UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                        Washington, D.C. 20549

                               FORM 10-K

          (MARK ONE)

[x]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
       ACT OF 1934
       For the fiscal year ended March 30, 2001

                                  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 1-8139

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

           Canada                                      Not Applicable
--------------------------------                 --------------------------
(State or other jurisdiction of                      (I.R.S.  Employer
incorporation or organization)                       Identification No.)

400 March Road, Ottawa, Ontario, Canada                   K2K 3H4
----------------------------------------         --------------------------
(Address of principal executive offices)             (Zip or Postal Code)

Registrant's telephone number, including area code:  (613) 592-0200

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

       Title of each class            Name of each exchange on which registered
       -------------------            -----------------------------------------
    Common shares, no par value               New York Stock Exchange

      The common shares are also listed on the Toronto and London stock
exchanges.

Securities registered pursuant to Section 12(g) of the Act: None

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 X  No ___

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]


                            [Cover page 1 of 2 pages]

                                                 Exhibit Index Begins on Page 81


<PAGE>

      At May 30,  2001,  126,194,458  common  shares of Mitel  Corporation  were
issued and outstanding. Non-affiliates of the registrant held 125,923,000 shares
having an aggregate market value of U.S.  $1,103,085,480  based upon the closing
price of the common  shares on the New York Stock  Exchange  (May 30, 2001 being
the last trading day) of U.S. $8.76.

      Common shares held by shareholders holding more than 5% of the outstanding
common shares and by each  executive  officer and director of Mitel  Corporation
have been  excluded  from the  non-affiliated  common  share  total in that such
persons may be deemed to be affiliates of Mitel. Exclusion of such common shares
is not  necessarily a conclusive  determination  of the affiliate  status of any
holder thereof for any other purpose.

      Documents incorporated by reference: None

                      Exchange Rates of the Canadian Dollar
                               (Noon Buying Rate)

(Financial information is expressed in Canadian dollars unless otherwise stated)

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 the Canadian  dollar in exchange for United  States
currency for each of the five calendar years ended December 31, 2000 and for the
period  January 1, 2001 through May 30, 2001,  as  calculated  from the exchange
rates reported by the Federal Reserve Bank of New York, are set forth below:

<TABLE>
<CAPTION>
                         January 1
                         to May 30,
                            2001            2000            1999         1998         1997          1996
<S>                        <C>             <C>             <C>          <C>          <C>           <C>
High                       0.6696          0.6968          0.6895       0.7105       0.7487        0.7513
Low                        0.6333          0.6410          0.6540       0.6341       0.6945        0.7235
Average                    0.6501          0.6726          0.6741       0.6740       0.7223        0.7332
Period End                 0.6466          0.6668          0.6890       0.6504       0.6999        0.7301
</TABLE>

The following trademarks are mentioned in this Annual Report on Form 10-K: MITEL
which is a trademark  of Mitel  Networks  Corporation;  Windows NT and  Exchange
which are trademarks of Microsoft Corporation;  and AXEL which is a service mark
of Goldman, Sachs & Co.

                            [Cover page 2 of 2 pages]

<PAGE>

                                Table of Contents

                Section                                                 Page No.

PART I

Item 1.  Business                                                          1
         Overview                                                          1
         Financial Information                                             2
         Business Strategy                                                 2
         Recent Significant Events                                         2
         Industry                                                          4
         Products and Customers                                            5
              Communications Segment
                  Network Access                                           5
                  User Access                                              6
                  Custom Products                                          7
             Medical Segment                                               8
         Sales, Marketing and Distribution                                 8
         Competition                                                       9
         Manufacturing                                                     10
         Research and Development                                          11
         Government Regulation                                             11
         Employees                                                         11
         Proprietary Rights                                                12
         Forward-Looking Statements and Risk Factors                       12
             Technological Changes; Necessity to Develop
                  and Introduce New Products                               13
             Competition                                                   13
             Dependence on Key Personnel                                   13
             Intellectual Property Protection                              14
             Intellectual Property Claims                                  14
             Acquisitions                                                  15
             Significant International Operations                          15
             Foreign Exchange and Interest Rate Exposure
               and Concentration of Credit Risk                            15
             Environmental Regulations                                     15
             Regulatory Requirements                                       16
             European Union and the Euro                                   16
             Other Factors                                                 16
Item 2.  Properties                                                        16
Item 3.  Legal Proceedings                                                 17
Item 4.  Submission of Matters to a Vote of Security Holders               17


                                       i

<PAGE>



                  Section                                               Page No.

PART II

Item 5.  Market for the Registrant's Common Equity and Related
             Stockholder Matters                                           17
Item 6.  Selected Financial Data                                           18
Item 7.  Management's Discussion and Analysis of Financial Condition
             and Results of Operations                                     20

Item 7A. Quantitative and Qualitative Disclosures About Market Risk        31

Item 8.  Financial Statements and Supplementary Data                       32
         Auditors' Report                                                  33
Item 9.  Changes in and Disagreements with Accountants on
            Accounting and Financial Disclosure                            62

PART III

Item 10. Directors and Executive Officers of the Registrant                63
             Directors                                                     63
             Statement of Corporate Governance Practices                   64
                  General                                                  64
                  Mandate of the Board                                     65
                  Composition of the Board and of its Committees           66
                  Audit Committee                                          67
                  Compensation Committee                                   67
                  Nominating Committee                                     67
                  Executive Committee                                      67
                  Independence from Management                             68
                  Decisions Requiring Prior Approval by
                    the Board of Directors                                 68
                  Other                                                    68
             Executive Officers                                            68
Item 11. Executive Compensation                                            69

             Summary Compensation Table                                    69
             Employee Share Ownership Plan                                 71
             1991 Stock Option Plan for Key Employees
             and Non-Employee Directors                                    71
             Stock Option Grants in Last Fiscal Year                       73
             Year End Option Values Table                                  73
             Other Compensation                                            74
             Employment Agreement of the President & CEO                   74
             Executive Termination Agreements                              75
             Compensation of Non-Employee Directors                        76
             Option information For Non-Employee Directors                 76
             Directors' and Officers' Liability Insurance                  77
             Indebtedness of Directors, Executive Officers
                and Senior Officers                                        77
             Report on Executive Compensation                              77
             Performance Graph                                             79
Item 12. Security Ownership of Certain Beneficial Owners and Management    79
Item 13. Certain Relationships and Related Transactions                    81

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K   81
Signatures                                                                 84
Power of Attorney                                                          85
Annex A - Glossary of Terms                                                87


                                       ii
<PAGE>

                                     PART I

      Item 1. Business

      A glossary of certain  technical  and  industry  terms used in this Annual
Report on Form 10-K is included as Annex A attached.

      The Company  maintains its  financial  accounts in Canadian  dollars.  All
financial  information  and  references  to "$" and  "dollars"  are expressed in
millions of Canadian dollars unless otherwise stated.

      Overview

      Mitel  Corporation was  incorporated in Canada in 1971 and continued under
the Canada  Business  Corporations  Act in 1976.  On May 29,  2001,  the Company
announced that it had adopted Zarlink  Semiconductor(TM)  ("Zarlink(TM)") as the
operating name of Mitel  Corporation.  The Company will formally change its name
to Zarlink  Semiconductor  Inc.,  subject to  shareholder  approval  at its next
annual  general  shareholders  meeting  on July 25,  2001.  Unless  the  context
indicates  otherwise,  "Zarlink",  "Mitel"  and the  "Company"  refer  to  Mitel
Corporation and its  consolidated  subsidiaries.  The registered  office and the
principal  executive  offices of Zarlink are located at 400 March Road,  Ottawa,
Ontario,  Canada  K2K 3H4 and its  telephone  number  at that  address  is (613)
592-0200.

      Zarlink is a global designer,  manufacturer and marketer of communications
semiconductors  for converging voice and data networks in an Internet economy as
well as semiconductors for implantable and wearable medical applications.

      Communications

      In  the   communications   market,   Zarlink   specializes   in  broadband
connectivity  solutions over wired, wireless and optical media. The product line
enables voice and data  convergence for high speed Internet  systems,  switching
systems,  and  subscriber  access  systems in the Network Access and User Access
market segments.  Zarlink is a world leader in time division  multiplex  ("TDM")
switching,  asynchronous  transfer mode ("ATM")  convergence,  Internet Protocol
("IP") switching,  network timing and synchronization,  Very Short Reach ("VSR")
Optical  Interconnections  and  Radio  Frequency  ("RF")  interfaces  for  these
markets.  The  Company's  semiconductor  products are  primarily  non-commodity,
specialized  products  that are  proprietary  in  design  and  used by  multiple
customers. See "Business- Products and Customers."

      Since  the  mid-1980s,   the  global  communications   industry  has  been
characterized  by  rapid  structural   change  and  economic  growth  caused  by
technological  innovation,  economic factors, and changes in government policies
that encourage  competition and increase choice.  The evidence for these changes
includes the growing impact of the Internet,  deregulation,  optical  networking
technology,  broadband  connectivity,  wireless and mobile  communications,  and
demand  by  enterprises  for  cost-effective,   multi-functional   networks  and
applications.

      Management  believes that the impact of these factors is intensifying  and
that  the   complexity   of  networks   demanded  by  customers   will  increase
significantly over the next several years. In addition, management believes that
network  platforms  will  become  increasingly  multifunctional  and  converged,
supporting  multiple  access to combined  voice,  data and video  communications
services,  thus reducing the operating costs associated with separate  networks.
Management  anticipates  that  significant  industry  growth  areas will include
wired, wireless and optical networks.

      Products for the global  communications  industry include system reference
designs, the associated software and microelectronic  components used for voice,
data and video communications. The principal building blocks of the industry are
software,  microelectronics and product innovation in advanced digital switching
and  transmission  platforms,  supported by a competency  in, and  knowledge of,
telecommunications networking.

      Medical

      Zarlink's  medical  applications-specific  integrated  circuits  ("ASICs")
provide  solutions  for  applications  such as  pacemakers  and hearing aids and
portable instruments.


                                       1
<PAGE>

      Today's population demands better healthcare  solutions for better living.
The drive to better  overall  health means that people of all ages want improved
methods of  detection  and more  effective  therapy for their  health  concerns.
Management believes that Zarlink is a leader in designing silicon solutions that
meet the rigorous  standards and evolving  requirements of equipment  makers and
customers in the medical field.

      Financial Information

      Financial  information  about  industry  segments  and about  foreign  and
domestic  operations  and export  sales is provided  under Item 7,  Management's
Discussion and Analysis of Financial  Condition and Results of  Operations,  and
under Item 8 in Note 22 of the notes to the  consolidated  financial  statements
appearing  elsewhere in this Annual Report on Form 10-K.  Financial  information
about  Research  and  Development  is  described  in Note 16 of the notes to the
consolidated  financial  statements and Management's  Discussion and Analysis of
Financial Condition and Results of Operations.

      Business Strategy

      Zarlink's  strategy is to exploit the following  major  developments  that
management believes are under way in the communications and medical industries:

   o  Convergence of voice and data networking around IP with a focus on Quality
      of Service ("QoS").

   o  Emergence of  broadband  connectivity  as a  fundamental  requirement  for
      moving voice, data and image traffic over converging networks.

   o  The increasing use of System Level Integration ("SLI") in microelectronics
      to reduce size,  increase  functionality and reduce the cost of networking
      solutions.

   o  The increasing use of  microelectronics to improve health care and quality
      of life and reduce health care costs.

      Zarlink's competencies range from microelectronic  components and software
for  wired,  wireless  and  optical  communications  to ultra low  power  design
competencies  for  medical  applications.   Management  believes  the  Company's
competitive   advantages  include  design  and  production  capability  for  SLI
solutions including analog and digital mixed-signal integrated circuits ("ICs");
media-transparent connectivity for wired, wireless and optical applications; and
engineering  process  diversity for specialty  designs (e.g. ultra low-power and
ultra low-voltage ICs for medical applications).

      The key elements of Zarlink's business strategy include the following:

      o  Provide  high-value  solutions  for the  wired,  wireless  and  optical
         networks with a focus on QoS.

      o  Maintain  and  exploit  its  leadership  position  in  implantable  and
         wearable medical devices while developing  further its line of products
         for the portable instrument market.

      o  To become  fabless for deep  sub-micron  SLI designs,  and maintain and
         operate  fabrication  facilities  specializing in  Complementary  Metal
         Oxide  Semiconductor  ("CMOS") and bipolar  technologies  for strategic
         advantage  in such areas as  mixed-signal,  high-frequency  and medical
         applications.

      o  To  leverage  its  semiconductor  technology  to  benefit  all  of  the
         Company's customers.

      Management  believes  the  Company is well  positioned  to  implement  its
business  strategy  by reason of its strong  core  technologies  for  signaling,
transporting  and  switching  voice  and data;  and its  strong  position  in RF
technology with  applications  ranging from tuners for set-top boxes to cellular
telephones,  and its  advanced  optoelectronic  devices  used in high  speed/VSR
network interconnect. Its unique ultra-low-power CMOS process technology enables
the  Company  to  maintain  a  major  position  in  medical  applications.   See
"Business-Products and Customers."

      Recent Significant Events

Appointment of new President and Chief Executive Officer

      Following the Company's transformation to a focused semiconductor company,
the Board of Directors announced on March 21, 2001 the appointment of Patrick J.
Brockett as the Company's President and Chief


                                       2
<PAGE>

Executive  Officer.  Mr.  Brockett joins Zarlink after a long and  distinguished
career at  National  Semiconductor.  Mr.  Brockett  relocated  to the  Company's
headquarters in Ottawa,  Canada in April 2001. The Company's  previous President
and CEO - Kirk K. Mandy - was elected Vice Chairman of the Board.

