Glasgow-based  TSc,  also  known as the ISDN PBX  business  unit.  Zarlink
      accounted for these two  acquisitions  by the  application of the purchase
      accounting method and as a result,  recorded total identifiable intangible
      assets  and  goodwill  of  $42.6,  net  of  in-process   technology.   The
      identifiable  intangible assets and the goodwill were amortized over a two
      year period according to Zarlink's accounting policy.

5.    SPECIAL CHARGES

      During the  forty-six  week period ended  February 16, 2001,  the Division
      executed   restructuring   programs   to  reduce  its  sales,   marketing,
      administrative  and R&D  workforce  and actions were taken to downsize and
      consolidate the operations of the Advanced  Messaging business unit and to
      discontinue  the  GX-5000  product  line  based  on the  decision  to exit
      non-core operations.  Accordingly,  special charges of $14.8 were recorded
      in the forty-six week period ended  February 16, 2001.  These charges were
      composed of workforce  reduction  costs of $10.1  related to severance and
      benefits  associated  with 238  terminated  employees  across all business
      functions,  predominantly  in North America and the United  Kingdom.  As a
      result of the closure of the Advanced Messaging business unit and the exit
      of the GX-5000  product line,  the Division  recorded  office  closure and
      related moving costs of $2.0, a fixed asset  write-down of $2.2 related to
      impaired  research and development and office  equipment and  professional
      fees of $0.5. These restructuring programs were completed in the first six
      months of Fiscal 2002.

6.    CONTINGENCIES

      The  Division  was a defendant  in a small  number of claims or  potential
      claims  that have  arisen in the  normal  course of its  business.  In the
      opinion  of the  Division's  legal  counsel,  any  monetary  liability  or
      financial  impact of such claims or potential claims to which the Division
      might be subject  after  final  adjudication  would not be material to the
      combined results of operations of the Division.

7.    RELATED PARTY TRANSACTIONS

      During the  forty-six  week period ended  February 16, 2001,  the Division
      purchased $11.6 of products from the semiconductor  division of Zarlink in
      the normal course of its operations under terms and conditions  reflecting
      prevailing  market  conditions  at the  time  of the  transactions.  Other
      expenses  incurred  as a result  of  transactions  with the  semiconductor
      division of Zarlink  amounted to $0.4 for the forty-six  week period ended
      February 16, 2001.


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8.    PENSION PLANS

      Zarlink and its subsidiaries maintained defined contribution pension plans
      that cover  substantially all employees and the United Kingdom  subsidiary
      of Zarlink also maintained a defined benefit pension plan. Zarlink matched
      the contributions of participating  employees to the defined  contribution
      pension plans on the basis of the percentages  specified in each plan. The
      costs of the defined contribution pension plans were expensed as incurred.
      Zarlink's  defined benefit plan provided  pension benefits based on length
      of service and final  average  earnings.  The pension costs of the defined
      benefit  pension  plan were  actuarially  determined  using the  projected
      benefits method  pro-rated on services and  management's  best estimate of
      the effect of future events.  The most recent  actuarial  valuation of the
      plan was performed as at February 16, 2001.

      Immediately  following the  Separation,  the employees of the Division who
      were members of the Zarlink defined benefit pension plan became members of
      a new  defined  benefit  pension  plan  created  by the  Company  and that
      replicated the same benefits  available  under the Zarlink defined benefit
      pension plan. In June 2001, the Company's defined benefit pension plan was
      closed to new employees and a defined  contribution  option was introduced
      to members of the defined  benefit  pension  plan.  Members were given the
      choice to continue in the defined benefit plan or transfer their assets to
      the defined contribution plan.

      The  Division's  net benefit  plan expense for the  forty-six  week period
      ended February 16, 2001 was as follows:

--------------------------------------------------------------------------------
Current service cost - defined contribution                               $ 4.5
Current service cost - defined benefit                                      4.9
Interest cost                                                               4.7
Expected return on plan assets                                             (5.6)
--------------------------------------------------------------------------------
Net pension plan expense                                                  $ 8.5
--------------------------------------------------------------------------------


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                                   SCHEDULE II
                        VALUATION OF QUALIFYING ACCOUNTS
                              AS AT APRIL 28, 2002
                        (in millions of Canadian dollars)

                                           Additions
                                     ----------------------
                           Balance,              charged to             Balance,
                          Beginning  charged to    other                 End of
Description               of Period   expenses    accounts  Deductions   Period
--------------------------------------------------------------------------------
Allowance for
  doubtful accounts

Fiscal 2001                $  4.0     $  0.3        $ --      $ (0.2)    $  4.1

Fiscal 2002                   4.1        2.7          --        (0.5)       6.3


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