Recent Industry Slow Down

      Beginning  late in the third  quarter of Fiscal 2001,  the  communications
semiconductor  industry experienced a significant downturn in sales.  Management
believes that a variety of factors have combined to create market  uncertainties
that will likely  extend  through  part of the 2002 fiscal year.  These  factors
include a large inventory build-up in the  telecommunications and data equipment
sectors,  a reduced  demand  for  infrastructure  equipment  from the  telephone
companies,  especially by Competitive Local Exchange  Carriers  ("CLECs") in the
United States,  and a slowing of the growth rate of the U.S. and world economies
in general.

Restructuring Program Implemented in the First Quarter of Fiscal 2002

      In response to the  industry  downturn,  the Company  announced on May 10,
2001 that it had implemented a  cost-containment  plan in order to preserve cash
resources.  The  cost-containment  plan  includes a  workforce  reduction  of 17
percent of the  company's  total  employee base or  approximately  430 employees
globally. Accordingly, the Company will record a pre-tax restructuring charge of
approximately  $37.0 to cover the workforce  reductions  that will take place in
the first quarter of Fiscal 2002.  The workforce  resizing is in addition to a 5
percent  workforce  reduction that was completed in the fourth quarter of Fiscal
2001.

Sale of Systems Business and the name "Mitel" Completed

      On November 3, 2000,  the Company  announced  that its Board of  Directors
intended  to separate  the  Company's  Systems  segment  from its  Semiconductor
segment.  The  decision  to  separate  Systems  was  developed  in  response  to
increasing  differences in customer types,  technology roadmaps,  and investment
requirements and, most importantly, the competitive needs of the two businesses.
As a result,  management believes the Company can better focus its resources and
efforts toward  solidifying its leadership  position in the  communications  and
medical semiconductor industries.

      On February  16, 2001,  the Company  completed  the sale of its  worldwide
communications  systems  business,  including  the name  "Mitel",  to a  company
controlled by Dr. Terence H. Matthews.  As part of the transaction,  the Company
also  transferred most of its Ottawa,  Canada real estate to Dr.  Matthews.  The
Company  received $302.3 in cash proceeds,  after  adjustments,  in exchange for
selling a 90 percent ownership interest in the Company's  communications systems
business and most of its real property in Ottawa, Canada.

      The Company adopted its operating name, Zarlink Semiconductor,  on May 29,
2001. The Company  anticipates it will formally change its legal name to Zarlink
Semiconductor  Inc.,  subject to approval of its shareholders at the next annual
general meeting of shareholders on July 25, 2001.

Investment in a New Photonics Venture

      On January 15, 2001,  the Company  announced that it established an equity
interest in a new privately- held photonics  company that will focus on reducing
the cost of bandwidth distribution in optical networks. The new company - called
Optenia,  Inc.-  combines  financial,  technological  and human  resources  from
Zarlink,  the National Research Council ("NRC") of Canada,  and other investors.
Mr. Moris Simson, the Company's former Senior Vice President, Corporate Strategy
and  Development,  joined  Optenia,  Inc. as its President  and Chief  Executive
Officer.

      Optenia's  technological  foundation  is based on joint  research  between
Zarlink  and  the NRC in the  area of  dense  wavelength  division  multiplexing
("DWDM"). Management believes that Zarlink's investment in Optenia will optimize
and  accelerate  product  development as well as establish new avenues for other
research and development.

      Zarlink's  equity  position  approximated 46 percent at March 30, 2001 and
represented a cash  contribution  of $7.6, an in-kind  contribution of equipment
with a carrying value of approximately  $1.0 and skilled  personnel.  Management
expects that its equity position will be reduced  proportionally  as other third
party  investments in


                                       3
<PAGE>

Optenia are  finalized.  Zarlink's  Bromont  facility  will maintain a strategic
manufacturing  agreement with Optenia that encompasses foundry  arrangements and
joint development of critical microfabrication techniques.

Acquisition of Vertex Networks, Incorporated

      On July 28, 2000, the Company acquired 100 percent of the capital stock of
privately-held Vertex Networks, Incorporated ("Vertex"), for total consideration
of  approximately  11 million  common  shares newly issued by the company with a
then fair value of $300.7.  The  acquisition  was  accounted for by the purchase
method.  Accordingly,  Vertex's  results from  operations  were  included in the
consolidated  accounts  of  the  company  from  the  date  of  acquisition.  The
integration  of Vertex with the Company was  essentially  completed by March 30,
2001.

      In the fourth  quarter of Fiscal 2001,  the Company  reviewed the carrying
value of the acquired intangible assets associated with Vertex (see Management's
Discussion and Analysis of Financial Condition and Results of Operations). Based
on an  analysis  of  estimated  future  undiscounted  cash flows and current and
expected  adverse market  conditions,  the Company  determined that the carrying
value of the acquired intangible assets was impaired.  Accordingly,  the Company
recorded a charge of $146.7 in the fourth  quarter of Fiscal  2001 to write down
the carrying value of the goodwill relating to Vertex. As at March 30, 2001, the
carrying value of the acquired  intangible  assets related to Vertex amounted to
$36.9 and is expected to be recovered from future cash flows.

      Vertex  is a  fabless  semiconductor  company  providing  high-performance
network  packet  processing,  switching  and routing  silicon  solutions for the
enterprise  and wide  area  network  ("WAN")  access  markets.  Vertex  provides
integrated  circuits  for Layer 3 IP routing  switches  and  develops  chipsets,
reference designs,  and software for intelligent packet switching  applications.
Vertex's   products   encompass   QoS-enabled   IP  switching   for   enterprise
communications,  WAN  traffic  concentration,  and  fiber to the  home  ("FTTH")
markets.  Vertex,  which was  founded in 1995,  is based in Irvine,  California,
United  States,  and has design  centers in San Jose,  California,  and  Taiwan.
Vertex employed approximately 75 people as at the date of acquisition.

      Management  believes the acquisition of Vertex will allow Zarlink to enter
the packet processing and switch fabric market to offer  system-wide,  IP-based,
QoS for convergent  networks.  QoS is a term that qualifies certain  performance
attributes  of voice  transmission  over IP  networks,  and  usually  refers  to
measures of delay,  latency and jitter.  Zarlink's focus will be to deliver wire
speed  non-blocking  scalability  for the edge of WANs,  providing  the  maximum
packet-switching  throughput  required by systems designers and their customers.
Management  believes the approach will introduce Local Area Network ("LAN") cost
structures  into WAN  applications to provide a more  competitive  solution that
accommodates diverse switching technologies in use at the edge of the network.

Common Share Repurchase Program

      On June 7,  2001,  the  Company  announced  its  Board  of  Directors  had
authorized  the  continuation  of  its  normal  course  issuer  bid  program  to
repurchase  up to  6,308,907  common  shares,  representing  5  percent  of  the
126,178,148  common shares issued and outstanding at May 28, 2001. The purchases
will take place on the open market  through the stock  exchanges of New York and
Toronto over a twelve-month  period beginning on June 9, 2001 and ending on June
8, 2002,  or on such  earlier  date as the Company may  complete  its  purchases
pursuant to the notice of  intention  to make a normal  course  issuer bid filed
with The  Toronto  Stock  Exchange.  The  Company,  which  intends to cancel the
repurchased  shares,  believes  that at present no director,  senior  officer or
insider of the Company intends to sell any common shares under this program.  No
common shares were repurchased under the previous program during the period from
June 9, 2000 to June 8, 2001.

      Industry

      The primary markets for Zarlink's products are the network access and user
access markets for converged  communications  equipment and the medical  devices
industries,  which represent major end-markets for these products. Each of these
industries is expected to grow economically and evolve  technologically over the
next several years,  which  management  believes  should provide  revenue growth
opportunities to Zarlink. The increased  requirements of end users, coupled with
new opportunities should continue to drive the demand for network communications
equipment and infrastructure. The deregulation of telecommunications services in


                                       4
<PAGE>

many parts of the world has resulted in increased competition and demand for new
services.  In addition,  the low  penetration  of telephone  service in emerging
countries is a strong driver for wired and wireless  communications.  Management
believes that these developments  represent significant new market opportunities
for Zarlink over the next several years.

      Products and Customers

      Zarlink manufactures and sells communications  semiconductor  products for
the wired,  wireless  and optical  markets.  The Company also  provides  foundry
services  to third  parties on a contract  basis.  Zarlink  also  addresses  the
medical  market with its  implantable  and  wearable  solutions.  Communications
segment revenue,  including foundry services,  accounted for 93%, 93% and 91% of
the Company's total revenue from continuing  operations in Fiscal 2001, 2000 and
1999,  respectively.  Medical segment revenue  accounted for the balance in each
respective year.

      Zarlink's  integrated  circuits are  microelectronic  component parts that
offer the high feature integration, low power consumption and low physical space
required for the design of advanced  communications  systems.  Such products are
designed to provide  advanced  communications  and control  functions for a wide
variety of electronic products and systems.

      Zarlink's semiconductor products are primarily non-commodity,  specialized
products that are proprietary in design and used by multiple customers.

      Full custom semiconductor products rely on an original design and a unique
interface.  Such products  take longer to design but  generally  remain as a key
component  in the end  product for the  duration of its life cycle.  Semi-custom
products are  proprietary  products  that have been altered to meet the specific
requirements  of  individual  customers.  Commodity  products  are "pin for pin"
replacements  that sell  primarily  on the basis of  performance,  availability,
quality  and price.  Zarlink's  products  are mostly full  custom.  Accordingly,
management  believes  that once designed  into a customer's  product,  Zarlink's
products  form an integral  part of the  customer's  system and are difficult to
replace, as replacement would require some redesign of the system.

      Zarlink has a diverse and  established  base of some 3,000  customers in a
wide  spectrum  of  end  markets,   including   leading   manufacturers  in  the
telecommunications,  data  communications,  and medical sectors. In Fiscal 2001,
Zarlink had revenues  from one external  customer,  a major  distributor,  which
exceeded 10 percent of total  sales.  Sales to this  distributor  in Fiscal 2001
amounted to $96.8, or 14 percent of sales from continuing operations.

      Communications Segment

      The microelectronics market for communications is large - comprising local
area networking, wide area networking, optical communications, cellular, set-top
boxes, and communications processors,  among others. Within this diverse market,
the Company  focuses on  providing  a range of  solutions  that  shape,  signal,
transport  and switch  real-time  traffic in the wired,  wireless,  and  optical
networks.  The Company's  communications  business can be grouped in three broad
areas: (i) network access (ii) user access, and (iii) custom products.

      Network Access

      Network Timing and Synchronization

      Management  believes that Zarlink is the industry  leader in digital Phase
Lock  Loops  ("PLLs")  for  network  timing  and  synchronization  in T1/E1  and
SONET/SDH  applications.  They are extensively used in central offices,  private
branch  exchanges  ("PBXs"),  wireless base  stations,  ATM edge  switches,  and
Integrated Access Devices ("IADs").

      Framers and Line Interface Units ("LIUs")

      Zarlink provides single- and multi-port, feature-rich T1/E1/J1 transceiver
products  that meet the latest  recommendations  and standards  from  Telcordia,
ANSI, ETSI and the ITU.


                                       5
<PAGE>

      TDM Switching (timeslot interchange)

      Zarlink's  extensive digital (timeslot  interchange) switch family extends
to a  non-blocking  capacity of 4096 x 4096 channels with low power  consumption
and data rates to 8.192 Mb/s.

      Voice Echo Cancellation

      Zarlink offers a range of  Multi-Channel  Voice Echo  Cancellers for VoIP,
Voice Telephony over ATM ("VToA"),  Voice over Frame Relay ("VoFR"),  T1/E1, PCS
wireless base stations and hands-free applications.

      ATM SAR

      Zarlink's  ATM SARs are  designed to convert TDM traffic to ATM in access-
and   carrier-class   equipment,   such  as   concentrators,   multiplexers  and
multiservice switches.

      Network Convergence - IMA

      Zarlink's  multi-port Inverse  Multiplexing for ATM (IMA) devices were the
industry's  first ASSPs to focus on delivering IMA  functionality  for ATM-based
services over an existing  T1/E1  infrastructure,  interfacing  directly to most
framers on the market.

      Multi-port Ethernet Switch

      Supported by advanced network management  software,  Zarlink's  multi-port
Ethernet switch devices provide a full suite of features, including enhanced QoS
for packet  prioritization,  Layer 3 routing, IP multicast,  protocol filtering,
port mirroring, port trunking, buffer management and stacking.

      Telephone and Line Card Devices

      Zarlink offers one of the industry's widest range of advanced exchange and
subscriber  solutions,  including silicon and Hybrid SLICs,  Digital  Subscriber
Interfaces,  Data Access Arrangements ("DAAs"), DTMF Receivers and Transceivers,
Central Office  Interface  Circuits  ("COICs"),  Calling  Number  Identification
Circuits ("CNICs"), CODECs and Integrated Digital Phone ICs.

      Optical Data Communications

      Zarlink offers a range of Parallel  Optical Fiber modules for use as local
interconnect  in  terabit-class  switches  and routers,  and to provide  Optical
Interface  Forum ("OIF") VSR,  Infiniband  and 10 Gbit Ethernet  optical  links.
Throughputs  of up to 30 GB/s are  supported  with a variety of fiber counts and
formats.  A range of  discrete  LEDs,  PINs and Duplex  Opto  Transceivers  in a
variety of wavelengths, speeds and housings is also available.

      Multi-Sourced Parallel Fiber Modules

      Zarlink's  modules  are  designed  to  exploit  their  patented  Smart OSA
self-aligning  assembly  technology,  as already  employed in the  existing  623
family of 12, 8 and 4 channel  Parallel Fiber Modules.  Zarlink has entered into
Multi-Source  Agreements  (MSA)  with  Agilent  and W.L.  Gore for the supply of
compatible  module  that  meet an  agreed to fit,  form and  function  agreement
between the parties.

      User Access

      Digital Television

      Zarlink provides tuner and demodulator products for Satellite, Terrestrial
and Cable digital television applications - both set-top boxes and TV receivers.
For many years Zarlink has been one of the world's prime  suppliers of fast PLLs
and  synthesizers,  based on its in-house  advanced  bipolar  processes that are
suitable for use in both analog and digital  receivers  and set-top  boxes.  The
latest  developments  include Integrated Digital


                                       6
<PAGE>

Television  ("iDTV")  components that support the convergence of  entertainment,
information access, voice and other services.

      Digital Cellular Telephony

      Zarlink  has built on the  success of their  earlier  analog  chipsets  by
developing  new products to address  emerging  cellular  standards.  The current
portfolio for high volume  digital  cellular  applications  includes both RF and
mixed signal components for TDMA and CDMA handsets. These ICs are multi-band and
multi-mode,  offering a high level of integration.  Zarlink devices are found in
products from many of the top handset manufacturers in the world.

      Bluetooth

      Zarlink has combined a  full-duplex  voice CODEC with  dedicated  hardware
functions and an ARM7TDMI processor to provide a single-chip  Bluetooth baseband
solution.  This is especially suitable for  battery-powered  voice applications,
such as  cordless  headsets,  and is  supported  by a  Development  Toolkit  and
comprehensive software routines to ensure rapid time-to-market.

      Custom Products

      Foundry Services

      Management believes that Zarlink has developed a world class reputation as
a  manufacturer  of  semiconductor   solutions  for  the  electronics  industry,
including manufacturing capabilities at the forefront of process development and
design, test and packaging support as required. For example, the Bromont, Canada
facility received Motorola's Foundry of the Year Award for 2000, the second year
running.

      Management further believes that the leading edge technologies  offered in
Zarlink's wafer foundry manufacturing units deliver real competitive  advantages
to customers. Companies work with Zarlink because of its ability and willingness
to support a range of differentiated technologies supporting both the customers'
older  revenue  stream   products  and  new  products   using   state-of-the-art
technology.

      Zarlink's processes and quality control satisfy the toughest requirements.
CMOS  processes  range  from  state-of-the-art  0.35u to mature  9u metal  gate.
Bipolar processes range from high performance RF with 30GHz fT to a low cost NPN
process with only ten masks.  Specialty  high  performance  CCD and high voltage
processes are also offered.

      By supporting many different processes, Zarlink ensures that customers can
maximize the return on  established  products  without the need to  re-engineer.
This saves both time and money for the customer.

      Zarlink  also  offers a complete  range of test  services  including  test
program development if required. Internal test capability includes test stations
with LTX, Teradyne,  Credence,  Eagle, Advantest and Fairchild systems providing
the capability for probe and final test of digital, analog,  mixed-signal and RF
ICs.

      Many exciting technologies are under development including deep sub-micron
CMOS, high voltage DMOS even faster bipolar, BiCMOS and new CCD processes.

      ASICs

      ASIC business  opportunities  from  customers are now being routed through
Zarlink's market channels, which can combine the work of the core technology and
engineering  group with their own specialist market segment  knowledge,  thereby
providing   customers  with  access  to  advanced   standard  products  and  the
flexibility to create customer specific variants. In making this change, Zarlink
has set up a special team to ensure that all customers with existing ASIC design
and production commitments are continued uninterrupted.  This team is completing
all  customer  designs and  continues  to manage the ongoing  manufacturing  and
supply of products in production. Customers continue to be supported through the
Zarlink sales network and the engineering and marketing staff from this team.


                                       7
<PAGE>

      Medical Segment

      The  high  cost  of  medical   care  is   generating   opportunities   for
microelectronics-based  products  that  reduce  health-care  costs  and  improve
quality  of life.  Implantable  medical  devices  such as  pacemakers,  wearable
devices such as hearing aids, portable equipment and communicating  devices that
monitor  patients in and outside a hospital are examples of emerging  markets in
which Zarlink's experience and skills have immediate relevance.

      Zarlink is moving to System-on-a-Chip  ("SoC") integration by building its
technology  around the CoolRISC 816  microprocessor  core.  This ultra low-power
high-performance 8-bit RISC microprocessor matches its processing power and high
"MIPS-per-watt"  ratio with the need for  low-power  battery-operated  miniature
portable  devices.  Zarlink's  medical SoC systems  that  integrate  digital and
analog mixed-signaling can now be implemented faster and more cost effectively.

      Zarlink's ultra  low-power 0.35 micron ANVTM  technology is offered in two
versions:  MiniVolt(TM)  and  PicoLeak(TM).  The low voltage MiniVolt process is
optimized for applications requiring the lowest operating voltages, specifically
hearing aids. The low leakage version,  PicoLeak,  minimizes current consumption
and is well adapted for demanding  applications  like pacemakers,  which require
long battery operational life.

      Management  believes that Zarlink is a major supplier of  microelectronics
components for medical  applications.  Zarlink's  expertise in ultra  low-power,
high-reliability  integrated  circuit  design has  enabled  the  Company to make
medical devices with high performance and exceptionally long battery life.

      Sales, Marketing and Distribution

      The principal customers for Zarlink's  semiconductors are customer premise
and network communication equipment  manufacturers.  Zarlink's products are also
marketed to data  communications  suppliers as the  integration of computing and
telecommunications  continues. Zarlink sells its products in over 100 countries,
through a network of 50 independent representatives and distributors and through
a direct sales force.  Representatives  generally have strong relationships with
Zarlink's  end  customers.  These  representatives  assist  with the  design  of
customer  solutions  incorporating  Zarlink  products,  which are then  supplied
through  distributors.  Zarlink  has  implemented  a strategic  account  program
focusing on the development of business with the key network equipment suppliers
in the  industry.  Direct sales force  personnel  from each of  Zarlink's  sales
regions collaborate to manage business with these multinational enterprises.

      The primary markets for Zarlink's products are the technologically  driven
industries. The telecommunications  equipment,  routers and access equipment and
medical device  industries  represent major end markets for Zarlink.  Management
believes  Zarlink's  revenue  growth will be supported  by various  factors that
drive demand for telecommunications equipment and infrastructure. In particular,
deregulation  of  telecommunications  services  worldwide  has  resulted  in the
licensing  of new  operators  and  service  providers,  most of  which  need new
equipment and  facilities.  The  emergence of these new operators  has, in turn,
intensified the competitive  environment,  frequently forcing existing operators
and service providers to accelerate their capital spending plans. The increasing
penetration of telephone  service in emerging  countries is also a strong driver
for both wireless and wired communications,  which management believes increases
demand for the Company's integrated circuits for communications applications.

      The  Company  believes  that  one of  its  competitive  advantages  is the
expertise of its applications  groups,  which are located in the United Kingdom,
the United States,  Canada,  Singapore and Japan to serve customers in all parts
of the world.  The  applications  groups  assist  OEMs in  designing  their next
generation  products  using Zarlink  components.  Zarlink has a strong record of
soliciting customers with design ideas and obtaining design wins. The design win
cycle starts when Zarlink and/or its representatives  identify a need for one of
its  standard  communications  products  that meet certain  specifications  in a
customer's  equipment  design.  Once Zarlink's product is selected for a design,
the Company  generally is assured of providing the semiconductor for the product
until the product is no longer manufactured.


                                       8
<PAGE>

      North America

      Zarlink's  semiconductor products (other than Medical and Custom Products)
are  sold  through   representatives  of  manufacturers  and  distributors  and,
increasingly,  directly  to  OEMs.  Zarlink's  sales  representatives,  who deal
directly with the end customer,  assist with the design of systems incorporating
Zarlink   products.   These  products  are  then  supplied   through   Zarlink's
distributors.  To enhance  sales,  major  account  teams target  specific  large
customers for standard  product  deliveries.  Foundry services are provided from
sales  offices in San Diego,  California  and Bromont,  Canada,  with  technical
support from Bromont and Plymouth, United Kingdom.

      Europe

      Sales of  Zarlink  semiconductor  components  in  Europe  have  been  made
primarily through its direct sales channel.  Distributors also play an important
role in the  European  region and  management  believes  that their share of the
overall  business  will  increase  over the next year due to the  desire of many
customers  to  consolidate  their  logistical  demands.  The  Company  maintains
technically  qualified  sales teams across the entire  region and supports  them
with a team  of  highly  skilled  applications  engineers  based  in the  United
Kingdom. The headquarters of the sales operation is in Swindon, United Kingdom.

      Asia/Pacific

      The  Asia/Pacific  area  is a  major  geographical  market  for  Zarlink's
semiconductor  products, with China, Korea, Japan, Taiwan and Malaysia being the
largest markets.  Zarlink's  semiconductor  products are also sold in Australia,
Hong Kong, Thailand, New Zealand, Singapore and the Philippines.  The Company is
expanding into other emerging markets in Asia Pacific, such as India.

      Zarlink maintains regional headquarters in Singapore and offices in Japan,
Taiwan, Korea and China for semiconductor  products. Over 60 percent of sales in
these areas are achieved through  representatives  and  distributors.  The sales
offices  provide  a  service  linking  customers,   local   representatives  and
applications  support groups that assist OEMs in designing products with Zarlink
components.

      Competition

      Competition  in the  semiconductor  market is intense,  with new  entrants
continually   coming   into   the   industry.    Rapid   technological   change,
ever-increasing  functionality  due to integration,  a focus on end product cost
reduction,  and  evolving  standards  characterize  the  markets  for  Zarlink's
products.  Many of Zarlink's  competitors and potential competitors have greater
financial, technological,  manufacturing, marketing and personnel resources than
the Company.  Competition  is based  principally  on design  expertise,  product
availability,   service  and  support.   Management  believes  Zarlink  compares
favorably through its focus on real time networking,  proprietary  designs,  and
its  sales and  support  network.  Zarlink  also  competes  by  offering  strong
intellectual  property  in  communications  systems  and a high  level of system
integration capabilities.

      In the communications  market,  Zarlink focuses on the convergence of real
time traffic with data. Management believes Zarlink has substantial intellectual
property  associated with networking real time traffic such as voice.  Converged
voice networking requires competencies in regulatory policies,  analog and mixed
signal design, specialty processes, and voice quality.

      Zarlink primarily designs and markets  proprietary  products that are sold
to many customers in the wired,  wireless,  and  optoelectronic  segments of the
communications market rather than competing with commodity products. Proprietary
designs  provide a long design-in cycle with customers and present a significant
barrier to entry.

      Management believes that Zarlink's sales channels and applications support
compare  favorably to those of its competitors by providing  worldwide  coverage
and extended  support to assist  customers in getting  their  products to market
quickly.


                                       9
<PAGE>

      Within  the  Network  Access  market  segment,   Connexant  Systems  Inc.,
PMC-Sierra  Inc.,  Agere Systems Inc.,  Infineon  Technologies AG  ("Infineon"),
Motorola,  Inc.  ("Motorola"),   Intersil  Corporation,  and  Legerity  are  the
Company's  main global  competitors  in one or more  product  lines.  Management
believes that Zarlink  competes  favorably in Network  Access based on Zarlink's
extensive  intellectual  property rights in converged  networks and in QoS while
meeting regulatory and industry standards.

      In the optoelectronic  area of Network Access,  competitors in the LED and
PIN diode business sectors include Agilent  Technologies  Inc.,  Honeywell Inc.,
Epitaxx Inc. and Tyco  Electronics in North America and Infineon in Germany.  In
this segment,  management  believes that Zarlink  competes  primarily on product
quality  and  customization  capability.  In the single  channel  VCSEL  market,
Zarlink enjoys a shared leadership  position with Honeywell.  In the VCSEL array
market,  Zarlink was first to market to  establish  a  leadership  position  and
competes via sales  support and price  performance.  In respect of the VSR SMART
OSA ("Optical Sub-Assembly") transceiver,  Zarlink competes mainly with Infineon
and W.L. Gore & Associates,  Inc.,  Agilent  Technologies  Inc.,  and PicoLight.
Management  believes that Zarlink's  patented  technology and higher performance
will provide the Company with a competitive advantage.

      Within User Access,  Philips  International BV, Infineon  Technologies AG,
Toshiba  Corporation,  Motorola,  Broadcom  Corporation,  Conexant Systems Inc.,
Maxim Integrated Products,  Inc., ST  Microelectronics,  Inc., and Agere Systems
Inc. are Zarlink's main global competitors in one or more product lines. In this
market,  management  believes Zarlink competes favorably using products designed
on its bipolar  processes and by using innovative  design techniques on standard
CMOS technologies.

      In  the  medical   segment,   Zarlink   competes   mainly  with   American
Microsystems,  Inc.,  Medtronic,  Inc.  and "pure  play"  foundries.  Management
believes  that  Zarlink  competes  favorably  against  competitors  through  its
expertise in ultra low power design  capability,  custom analog and mixed signal
processes  and quality  safety audit  process.  Zarlink sells to four of the top
seven medical OEMs worldwide.

      Manufacturing

      Zarlink  manufactures  its  semiconductor  products in five  manufacturing
facilities,  or "fabs", in Canada,  the United Kingdom and Sweden. The selection
of the manufacturing sites for semiconductors generally is dependent on the type
of  semiconductor  to be manufactured  and the required  process and technology.
Silicon fabs are found in the  Company's  facilities  in Plymouth and Swindon in
the United Kingdom and in Bromont,  Canada.  IC probe and finished goods testing
is done out of the Company's  facilities in Ottawa,  Canada,  and in Swindon and
Plymouth.  Zarlink's  optical fab is located in Jarfalla,  Sweden while  optical
assembly takes place in both Jarfalla and in Caldicot,  United  Kingdom.  Hybrid
assembly and testing is performed in Caldicot.

      Zarlink's foundry operations offer specialty  technology  manufacturing to
customer  specifications.  By building on the Company's mixed-signal  integrated
circuit manufacturing expertise,  Zarlink can offer unique features that are not
widely  available  and  address  niche  markets,  such as  those  for  low-  and
high-voltage  processes,   double-poly  technology,  high  precision  resistors,
Micro-Electro-Mechanical  Systems ("MEMs"),  Echelle Grading and charged coupled
devices.  Zarlink's foundry  operations serve a growing base of customers in the
United States and Europe by  performing  sub-contract  manufacturing  of silicon
wafers.  Zarlink  views  the  foundry  business  as a  means  of  enhancing  its
manufacturing  facilities to perform at or near full capacity with a diversified
set of  applications,  and of hedging  against market trends in any one segment.
Zarlink  intends to increase  the foundry  business in the Bromont and  Plymouth
facilities to ensure world-class manufacturing operations.

      The Bromont  manufacturing  facility uses CMOS  technology for digital and
mixed-signal products. Two production lines are maintained at Bromont. The first
is a 150 mm line capable of 0.5 micron, but is currently operating 0.8 micron to
4.0 micron processes. The second is a 100 mm line capable of 2.0 micron. Most of
Bromont's  wafer  production is probed and tested at the  Company's  facility in
Ottawa, Canada.

      Thick-film hybrid microcircuits are manufactured at the Company's facility
in Caldicot, Wales, United Kingdom.


                                       10
<PAGE>

      Zarlink's  manufacturing  facility in Plymouth,  United Kingdom  possesses
leading-edge CMOS technology for digital and mixed-signal  products.  Plymouth's
200 mm production  line is capable of 0.6 and 0.35 micron  processes and its 150
mm production  line is capable of 0.8 micron  processes and above.  The Swindon,
United   Kingdom   manufacturing   facility  uses  bipolar   technology  for  RF
applications.  In the fall of 1999, the  facility's  100 mm production  line was
upgraded to produce 150 mm wafers.

      Optoelectronic components and modules are produced at the Jarfalla, Sweden
facility using gallium arsenide and indium phosphide processes.

      All of Zarlink's semiconductor  manufacturing facilities and their quality
management  systems are  certified to the strict  standards  established  by the
International Organization for Standardization.

      Research and Development

      Zarlink's  current R&D  programs  are  primarily  directed  at  developing
intellectual  property  in the areas of IC process  development,  communications
ICs,    optoelectronic    components,    ASIC   design    libraries,    SLI   or
"System-On-A-Chip", as well as low power and high voltage semiconductors.

      Zarlink's  process   development  efforts  are  focused  on  mixed  signal
processes  and  yield   improvements   in  both  CMOS  and  bipolar   processes.
Communications R&D programs include development of intellectual  property in the
areas of ATM, analog line cards,  network timing and synchronization  functions,
WAN chips,  switching  and voice  processing  functions,  the TDMA,  Edge,  GPRS
wireless standards,  and set-top box communications  chips.  Optoelectronics R&D
activity is focused on enhancing  Zarlink's  patented  Smart  OSA(TM)  packaging
technology, its market position in VCSELs and array VCSELs for LAN applications,
and the development of optoelectronic integrated circuits ("OEICs"). Analog ASIC
development  is focused on low power,  high  reliability  advances  for  medical
applications.  Zarlink  also  continues  to  invest  in the  development  of SLI
techniques  to  improve  time to  market  for  both  digital  and  mixed  signal
applications.

      Zarlink  maintains  product  design centers in Ottawa,  Canada;  Jarfalla,
Sweden;  San  Diego,  Irvine  and San Jose in  California,  USA;  and  Caldicot,
Swindon,  Plymouth,  Lincoln and Borehamwood in the United Kingdom. In addition,
Zarlink  maintains  process  development  centers  in each of its  manufacturing
facilities.

      As at March 30, 2001,  Semiconductor  employed  approximately 581 research
and  development  personnel  primarily based in Canada,  the United States,  the
United Kingdom and Sweden.

      Government Regulation

      Current  government  regulation  or policy does not  significantly  affect
Zarlink,  although there can be no assurance future regulatory  changes will not
affect the Company's business, financial condition or results of operation.

      Other Corporate Information

      Employees

      At May 30, 2001, Zarlink employed 2,238 persons.  Following the completion
of the  Company's  restructuring  program,  described  under Recent  Significant
Events,  Zarlink will employ  approximately 2,000 persons. As at March 30, 2001,
the Company  employed  2,558  persons  compared  to 5,688  persons at the end of
Fiscal 2000 and 6,216 at the end of Fiscal 1999.  The decrease in personnel from
the end of Fiscal 2000 to the end of Fiscal 2001 is principally  due to the sale
of the Systems business on February 16, 2001. Approximately 29% of the Company's
employees  are located in Canada,  52% in the United  Kingdom,  6% in the United
States,  and 13% in the rest of the world.  Zarlink  considers the  relationship
with its employees to be good.

      Certain of the Company's  employees  are covered by collective  bargaining
agreements or are members of a labor union.


                                       11
<PAGE>

      In the United Kingdom, approximately 64 employees of Zarlink Semiconductor
Limited  are  unionized.  The unions  representing  the  employees  include  the
Amalgamated  Electrical and Engineering  Union,  the  Manufacturing  Science and
Finance Union and the Transport and General Workers Union. Negotiations are held
annually in July.  Management  considers  the  Company's  relationship  with the
unions in the United Kingdom to be good.

      In Sweden, three unions represent approximately 195 employees.  The Metall
Industriarbetarforbundet union represents approximately 50 production employees;
the Svenska  Industriarbetarforbundet  union represents approximately 110 office
professional  employees;  and  the   Civilingenjorsforbundet   union  represents
approximately 35 other professional  employees.  It is common practice in Sweden
for the  national  unions  to  negotiate  minimum  standards  with the  employer
association,  supplemented by additional terms negotiated by the local branches.
Each  agreement  is for a term of three  years and  expires  on March 31,  2004.
Management considers the Company's  relationship with the unions in Sweden to be
good.

      Proprietary Rights

      The Company  owns many  patents  and has made  numerous  applications  for
patents  relating  to  communications   and  semiconductor  and   optoelectronic
technologies.  Management believes that the ownership of patents is an important
factor in exploiting  associated inventions and for providing protection for its
patentable technology in the areas referred to above.

      The "ZARLINK"  trademark and the Zarlink  corporate logo are registered in
Canada and the United States and have been registered in certain other countries
where Zarlink  conducts  business.  Most of the Company's  other  trademarks are
registered or applications for registration have been filed in various countries
where  management has determined such  registration to be advisable.  Management
believes  that the  Company's  trademarks  are  valuable  assets  and  generally
supports  applications  for  registration  for  marks  in  countries  where  the
assessment  of  potential  business  related to the sale of products or services
associated with such marks justifies such action.

      The  Company  also  owns  other  intellectual  property  rights  for which
registration  has not been  pursued.  In  addition  to  applying  for  statutory
protection for certain  intellectual  property rights, the Company takes various
measures  to  protect  such  rights,  including  maintaining  internal  security
programs and requiring certain nondisclosure and other provisions in contracts.

      As  is   the   case   with   many   companies   doing   business   in  the
telecommunications  industry, it is necessary or desirable from time to time for
the Company to obtain  licenses  from third parties  relating to technology  for
Zarlink's products and processes. No current license is considered by management
to be material to the  Company's  business,  financial  condition  or results of
operations.

      Forward-Looking Statements and Risk Factors

      Certain  statements  in this section and in other  sections of this Annual
Report on Form 10-K contain forward-looking statements within the meaning of the
Private  Securities  Litigation  Reform  Act of 1995 that are  based on  current
expectations,  estimates  and  projections  about  the  industries  in which the
Company operates, management's beliefs and assumptions made by management. Words
such as  "expects,"  "anticipates,"  "intends,"  "plans,"  "believes,"  "seeks,"
"estimates" and variations of such words and similar expressions are intended to
identify such forward-looking statements. These statements are not guarantees of
future  performance and involve certain risks,  uncertainties  and  assumptions,
which are  difficult  to predict.  Therefore,  actual  outcomes  and results may
differ  materially  from results  forecast or suggested in such  forward-looking
statements.  The  Company  undertakes  no  obligation  to  update  publicly  any
forward-looking  statements,  whether  as a result  of new  information,  future
events or otherwise.

      Such risks,  uncertainties  and  assumptions  include,  among others,  the
following:  increasing  price and  product/service  competition  by foreign  and
domestic competitors,  including new entrants; rapid technological  developments
and changes; the ability to continue to introduce  competitive new products on a
timely,  cost-effective  basis;  delays  in  product  development;  the  mix  of
products/services;  changes in  environmental  and other  domestic  and  foreign
governmental   regulations;   protection   and  validity  of  patent  and  other
intellectual  property  rights;  import  protection  and  regulation;   industry
competition;  industry  capacity and other industry  trends;  the


                                       12
<PAGE>

ability of the Company to attract and retain key employees;  demographic changes
and  other  factors  referenced  in  this  Form  10-K.  The  above  factors  are
representative of the risks, uncertainties and assumptions that could affect the
outcome of the forward-looking statements. In addition, such statements could be
affected by general  industry and market  conditions  and growth rates,  general
domestic and  international  economic  conditions  including  interest  rate and
currency  exchange  rate   fluctuations  and  other  risks,   uncertainties  and
assumptions, including the following:

      Technological Changes; Necessity to Develop and Introduce New Products

      The  markets  for the  Company's  products  are  characterized  by rapidly
changing  technology and evolving and competing industry  standards,  changes in
customers, emerging competition, frequent new product introductions and evolving
methods  used by carriers  and  business  enterprises  to manage  communications
networks.  The Company's future success will depend,  in part, on its ability to
use leading  technologies  effectively,  to  continue  to develop its  technical
expertise,  to maintain close working  relationships with its key customers,  to
develop new products that meet changing  customer needs, to advertise and market
its products and to influence  and respond to changing  industry  standards  and
other technological changes on a timely and cost-effective basis.

      There  can  be no  assurance  that  the  Company  will  be  successful  in
effectively  developing or using new  technologies,  developing  new products or
enhancing its existing  products on a timely basis or that such new technologies
or  enhancements  will  achieve  market  acceptance.  The  Company's  pursuit of
necessary  technological  advances may require  substantial time and expense and
there can be no assurance that the Company will succeed in adapting its products
or business to alternate technologies. Failure of the Company, for technological
or other  reasons,  to develop and introduce  new or enhanced  products that are
compatible  with  industry   standards  and  that  satisfy  customer  price  and
performance  requirements  would have a material adverse effect on the Company's
business, financial condition and results of operations.

      In addition,  the Company's competitors may offer enhancements to existing
products or offer new products based upon new technologies,  industry  standards
or customer  requirements,  that have the  potential to replace or provide lower
cost  alternatives to the Company's  products,  which could render the Company's
existing and future products obsolete,  unmarketable or inoperable. There can be
no  assurance  that the Company  will be able to develop new products to compete
with new  technologies  on a timely  basis or in a  cost-effective  manner.  See
"Business - Research and Development".

      Competition

      The markets for the Company's  products are also  characterized by intense
competition.  Competition  could  further  increase if new  companies  enter the
market or if existing competitors expand their product lines or upgrade existing
products to accommodate  new  technologies  and features.  Many of the Company's
current and potential  competitors have a longer  operating  history and greater
technical,  manufacturing,  financial and marketing  resources  than the Company
and, as a result,  may be able to adapt more quickly or devote greater resources
to changing  technological  requirements,  customer  demands and market  trends.
Increased competition may result in price reductions,  reduced gross margins and
loss of market share,  any of which would have a material  adverse effect on the
Company's business,  financial condition and results of operations.  The Company
believes  that its ability to compete  successfully  depends upon  elements both
within and outside its control,  including  successful and timely development of
new products  and  manufacturing  processes,  product  performance  and quality,
manufacturing  yields and  product  availability,  customer  services,  pricing,
industry trends and general economic trends.  There can be no assurance that the
Company will continue to compete successfully as to these factors. See "Business
- Competition".

      Dependence on Key Personnel

      The  Company's  future  success  depends  to a  significant  extent on the
continued  service of its key  technical  and  management  personnel  and on its
ability to  continue  to attract and retain  qualified  employees,  particularly
those  highly  skilled  design,  process  and  test  engineers  involved  in the
development of mixed signal  products and processes.  The  competition  for such
personnel is intense. The loss of the services of the Company's employees or the
Company's failure to attract, retain and motivate qualified personnel could have
a material  adverse  effect


                                       13
<PAGE>

on the Company's  business,  financial  condition or results of operations.  The
Company does not have any employment agreements with its employees.

      Intellectual Property Protection

      The Company's  success and future revenue growth will depend,  in part, on
its ability to protect its intellectual  property.  The Company relies primarily
on patent, copyright,  trademark and trade secret laws, as well as nondisclosure
agreements  and other  methods  to  protect  its  proprietary  technologies  and
processes.  There can be no assurance that such measures will provide meaningful
protection for the Company's proprietary technologies and processes. The Company
has been issued many patents,  principally in the United States,  Canada and the
United   Kingdom,   and  has  filed  numerous   patent   applications   in  such
jurisdictions.  There can be no assurance  that any patent will issue from these
applications or future  applications or, if issued, that any claims allowed will
be sufficiently broad to protect the Company's  technology.  In addition,  there
can be no assurance  that any existing or future patents will not be challenged,
invalidated or circumvented or that any right granted  thereunder  would provide
meaningful  protection or a competitive advantage to the Company. The failure of
any patents to provide  protection  to the  Company's  technology  would make it
easier for the Company's competitors to offer similar products. The Company also
generally  enters  into  confidentiality   agreements  with  its  employees  and
strategic  partners and generally  controls  access to and  distribution  of its
documentation and other proprietary information.  Despite these precautions,  it
may be  possible  for a third  party  to copy or  otherwise  obtain  and use the
Company's  products,  services  or  technology  without  authorization,  develop
similar  technology  independently  or design around the Company's  patents.  In
addition,  effective  copyright,  trademark and trade secret  protection  may be
unavailable or limited in certain  foreign  countries.  Certain of the Company's
customers have entered into agreements  with the Company  pursuant to which such
customers  have the right to use the  Company's  proprietary  technology  in the
event the Company  defaults in its contractual  obligations,  including  product
supply  obligations,  and fails to cure the default within a specified period of
time. Moreover,  the Company often incorporates the intellectual property of its
strategic customers into its design and the Company has certain obligations with
respect to the non-use and non-disclosure of such intellectual  property.  There
can  be  no   assurance   that  the  steps  taken  by  the  Company  to  prevent
misappropriation or infringement of the intellectual  property of the Company or
its customers will be successful.  Moreover,  litigation may be necessary in the
future to enforce the Company's  intellectual  property  rights,  to protect the
Company's  trade  secrets  or  to  determine  the  validity  and  scope  of  the
proprietary  rights of others,  including its customers.  Such litigation  could
result in substantial  costs and diversion of the Company's  resources and could
have a material adverse effect on the Company's  business,  financial  condition
and results of operations.

      Intellectual Property Claims

      The  segment of the  semiconductor  market  that  includes  the  Company's
products has been  characterized by extensive  litigation  regarding patents and
other intellectual property rights. As is common in the semiconductor  industry,
the  Company  has been in the past and may in the future be  notified  of claims
that its products or services are subject to patents or other proprietary rights
of third parties.  Although the Company 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 the Company.  Periodically, the Company negotiates with third
parties to establish patent license or cross-license agreements. There can be no
assurance  that  current  or future  negotiations  will  result  in the  Company
obtaining  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,  litigation  could  result.  Any  litigation  or
interference  proceedings could result in substantial expense to the Company and
significant  diversion  of  effort by the  Company's  technical  and  managerial
personnel.  An adverse  determination  in such  litigation or  proceeding  could
prevent the Company  from making,  using or selling  certain of its products and
subject  the Company to damage  assessments,  all of which could have a material
adverse  effect on the Company's  business,  financial  condition and results of
operations.


                                       14
<PAGE>

      Acquisitions

      The Company may make strategic  acquisitions and investments or enter into
joint ventures or strategic  alliances with other companies.  Such  transactions
entail many risks, including the following:  inability to integrate successfully
such  companies'  personnel  and  businesses;  inability to realize  anticipated
synergies,  economies of scale or other value associated with such transactions;
diversion of  management's  attention and  disruption  of the Company's  ongoing
business; inability to retain key technical and managerial personnel;  inability
to establish and maintain uniform standards,  controls, procedures and policies;
and impairment of relationships  with employees and customers as a result of the
integration of new personnel. In addition, future acquisitions or investments by
the Company may result in the issuance of additional  equity or debt securities,
significant  borrowings,  significant  one-time  write-offs  and the creation of
goodwill  or other  intangible  assets.  Failure to avoid  these or other  risks
associated  with such  business  combinations,  investments,  joint  ventures or
strategic  alliances  could  have a  material  adverse  effect on the  Company's
business, financial condition and results of operations.

      Significant International Operations

      Approximately  97% of the Company's  sales from  continuing  operations in
Fiscal 2001 were  derived from sales in markets  outside  Canada and 58% outside
North  America.  The Company  expects sales from foreign  markets to continue to
represent  a  significant  portion of total  sales.  The Company  operates  four
manufacturing  facilities as well as sales and technical support service centers
in Europe and Asia.  Certain  risks are  inherent in  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.  There can be no assurance  that the above factors will not have a
material  adverse  effect on the  Company's  business,  financial  condition and
results of operations.

      Foreign  Exchange and Interest Rate Exposure and  Concentration  of Credit
Risk

      Because  substantial  portions of the Company's sales,  costs of sales and
other expenses are denominated in U.S. dollars, U.K. pounds sterling and several
other currencies, the Company's results of operations are subject to the effects
of exchange  rate  fluctuations  of those  currencies  relative to the  Canadian
dollar.  Changes in currency  exchange rates may also affect the relative prices
at which  the  Company  and its  competitors  sell  their  products  in the same
markets.  The Company uses financial  instruments,  principally forward exchange
contracts,  in its  management  of foreign  currency  exposures on estimated net
foreign currency cash requirements and on certain significant transactions, over
the ensuing 12 months.  All foreign exchange  contracts are marked to market and
the resulting  gains and losses are deferred and included in the  measurement of
the related  transactions when they occur. These contracts primarily require the
Company to purchase and sell  certain  foreign  currencies  with or for Canadian
dollars at contractual rates.

      Several major financial  institutions are  counterparties to the Company's
financial  instruments.  It is the  Company's  practice to monitor the financial
standing  of the  counterparties  and limit the  amount of  exposure  to any one
institution.  The  Company  may be  exposed  to a  credit  loss in the  event of
nonperformance  by the  counterparties  of  these  contracts.  With  respect  to
accounts receivable,  concentration of credit risk is limited due to the diverse
areas covered by the Company's  operations.  The Company has credit  evaluation,
approval and monitoring  processes  intended to mitigate potential credit risks.
Anticipated  bad debt loss has been  provided for in the  allowance for doubtful
accounts.

      The Company's  operations  could be adversely  affected if it is unable to
guard against currency, interest and credit risks in the future. There can be no
assurance that foreign  currency and interest rate  fluctuations  or credit risk
will not have a material  adverse  effect on the Company's  business,  financial
condition and results of operations.

      Environmental Regulations

      The  Company is subject to a variety  of  federal,  state 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


                                       15
<PAGE>

the Company believes that it has complied with these laws, rules and regulations
in all material respects and to date has not been required to take any action to
correct  any  noncompliance,  the  failure  to  comply  with  present  or future
regulations  could result in fines being  imposed on the Company,  suspension of
production  or a cessation of  operations.  Such  regulations  could require the
Company to acquire significant  equipment or to incur substantial other expenses
to comply with environmental regulations.  Any failure by the Company to control
the use,  disposal  or storage  of or  adequately  restrict  the  discharge  of,
hazardous  substances could subject the Company to future  liabilities and could
have a material adverse effect on the Company's  business,  financial  condition
and results of operations.

      Regulatory Requirements

      See "Business-- Competition", "--Government Regulation".

      European Union and the Euro

      See "Management's Discussion and Analysis--European Union and the Euro".

      Other Factors

      The Company further  cautions that the factors referred to above and those
referred  to as  part  of  particular  forward-looking  statements  may  not  be
exhaustive  and that new risk  factors  emerge  from time to time in its rapidly
changing business.

      Item 2. Properties

      The Company  owns two  facilities  in the United  Kingdom:  one in Swindon
totaling 168,000 square feet ("sf") used for wafer  fabrication,  design,  sales
and  administration,  of which 22,000 sf is sub-leased to July 2008;  and one in
Plymouth totaling 200,000 sf used for wafer fabrication and design.  The Company
also  owns a  333,000  sf  facility  in  Jarfalla,  Sweden,  that  is  used  for
semiconductor  manufacturing,  R&D and  administration,  of which  27,000  sf is
vacant and is to be  sub-leased,  and 58000 sf is currently  sub-leased to March
2005.

      Zarlink owns one facility in Bromont,  Canada,  totaling  107,000 sf, used
for semiconductor manufacturing.

      Zarlink is in the process of  constructing a 103,000 sf office building in
Ottawa, Canada. The building is expected to be completed in September,  2001 and
will be used for design, sales, and administration.

      The Company  occupies  149,000 sf of leased space in Ottawa,  Canada.  The
Ottawa  leased  space  consists  of  two   interconnected   buildings  used  for
administration, and integrated circuit design and testing.

      The Company  occupies  33,000 sf of leased  space in  Portskewett,  Wales,
United   Kingdom,   that  is  used  for  hybrid   modules,   manufacturing   and
administration.

      The Company  also leases and  operates  23 regional  facilities,  totaling
150,000 sf, primarily dedicated to design and sales. A geographical breakdown of
these facilities is as follows:  United States, 10 locations totaling 50,000 sf;
United Kingdom,  5 locations totaling 73,000 sf; France, 1 location of 4,000 sf;
Holland,  1 location of 2,000 sf; 6 locations in the Asia Pacific region (China,
Japan, Korea, Singapore, Taiwan (2)) totaling 21,000 sf.

      See  "Business-Manufacturing"  for additional  information  concerning the
Company's manufacturing facilities.

      Management believes the Company's facilities are adequate for its business
needs for the foreseeable future.


                                       16
<PAGE>

      Item 3. Legal Proceedings

      Zarlink is a defendant  in a number of  lawsuits  and party to a number of
other proceedings that have arisen in the normal course of its business.  In the
opinion of the  Company's  in-house  legal  counsel,  any monetary  liability or
financial  impact of such  lawsuits and  proceedings  to which  Zarlink might be
subject  after final  adjudication  would not be  material  to the  consolidated
financial position of the Company or the results of its operations.

      Item 4. Submission of Matters To a Vote of Security Holders

      None.

                                     PART II

      Item 5. Market for  Registrant's  Common  Equity and  Related  Stockholder
Matters

      Common Share Information

      Principal Markets

                            COMMON SHARE INFORMATION

      PRINCIPAL MARKETS

      The  Toronto  Stock  Exchange  and the New  York  Stock  Exchange  are the
principal markets on which the Company's shares are traded.  The shares are also
listed on the London Stock Exchange.  The Company's  shares were first listed on
The Toronto Stock Exchange on August 13, 1979 and on the New York Stock Exchange
on May 18, 1981. The stock symbol of the Company's  shares is MLT. The following
table  sets forth the high and low sales  prices for the common  shares for each
quarter of the last two fiscal years.

      Toronto Stock Exchange
      (Canadian Dollars)

                                       2001                      2000
                              ---------------------     ---------------------
                                 High       Low            High       Low
                              ---------------------     ---------------------

      1st Quarter               40.4000    24.3000        11.0500     7.3500
      2nd Quarter               37.6500    24.9000        12.6000     9.7000
      3rd Quarter               31.3500    10.9000        19.7500    10.2500
      4th Quarter               17.1000    11.7500        43.2500    18.6000

      New York Stock Exchange
      (U.S. Dollars)

                                       2001                      2000
                              ---------------------     ---------------------
                                 High       Low            High       Low
                              ---------------------     ---------------------

      1st Quarter               27.1880    16.2500         7.3750     5.0625
      2nd Quarter               25.4375    16.8130         8.5000     6.4375
      3rd Quarter               20.6250     7.1250        13.3125     7.0000
      4th Quarter               11.3125     7.5500        30.0625    13.0000

      SHAREHOLDERS

      There were 3,997 common shareholders of record as at May 30, 2001.


                                       17
<PAGE>

      DIVIDEND POLICY

      The Company has not declared or paid any  dividends  on its common  shares
and the Board of Directors  anticipates  that,  with the  exception of preferred
share  dividend  requirements,  all  available  funds  will  be  applied  in the
foreseeable  future to finance  growth and  improve  the  Company's  competitive
position and profitability.

      Pursuant  to the  terms of the  $2.00  Cumulative  Redeemable  Convertible
Preferred Shares,  1983 R&D Series (Preferred Shares - R&D Series),  the Company
will not be permitted to pay any dividends on common shares unless all dividends
accrued on the  preferred  shares have been  declared  and paid or set apart for
payment.

      Dividends  paid by the  Company to common  shareholders  not  resident  in
Canada would generally be subject to Canadian  withholding tax at the rate of 25
percent or such lower rate as may be provided  under  applicable  tax  treaties.
Under  the  Canada - United  States  tax  treaty,  the rate of  withholding  tax
applicable  to such  dividends  paid to  residents  of the United  States  would
generally be 15 percent.

      Item 6. Selected Financial Data

      (in millions of Canadian dollars, except per share amounts)

      The following table is derived from the consolidated  financial statements
included  elsewhere  herein,   which  have  been  prepared  in  accordance  with
accounting  principles  generally  accepted  in Canada  (Canadian  GAAP).  These
principles also conform,  in all material respects,  with accounting  principles
generally  accepted in the United States (U.S. GAAP) and the requirements of the
SEC,  except as more fully  described in note 23 to the  consolidated  financial
statements.

<TABLE>
<CAPTION>
                                                                        Fiscal Year Ended
                                                         (at the end of fiscal year for balance sheet data)
                                                      ------------------------------------------------------
Canadian GAAP                                            2001       2000       1999       1998        1997
                                                      ------------------------------------------------------
<S>                                                    <C>        <C>         <C>        <C>        <C>
Income Statement Data:
  Revenue                                              $ 674.0    $ 602.8     $557.7     $314.6     $221.0
  Gross margin percentage                                  50%        47%        43%        53%        51%
  Gross research and development expense                 130.5       98.4      103.3       38.9       20.4
  Net income (loss) from continuing operations         (330.4)       37.6       31.9       55.3       38.4
  Net income (loss)                                    (317.0)       56.0       26.2       91.9       38.0
  Net income (loss) per common share from
     continuing operations - basic                     $(2.73)      $0.30      $0.25      $0.48      $0.33
  Net income (loss) per common share
     Basic                                              (2.62)       0.46       0.20       0.82       0.32
     Fully diluted                                      (2.62)       0.45       0.20       0.80       0.32
  Weighted average common shares                         122.2      114.7      114.0      107.8      107.3
     outstanding
Balance Sheet Data:
  Working capital                                       $368.3     $390.2     $337.0     $245.9     $206.3
  Total assets                                           835.6    1,225.5    1,300.3    1,252.0      584.8
  Current portion of long-term debt                        9.2       57.9       37.6       40.3       14.8
  Long-term debt                                           7.6      217.5      276.5      379.6       43.0
  Pension liability                                       17.2       17.5       13.2       12.2       11.3
  Shareholders' equity
     (including redeemable preferred shares)             627.6      635.8      647.3      435.5      339.5
</TABLE>


                                       18
<PAGE>

 <TABLE>
<CAPTION>
                                                                              Fiscal Year Ended
                                                               (at the end of fiscal year for balance sheet data)
                                                            -------------------------------------------------------
U.S. GAAP and SEC Requirements                                 2001         2000       1999        1998      1997
                                                            -------------------------------------------------------
<S>                                                         <C>          <C>         <C>         <C>       <C>
Income Statement Data:
  Net income (loss) from continuing operations              $ (417.5)        50.6      (0.5)       $55.8     $41.4
  Net income (loss)                                           (404.8)        74.1      (9.4)        89.9      41.0
Net income (loss) per common share from continuing
operations
     Basic                                                     (3.47)        0.41     (0.03)        0.49      0.36
     Diluted                                                   (3.47)        0.40     (0.03)        0.48      0.35
  Net income (loss) per common share
     Basic                                                     (3.37)        0.62     (0.11)        0.80      0.35
     Diluted                                                   (3.37)        0.61     (0.11)        0.80      0.35
Balance Sheet Data:
  Working capital                                           $   355.8    $  389.1   $  328.2    $  278.2  $  208.4
  Total assets                                                  739.4     1,214.0    1,278.9     1,250.0     595.0
  Redeemable preferred shares                                    33.8        34.2       34.4        34.4      34.4
  Shareholders' equity
     Common shares                                             1076.8       763.1      772.4       606.0     599.2
     Contributed surplus                                           --          --        2.5         2.5       2.5
     Deficit                                                  (584.0)      (171.2)   (221.6)     (209.0)   (292.9)
     Translation account                                          4.3        (3.4)      28.2         5.8       2.5
</TABLE>

      See note 19 to the consolidated  financial  statements for a discussion on
the effect of the discontinued operations on Fiscal 2001, 2000 and 1999 results.

                       SUPPLEMENTARY FINANCIAL INFORMATION
           (in millions of Canadian dollars, except per share amounts)

                                   (Unaudited)

      Selected Quarterly Financial Data
      (in accordance with Canadian generally accepted accounting principles)

<TABLE>
<CAPTION>
FISCAL 2001                                                First       Second       Third       Fourth       Full
(Unaudited)                                               Quarter      Quarter     quarter     Quarter       Year
                                                       ------------------------------------------------------------
<S>                                                        <C>         <C>         <C>          <C>          <C>
Revenue from continuing operations                         $183.8      $ 194.3     $ 171.1      $124.8       $674.0
Gross margin from continuing operations                      97.0         99.6        90.2        51.8        338.6
Gross margin percentage                                       53%          51%         53%         42%          50%
Net income (loss) from continuing operations                 27.5          1.2      (25.6)     (333.5)      (330.4)
Net income (loss)                                            21.5          6.6      (34.2)     (310.9)      (317.0)
Net income (loss)  per common share from continuing          0.23           --      (0.21)      (2.65)       (2.73)
operations - basic
Net income (loss) per common share - basic                   0.18         0.05      (0.28)      (2.47)       (2.62)
</TABLE>


                                       19
<PAGE>

<TABLE>
<CAPTION>
FISCAL 2000                                                First       Second       Third       Fourth       Full
(Unaudited)                                               Quarter      Quarter     quarter     Quarter       Year
                                                       ------------------------------------------------------------
<S>                                                        <C>         <C>         <C>          <C>          <C>
Revenue from continuing operations                         $125.1       $139.4      $163.4      $174.9       $602.8
Gross margin from continuing operations                      49.7         60.3        78.5        95.7        284.2
Gross margin percentage                                       40%          43%         48%         55%          47%
Net income (loss) from continuing operations                (4.1)          3.0        10.2        28.5         37.6
Net income (loss)                                           (4.6)         12.5        16.6        31.5         56.0
Net income (loss) per common share from                    (0.04)         0.02        0.08        0.24         0.30
 continuing operations - basic
Net income (loss) per common share - basic                 (0.05)         0.10        0.14        0.27         0.46
</TABLE>

Net income (loss) from continuing  operations  previously  reported in Form 10-Q
differ  from  amounts  reported  above as a result  of the  reclassification  of
discontinued operations.  The reclassification resulted in an increase of income
from  continuing  operations of $6.0 in the first quarter and a decrease of $5.4
in the second  quarter of Fiscal  2001.  In Fiscal  2000,  the  reclassification
resulted  in an increase of income  from  continuing  operations  of $0.4 in the
first quarter and decreases of $9.5,  $14.4 and $3.0 in the second,  third,  and
fourth quarters, respectively, of that year.

      Item 7.  Management's  Discussion and Analysis of Financial  Condition and
Results of Operations

      (in millions of Canadian dollars, except per share amounts)

      On May 29, 2001, the Company adopted Zarlink Semiconductor  ("Zarlink") as
the operating name of Mitel  Corporation.  The Company  anticipates that it will
formally  change  its legal  name to  Zarlink  Semiconductor  Inc.,  subject  to
shareholder  approval at the Company's annual general  shareholders'  meeting on
July 25, 2001. The Company was previously a two-business  organization  involved
in communications  systems and  semiconductors  and has transitioned to become a
focused  semiconductor  company (see Recent  Significant  Events).  Zarlink is a
global  provider of  semiconductors  for voice,  data and video networks and for
medical   applications.    Zarlink's   semiconductor   Communications   business
specializes in broadband connectivity solutions over wired, wireless and optical
media.  Zarlink's  semiconductor Medical business provides applications specific
integrated  circuit  ("ASIC")  solutions for  applications  such as  pacemakers,
hearing aids and portable instruments.  The Company presently employs some 2,000
people worldwide, including over 500 designers, in its semiconductor business.

      The  following  discussion  and  analysis  explains  trends  in  Zarlink's
financial  condition and results of  operations  for the fiscal year ended March
30, 2001,  compared  with the two previous  fiscal  years.  This  discussion  is
intended to help  shareholders  and other  readers  understand  the  dynamics of
Zarlink's business and the key factors underlying its financial results.  During
the third quarter of Fiscal 2001, the Company began to report the results of its
Communications  Systems  business  ("Systems") as a discontinued  operation (see
Recent  Significant   Events).   Accordingly,   the  discussion,   figures,  and
comparative figures were reclassified to conform to the presentation  adopted in
Fiscal 2001. The consolidated  financial  statements,  notes to the consolidated
financial statements and supplementary  information  constitute an integral part
of, and should be read in conjunction  with,  this  Management's  Discussion and
Analysis.  Readers may wish to make  reference  to the  glossary of terms in the
Company's  Annual Report on Form 10-K for the year ended March 30, 2001 as filed
with  the  U.S.   Securities   and  Exchange   Commission  to  assist  in  their
understanding  of this  discussion.  Net income for the three fiscal years ended
March 30,  2001;  March 31,  2000;  and March 26, 1999,  as  determined  by U.S.
generally accepted accounting  principles,  is detailed and discussed in note 23
to the consolidated financial statements.

      RECENT SIGNIFICANT EVENTS

      Appointment of new President and Chief Executive Officer

      Following the Company's transformation to a focused semiconductor company,
the Board of Directors announced on March 21, 2001 the appointment of Patrick J.
Brockett as the Company's  President and Chief Executive  Officer.  Mr. Brockett
joins Zarlink after a long and distinguished  career at National  Semiconductor.
Mr. Brockett relocated to the Company's  headquarters in Ottawa, Canada in April
2001.  The  Company's  previous


                                       20
<PAGE>

President and CEO - Kirk K. Mandy - was elected Vice Chairman of the Board.

      Recent Industry Slow Down

Beginning  late  in  the  third  quarter  of  Fiscal  2001,  the  communications
semiconductor  industry experienced a significant downturn in sales.  Management
believes that a variety of factors have combined to create market  uncertainties
that will likely  extend  through  part of the 2002 fiscal year.  These  factors
include a large inventory build-up in the  telecommunications and data equipment
sectors,  a reduced  demand  for  infrastructure  equipment  from the  telephone
companies,  especially by Competitive Local Exchange  Carriers  ("CLECs") in the
United States,  and a slowing of the growth rate of the U.S. and world economies
in general.

Restructuring Program Implemented in the First Quarter of Fiscal 2002

In response to the industry downturn, the Company announced on May 10, 2001 that
it had implemented a cost-containment  plan in order to preserve cash resources.
The  cost-containment  plan includes a workforce  reduction of 17 percent of the
Company's  total  employee  base,  or  approximately  430  employees   globally.
Accordingly,   the  Company  will  record  a  pre-tax  restructuring  charge  of
approximately  $37.0 to cover the workforce  reductions  that will take place in
the first quarter of Fiscal 2002.  The workforce  resizing is in addition to a 5
percent  workforce  reduction that was completed in the fourth quarter of Fiscal
2001.

Sale of Systems Business and the name "Mitel" Completed

On November 3, 2000, the Company announced that its Board of Directors  intended
to separate the Company's  Systems segment from its Semiconductor  segment.  The
decision to separate Systems was developed in response to increasing differences
in customer types,  technology roadmaps,  and investment  requirements and, most
importantly,  the  competitive  needs  of  the  two  businesses.  As  a  result,
management  believes  the Company  can better  focus its  resources  and efforts
toward  solidifying its leadership  position in the  communications  and medical
semiconductor industries.

On  February  16,  2001,  the  Company  completed  the  sale  of  its  worldwide
communications  systems  business,  including  the name  "Mitel",  to a  company
controlled by Dr. Terence H. Matthews.  As part of the transaction,  the Company
also  transferred most of its Ottawa,  Canada real estate to Dr.  Matthews.  The
Company  received $302.3 in cash proceeds,  after  adjustments,  in exchange for
selling a 90 percent ownership interest in the Company's  communications systems
business and most of its real property in Ottawa, Canada.

Investment in a New Photonics Venture

On January  15,  2001,  the  Company  announced  that it  established  an equity
interest in a new  privately-held  photonics company that will focus on reducing
the cost of bandwidth distribution in optical networks. The new company - called
Optenia,  Inc.- combines the financial,  technological  and human resources from
Zarlink,  the National Research Council ("NRC") of Canada,  and other investors.
Mr. Moris Simson, the Company's former Senior Vice President, Corporate Strategy
and  Development,  joined  Optenia,  Inc. as its President  and Chief  Executive
Officer.

Optenia's  technological  foundation is based on joint research  between Zarlink
and the NRC in the  area of dense  wavelength  division  multiplexing  ("DWDM").
Management  believes  that  Zarlink's  investment  in Optenia will  optimize and
accelerate  product  development  as well as  establish  new  avenues  for other
research and development.

Zarlink's  equity  position  approximated  46  percent  at  March  30,  2001 and
represented a cash  contribution  of $7.6, an in-kind  contribution of equipment
with a carrying value of approximately  $1.0 and skilled  personnel.  Management
expects that its equity position will be reduced  proportionally  as other third
party  investments  are finalized.  Zarlink's  Bromont  facility will maintain a
strategic   manufacturing   agreement  with  Optenia  that  encompasses  foundry
arrangements and joint development of critical microfabrication techniques.


                                       21
<PAGE>

Acquisition of Vertex Networks, Incorporated

On July 28,  2000,  the Company  acquired  100  percent of the capital  stock of
privately-held Vertex Networks, Incorporated ("Vertex"), for total consideration
of  approximately  11 million  common  shares newly issued by the Company with a
then fair value of $300.7.  The  acquisition  was  accounted for by the purchase
method.  Accordingly,  Vertex's  results from  operations  were  included in the
consolidated  accounts  of  the  Company  from  the  date  of  acquisition.  The
integration  of Vertex with the Company was  essentially  completed by March 30,
2001.

In the fourth quarter of Fiscal 2001, the Company reviewed the carrying value of
the acquired  intangible assets associated with Vertex.  Based on an analysis of
estimated future undiscounted cash flows and current and expected adverse market
conditions,  the Company  determined  that the  carrying  value of the  acquired
intangible  assets was impaired.  Accordingly,  the Company recorded a charge of
$146.7 in the fourth  quarter of Fiscal 2001 to write down the carrying value of
the goodwill relating to Vertex. As at March 30, 2001, the carrying value of the
acquired  intangible  assets related to Vertex amounted to $36.9 and is expected
to be recovered from future cash flows.

Vertex is a fabless  semiconductor  company providing  high-performance  network
packet  processing,  switching and routing silicon  solutions for the enterprise
and wide  area  network  ("WAN")  access  markets.  Vertex  provides  integrated
circuits  for Layer 3 Internet  Protocol  ("IP")  routing  switches and develops
chipsets,  reference  designs,  and software for  intelligent  packet  switching
applications.  Vertex's products encompass Quality of Service ("QoS")-enabled IP
switching for enterprise communications, WAN traffic concentration, and fiber to
the home  ("FTTH")  markets.  Vertex,  which was  founded  in 1995,  is based in
Irvine,  California,  United  States,  and  has  design  centers  in  San  Jose,
California,  and Taiwan. Vertex employed  approximately 75 people as at the date
of acquisition.

Management  believes the  acquisition  of Vertex will allow Zarlink to enter the
packet processing and switch fabric market to offer system-wide,  IP-based,  QoS
for  convergent  networks.  QoS is a term  that  qualifies  certain  performance
attributes  of voice  transmission  over IP  networks,  and  usually  refers  to
measures of delay,  latency and jitter.  Zarlink's focus will be to deliver wire
speed  non-blocking  scalability  for the edge of WANs,  providing  the  maximum
packet-switching  throughput  required by systems designers and their customers.
Management  believes the approach will introduce Local Area Network ("LAN") cost
structures  into WAN  applications to provide a more  competitive  solution that
accommodates diverse switching technologies in use at the edge of the network.

Common Share Repurchase Program

On June 7, 2001, the Company announced its Board of Directors had authorized the
continuation  of its normal  course  issuer  bid  program  to  repurchase  up to
6,308,907  common shares,  representing  5 percent of 126,178,148  common shares
issued and  outstanding  at May 28, 2001.  The purchases  will take place on the
open  market  through  the  stock  exchanges  of New  York  and  Toronto  over a
twelve-month  period beginning on June 9, 2001 and ending on June 8, 2002, or on
such  earlier date as the Company may  complete  its  purchases  pursuant to the
notice of  intention to make a normal  course  issuer bid filed with The Toronto
Stock Exchange.  The Company,  which intends to cancel the  repurchased  shares,
believes that at present no director,  senior  officer or insider of the Company
intends to sell any common  shares  under this  program.  No common  shares were
repurchased  under the previous  program  during the period from June 9, 2000 to
June 8, 2001.

RESULTS OF CONTINUING OPERATIONS

Business Segment Review

Zarlink's continuing  operations as a semiconductor company are comprised of two
reportable  business  segments - Communications  and Medical.  Zarlink sells its
products  through both direct and  indirect  channels of  distribution.  Factors
affecting the choice of distribution include,  among others,  end-customer type,
the level of  product  complexity  and  integration  requirements,  the stage of
product  introduction,  geographic presence and location of markets,  and volume
levels.


                                       22
<PAGE>

Zarlink's   Communications   business  specializes  in  broadband   connectivity
solutions over wired, wireless and optical media. Network access and user access
products  represent the two major growth  categories  in this business  segment.
Network  access  products  include  products  that  provide  connectivity  to  a
network's   core  backbone  such  as  feeder,   aggregation   and   transmission
applications and products that address the  multi-protocol  physical and network
layers. In simple terms, network access  semiconductor  products connect network
equipment together.  User access products allow users to connect to the network.
These  products   include   wireless  (for  example,   cellular   chipsets)  and
infotainment  applications  (for  example,  set top boxes and digital  TV).  The
Communications business also includes custom products that involve the design of
custom ASICs as well as custom foundry services for external parties.

Zarlink's  Medical  business  provides ASIC solutions for  applications  such as
pacemakers, hearing aids and portable instruments.

<TABLE>
<CAPTION>
(millions Cdn$, except per share amounts)                  2001       2000       1999
                                                      -----------------------------------
<S>                                                     <C>           <C>        <C>
Consolidated revenue from continuing operations         $   674.0     $602.8     $557.7
Communications segment revenue                              625.4      562.4      509.8
Medical segment revenue                                      48.6       40.4       47.9

Operating income (loss) from continuing operations        (312.9)       68.8       52.8
Communications segment operating income                      72.6       72.4       37.8
Medical segment operating income                              1.4       10.4        9.0
Unallocated (costs) gain                                  (386.9)     (14.0)        6.0

Net income (loss) from continuing operations              (330.4)       37.6       31.9
Net income (loss) per common share from
  continuing operations - Basic                            (2.73)       0.30       0.25
Net income (loss)                                         (317.0)       56.0       26.2
Net income (loss) per common share - Basic                 (2.62)       0.46       0.20
Weighted average common shares outstanding                  122.2      114.7      114.0
</TABLE>

Revenue from continuing  operations for the year totaled  $674.0,  up 12 percent
from $602.8 in Fiscal 2000 and up 21 percent from $557.7 in Fiscal 1999.

Although the Company  continues to benefit from a  significant  amount of design
wins,  sales  were  adversely   affected  by  customer  and  channel   inventory
adjustments  in its network and user access  business  during the second half of
Fiscal  2001.  During  this  period the  Company,  and the  industry in general,
experienced  a reduction in the orders  normally  booked and shipped in the same
quarter ("turns"),  and order  re-scheduling and  cancellations,  both resulting
from market  uncertainties.  Management  believes that this  industry  trend may
continue through most of calendar 2001.

In  addition  to  the  above  market  conditions,  the  Company's  results  from
continuing operations were negatively influenced by two other major factors. The
first was the  Company's  continuing  significant  investment  in  research  and
development, principally in the areas of network and user access, to develop and
launch new  products  supporting  broadband  communications.  The second  factor
related to steps  underway to establish  the Company as a focused  semiconductor
enterprise,  resulting in higher selling and administrative expenses during this
transition.

In Fiscal 2001, the Company  recorded a net loss from  continuing  operations of
$330.4,  or $2.73 per share,  after the amortization of acquired  intangibles of
$94.6 and a pre-tax  charge for the  impairment of goodwill and its  fabrication
facilities  totaling  $292.3.  This  compares  to  net  income  from  continuing
operations of $37.6, or $0.30 per share, in Fiscal 2000,  after the amortization
of acquired  intangibles of $14.0.  In Fiscal 1999,  net income from  continuing
operations  was $31.9,  or $0.25 per share,  and included a pre-tax gain of $6.0
relating to the sale of certain non-strategic assets.


                                       23
<PAGE>

Communications Segment
(millions of Canadian dollars)                  2001        2000        1999
                                              ----------------------------------
Communications revenue by product:
  Network Access                                 $284.2      $253.6      $202.4
  User Access                                     131.2       122.8       157.9
  Custom Products                                 210.0       186.0       149.5
                                              ----------------------------------
Total Communications                             $625.4      $562.4      $509.8
                                              ==================================

Communications revenue mix by product:
  Network Access                                     45%         45%         40%
  User Access                                        21%         22%         31%
  Custom Products                                    34%         33%         29%
                                              ----------------------------------
Total Communications                                100%        100%        100%
                                              ==================================

Communications operating income                  $ 72.6      $ 72.4      $ 37.8
                                              ==================================

Communications sales for Fiscal 2001 reached $625.4, representing an increase of
11 percent over the $562.4 achieved in Fiscal 2000. The increase was principally
due to higher  demand  by  telecom  and data  networking  manufacturers  for the
Company's network access and custom products.

In Fiscal 2001,  Communications operating income was $72.6, just slightly higher
than the $72.4  recorded  last year.  Despite  higher sales,  profitability  was
greatly  offset by a  significant  increase  in R&D  spending  in  Fiscal  2001,
particularly in IP Switching as a result of the acquisition of Vertex.

Fiscal 2000 sales and operating  income  increased  over Fiscal 1999 due to high
demand for network access products by telecom and data networking manufacturers.

Medical Segment

(millions of Canadian dollars)                  2001         2000         1999
                                              ----------------------------------
Revenue:
  Medical                                      $  48.6      $  40.4      $  47.9
                                              ==================================
Medical operating income                       $   1.4      $  10.4      $   9.0
                                              ==================================

Medical  sales  benefited  from  favorable  conditions in the industry in Fiscal
2001. For the year,  sales reached  $48.6, a 20 percent  increase over the $40.4
achieved  in Fiscal 2000 due to growing  markets and new product  introductions.
For the year,  Medical recorded an operating income of $1.4 down from $10.4 last
year as a result of  unfavorable  manufacturing  yields and higher  research and
development expenses.

Compared to Fiscal 1999, Fiscal 2000 medical sales declined while production was
transferred  from  the  Company's  fab in  Sweden  to its more  modern  plant in
Plymouth and while newly introduced products began to gain customer  acceptance.
Despite the lower sales,  profitability improved in Fiscal 2000 over Fiscal 1999
due to improved economies of scale and stronger yields in the Plymouth fab.

Geographic Revenue

Revenue  from  continuing  operations,  based  on  the  geographic  location  of
customers, was distributed as follows:


                                       24
<PAGE>

(millions of                      % of                 % of                 % of
Canadian dollars)       2001     Total      2000      Total     1999       Total
                      ----------------     ----------------     ----------------
United States         $264.4       39%     $235.0       39%      215.9       39%
Europe                 208.2       31       171.2       28       151.0       27
Asia/Pacific           169.1       25       141.2       24       154.0       28
Canada                  21.7        3        35.4                 23.5        4
                                                                              6

Other Regions           10.6        2        20.0        3        13.3        2
                      ----------------     ----------------     ----------------
Total                 $674.0      100%     $602.8      100%     $557.7      100%
                      ================     ================     ================

For the year ended March 30,  2001,  the net  movement  in  exchange  rates from
Fiscal 2000 negatively  impacted total revenue from  continuing  operations by 3
percent ($17.8). For the year ended March 31, 2000, the net movement in exchange
rates from  Fiscal  1999  negatively  impacted  total  revenue  from  continuing
operations by 4 percent  ($22.8).  The negative  foreign  exchange  impacts were
primarily a result of changes in the UK pound sterling exchange rate,  partially
offset by changes in the U.S. dollar exchange rate.

United States

Sales from  continuing  operations  into the United  States  increased by 13% in
Fiscal 2001 over Fiscal 2000. The increase was  principally  due to higher sales
of network access products.

Sales from continuing  operations increased by 9% in the United States in Fiscal
2000 over Fiscal 1999,  principally  due to higher sales of WAN  Internetworking
and wireless products.

Europe

European sales from continuing  operations  increased by 22% in Fiscal 2001 over
Fiscal 2000 due to higher  sales of medical  products and an increase in foundry
services provided to outside parties.

Fiscal 2000 sales from continuing  operations into Europe  increased by 13% over
Fiscal 1999 due to higher sales of network access products.

Asia/Pacific

Asia/Pacific  sales  from  continuing  operations  benefited  from a  recovering
economy in that  region to  increase  by 20% in Fiscal  2001  compared to Fiscal
2000.  In  particular,  sales  increased  due to higher demand for switching and
framing products and to higher sales of IP switching products resulting from the
Vertex acquisition.

Fiscal  2000  sales  from  continuing  operations  in  the  Asia/Pacific  region
decreased  by 8%,  principally  due to lower  media  sales and to weak  economic
conditions in that region.

Canada

Canadian sales from continuing  operations  decreased by 39% in Fiscal 2001 over
Fiscal 2000 as a result of lower sales to data  networking  customers in concert
with the sector's recent slow down.

Sales from continuing  operations increased in Canada from Fiscal 1999 to Fiscal
2000 by 51% on higher foundry  services  provided for third party production and
to higher sales to data networking companies.

Other Regions

Sales from continuing  operations into other regions decreased by $9.4 in Fiscal
2001 compared  with Fiscal 2000.  Fiscal 2000 sales from  continuing  operations
into other regions increased by $6.7 over Fiscal 1999.


                                       25
<PAGE>

GROSS MARGIN

(millions Cdn$)                               2001          2000          1999
                                             -----------------------------------
Gross margin                                 $338.6        $284.2        $240.6
As a percent of revenue                          50%           47%           43%

The higher gross margin from  continuing  operations  in Fiscal 2001 compared to
Fiscal 2000 was principally attributable to a favorable sales mix as a result of
higher sales volumes of network  access  products and to positive  manufacturing
variances resulting from improved manufacturing plant utilization.

Gross  margin in Fiscal 2000  increased  relative to Fiscal 1999 by 4 percentage
points.   The   improvement  was  due  to  a  favorable  sales  mix  and  higher
manufacturing  plant  utilization  resulting  from  increased  sales  volumes of
network access products.

OPERATING EXPENSES

Selling and Administrative ("S&A")

(millions Cdn$)                               2001          2000          1999
                                             -----------------------------------
S&A expenses                                 $139.4        $107.0        $ 95.8
As a percent of revenue                          21%           18%           17%

S&A expenses from  continuing  operations  increased as a percentage of sales in
Fiscal 2001 from the previous year, primarily due to higher amortization related
to the recently implemented enterprise resource planning system and to increased
marketing  spending.  In addition,  certain of the Company's expenses related to
the transition to a focused semiconductor company

Management  expects that S&A expenses  will decrease in Fiscal 2002 in line with
the lowered sales  expectations.  Cost containment  programs were implemented in
the  fourth  quarter  of Fiscal  2001 to  restrict  or  eliminate  discretionary
spending.  This program is in addition to the restructuring program announced on
May 10, 2001, which will further reduce expenses.

Fiscal 2000 S&A expenses from continuing operations increased as a percentage of
sales from Fiscal 1999, primarily due to higher marketing costs.

Research and Development ("R&D")

(millions Cdn$)                               2001          2000          1999
                                             -----------------------------------
R&D expenses                                 $125.2        $ 94.4        $ 98.0
As a percent of revenue                          19%           16%           18%

Fiscal 2001 R&D  expenses  from  continuing  operations  were net of $5.5 in R&D
government  assistance,  including  investment tax credits (2000 - $4.0;  1999 -
$5.3).  Investments are being made in high-growth areas such as network and user
access and in medical devices.

In the communication segment's network access product line, the focus was in the
following areas:

      o     Building network timing and synchronization  products for high speed
            applications;

      o     Delivering   multi-channel   carrier-class   convergence  solutions,
            including TDM/ATM to IP;

      o     Supporting  high-speed access using digital  subscriber line ("DSL")
            solutions;

      o     Providing  high quality voice in packet  switching  applications  to
            metro and enterprise markets; and,

      o     Very Short Reach  ("VSR")  parallel  optical  solutions  targeted at
            terabit speeds and higher.

      o     In the  communication  segment's user access product line, the focus
            was in the following areas:

      o     Providing  a single  chip  solution  incorporating  multiple  tuners
            (three  tuners  on a chip)  for  terrestrial,


                                       26
<PAGE>

            satellite and cable digital tuning; and,

      o     Delivering  chip-based  solutions to integrate  set-top box features
            for Integrated Digital TV ("iDTV").

In medical, the focus was on wearable and implantable devices, including:

      o     Digital  hearing aids for improved  sound quality that is matched to
            the patient;

      o     Pacemakers  with the ability to record and track the  performance of
            the heart; and,

      o     Application-specific standard products ("ASSPs") as opposed to ASICs
            for portable and pacing applications.

The increase R&D expenses in Fiscal 2001 was due to  incremental  R&D  resulting
from the consolidation of Vertex,  which was acquired on July 28, 2000,  coupled
with the increased R&D activity in the network and user access product lines.

Management  expects that R&D spending  will  continue at high levels into Fiscal
2002.

Fiscal 2000 R&D from continuing operations decreased relative to Fiscal 1999 due
to a consolidation of development efforts and a narrowed product focus.

Amortization of Acquired Intangibles

Regular amortization of acquired  intangibles  increased in Fiscal 2001 to $94.6
from $14.0 in Fiscal 2000. The Fiscal 2001 amount related to the  acquisition of
Vertex  on  July  28,  2000.  The  Fiscal  2000  amount  related  to a  previous
acquisition  that was fully  written  off by the end of last year.  There was no
corresponding  amount  related to  continuing  operations  in Fiscal  1999.  The
Company's  policy is to  amortize  acquired  intangible  assets  over a two-year
period from the date of acquisition,  which management  believes  represents the
estimated useful life.

Other Operating Income and Expense Items

As described  under Recent  Significant  Events  elsewhere in this  management's
discussion  and  analysis,  the Company  recorded an impairment  charge,  before
taxes,  of $292.3 in the  fourth  quarter  of Fiscal  2001 in respect of certain
capital assets.

The basis for the impairment charge is described below.

The recent industry slow down described under Recent  Significant Events was one
of the key  factors  that led to a review  of the  Company's  carrying  value of
acquired   intangible  assets  related  to  Vertex.   Management   believes  the
unfavorable  market  conditions  will  continue  for the  foreseeable  future to
negatively  affect the timing of expected  future cash flows  resulting from the
acquired technology. Management believes the technology itself is sound and is a
critical element in our focus on IP-based products.

Accordingly,  the Company reviewed the carrying value of the acquired intangible
assets  associated with Vertex in the fourth quarter ended March 30, 2001. Based
on an  analysis  of  undiscounted  estimated  future  cash flows and current and
expected  adverse market  conditions,  the Company  determined that the carrying
value of the acquired intangible assets was impaired.  Accordingly,  the Company
recorded a charge of $146.7 in the fourth  quarter of Fiscal  2001 to write down
the carrying value of the goodwill relating to Vertex. As at March 30, 2001, the
carrying value of the acquired  intangible  assets related to Vertex amounted to
$36.9 and is expected to be recovered from future cash flows.

The Company also reviewed the carrying  value of its  fabrication  facilities in
the fourth quarter of Fiscal 2001.  Factors leading to the review for impairment
include management's  expectation that fab utilization will fall to less than 50
percent and hence lower cash flows to recover the  investment  in the fabs.  The
lowered  expectation  results from recent  partnerships that were developed with
outside  fabs for new  Zarlink  designs  based on future  technologies  that are
beyond existing  capabilities at the Company's fabs. This review also considered
the current adverse market conditions which resulted in a low operating rate for
these  facilities as well as the  Company's  manufacturing  strategy,  described
above, that is expected to incorporate  higher degrees of outsourcing.  Based on
an  analysis  of  undiscounted  expected  future  cash  flows  reflecting  these
conditions,  the Company determined that the fabrication buildings and equipment
were impaired and recorded a charge of $131.5,  net of income tax  recoveries of
$14.1,  to write down these  carrying  values.  The tax recovery was  separately
included in the Company's total income tax expense.

During the fourth quarter of Fiscal 1999, the Company recorded a pre-tax gain of
$6.0 arising from the sale of


                                       27
<PAGE>

certain non-strategic technology and other assets.

INTEREST INCOME

Interest  income was $13.6 for the year ended March 30, 2001 as compared to $8.6
in Fiscal 2000 and $5.9 in Fiscal 1999. The increase in each successive year was
due to higher average cash balances on hand.

INTEREST EXPENSE

Interest  expense,  including  debt issue and other costs,  was $28.3 for Fiscal
2001, compared with $22.0 and $30.7 for Fiscal 2000 and 1999, respectively.  The
debt  issue  and other  costs  represent  previously  deferred  costs  that were
expensed as a result of early  repayment of the  associated  long-term  debt. In
Fiscal 2001, the debt issue and other costs  expensed  amounted to $12.2 (2000 -
$0.5; 1999 - $7.2).  Management  expects  interest expense to decrease in Fiscal
2002 as a result of the full repayment of the U.S. dollar denominated  long-term
debt in Fiscal 2001.

INCOME TAXES

Income tax expense from continuing operations for Fiscal 2001 was $1.9, compared
with $17.8 for Fiscal 2000 and a recovery of $3.9 for Fiscal 1999. The effective
income tax rate, as a percentage of pre-tax  income from  continuing  operations
before the effect of  amortization  of acquired  intangibles  and the impairment
charge against capital assets,  was 27%, 26% and 1% in Fiscal 2001,  Fiscal 2000
and Fiscal 1999,  respectively.  The increased effective tax rate in Fiscal 2001
was mainly due to higher taxable income in Canada. The Fiscal 2000 effective tax
rate was higher than in Fiscal 1999 due to higher  taxable  income in Canada and
the favorable impact in Fiscal 1999 of certain permanent differences  associated
with European operations.

Effective  for Fiscal  2001,  new rules were  applied for  corporate  income tax
accounting which require the Company to apply the "liability"  method instead of
the "deferral" method.  Under the new standard,  tax assets and liabilities must
be measured  using  income tax rates and applying tax laws which are expected to
apply to taxable  income in periods in which the tax assets or  liabilities  are
expected to be realized or settled.  The impact of this change on the Company is
described in Note 2 to the consolidated  financial statements for the year ended
March 30, 2001.

BACKLOG

(millions Cdn$)                               2001          2000          1999
                                             -----------------------------------
Backlog from continuing operations           $177.9        $252.6        $143.6

Generally,  manufacturing  lead  times for  semiconductor  products  are  longer
because  of the  nature  of the  production  process.  However,  as  orders  are
sometimes  booked and shipped within the same fiscal quarter (often  referred to
as a "turns"),  order backlog is not  necessarily  indicative of a sales outlook
for the quarter or year.  Most of the backlog is  scheduled  for delivery in the
next twelve months.

The backlog  decrease from last year was  attributable to the recent downturn in
the  communications   semiconductor   industry,   described  elsewhere  in  this
management's   discussion   and  analysis,   which  caused   cancellations   and
re-scheduling of orders, principally in the areas of broadband networking.

Compared  with Fiscal 1999,  the  increase of $109.0 in backlog from  continuing
operations at the end of Fiscal 2000 was  attributable  to higher orders arising
from  demand for  semiconductor  products  related  to  Internet  and  broadband
connectivity.

DISCONTINUED OPERATIONS

Communications Systems Business

Systems  recorded  revenue of $515.0  during  the  period  from April 1, 2000 to
February 16, 2001,  down from $793.7 for the full year in Fiscal 2000,  and down
from $752.7 for the full year in Fiscal 1999.  The revenue


                                       28
<PAGE>

decrease from prior years was principally due to  industry-wide  market softness
while end  customers  delayed  capital  spending  on systems  and  applications.
Management believes industry  announcements  regarding new voice  communications
systems moving to an IP platform resulted in certain customers deferring capital
spending in order to acquire the advanced  functionality  afforded by the new IP
platforms in the future.

During the period up to the  measurement  date of November 3, 2000,  the Systems
business had an operating  loss,  net of tax  recoveries  of $4.5,  of $9.2.  In
Fiscal 2000, the Systems business had operating  income,  net of taxes of $21.8,
of $26.4 (1999 - $8.6, net of taxes of $21.4).

On February 16, 2001, the Company  concluded the sale of the Systems business to
Dr.  Terence H.  Matthews for net proceeds of $302.3,  after  adjustments.  As a
result of this sale, the Company recorded a net gain of $22.6, after transaction
costs  and  income  taxes  (see  Recent  Significant  Events  elsewhere  in this
management's discussion and analysis).

NET INCOME (LOSS)

The Company recorded a net loss of $317.0,  or $2.62 per share. This compares to
net income of $56.0,  or $0.46 per share,  in Fiscal 2000.  In Fiscal 1999,  net
income was $26.2, or $0.20 per share.

The net loss in Fiscal 2001 resulted primarily from the charge for impairment of
capital assets of $292.3, the amortization of acquired  intangibles of $94.6 and
the  expense  of $12.2  associated  with  early  repayment  of  long-term  debt,
partially offset by income, net of taxes, from discontinued operations amounting
to $13.4.  In Fiscal  2000,  net  income was  impacted  by the  amortization  of
acquired  intangibles  of  $14.0  but  offset  by  income,  net of  taxes,  from
discontinued  operations of $18.4.  Fiscal 1999 earnings included a pre-tax gain
on the sale of  assets  of $6.0 and a  combined  loss,  net of  taxes,  from the
discontinued Systems and Lincoln operations amounting to $5.7.

LIQUIDITY AND CAPITAL RESOURCES

At March 30, 2001,  cash, cash  equivalents and short-term  investment  balances
totaled  $283.7,  up from $228.4 at March 31, 2000.  All of the cash balances in
each respective year were held in either cash or highly liquid cash equivalents.

Cash flow from  operations  before working  capital  changes  amounted to $111.0
during  Fiscal  2001  compared to $233.4 in Fiscal 2000 as a result of the lower
operating  earnings in both the continuing  semiconductor  operations and in the
discontinued  systems  operations.  Since March 31, 2000, the Company's  working
capital, as reflected in the consolidated statements of cash flows, decreased by
$19.8 mostly due to lower  receivables and  inventories  that were divested with
the sale of the Systems  business on February  16, 2001.  Management  expects to
further draw down inventory levels in Fiscal 2002 by reducing  production in the
fabs and  lowering  external  purchases.  As a standard  practice,  the  Company
maintains a minimum of critical  inventory at its foundries to ensure continuity
of supply for its manufacturing requirements.

Capital asset  additions  were $110.1  during Fiscal 2001 (2000 - $60.9;  1999 -
$63.0), excluding additions of $4.9 financed by capital lease (2000- $25.2; 1999
- $22.7).  Approximately $91 of the capital  expenditures in Fiscal 2001 related
to the Company's continuing operations.  The additions were primarily related to
continuing  improvements  to  information  technology  resources,  semiconductor
manufacturing  capacity and design tools and the  construction of a new building
for the Company's head office in Ottawa, Canada.

On February 12, 1998, the Company entered into two term loans,  respectively the
AXELs(SM)*  Series B loan and the Tranche A Term Loan, with a syndicate of banks
led by Goldman,  Sachs Credit  Partners  L.P. as the  syndication  agent and the
Canadian Imperial Bank of Commerce as the  administrative  agent. The term loans
were subject to mandatory prepayments out of certain insurance proceeds, defined
excess cash flow  generated  by the Company,  and the proceeds of certain  asset
sales (other than inventory),  equity offerings or debt issuance by the Company.
Mandatory  prepayments  ranged  from  50% to 100%  of the  applicable  net  cash
proceeds. The principal of the Tranche A Term Loan was fully repaid in June 2000
as a result of a mandatory  prepayment  from the Company's  defined  excess cash
flow in Fiscal 2000. The principal of the AXELs Series B loan was fully repaid

--------
* (SM) AXEL is a registered service mark of Goldman, Sachs and Co.


                                       29
<PAGE>

on February  16, 2001 as a result of a mandatory  prepayment  on the sale of the
Systems business.

Long-term debt  decreased  principally  due to the mandatory  prepayments in the
amount of $200.1  against the Company's  syndicated  term loans.  Long-term debt
also decreased due to scheduled repayments against capital lease liabilities and
the settlement of capital leases related to the discontinued Systems business in
connection  with  the  sale on  February  16,  2001.  In  total,  capital  lease
liabilities were reduced by $73.5 in Fiscal 2001.

During Fiscal 2001,  the Company  acquired all of the capital stock of Vertex by
issuing   approximately   11  million  common  shares  then  valued  at  $300.7.
Approximately  1.1 million shares or 10 percent of the issued shares were placed
in escrow for a two-year  period to  indemnify  the Company for  representations
made by Vertex.  In  addition,  approximately  535  thousand  issued  shares are
subject to certain restrictions over a two-year period.

On June 5, 2000,  the Company  announced  its  intention to make a normal course
issuer bid for up to 5,706,196 common shares. These purchases were to take place
on the open market  through the stock  exchanges  of New York and Toronto over a
twelve-month  period, which commenced on June 9, 2000 and ended on June 8, 2001.
All repurchased shares were to be cancelled.  As at June 8, 2001, no shares were
purchased under the normal course issuer bid. The Company renewed the program on
June 7, 2001 (see  Recent  Significant  Events  elsewhere  in this  management's
discussion and analysis).

As at March 30, 2001,  the Company's  capitalization  was comprised of 2 percent
debt, 6 percent preferred equity, and 92 percent common equity. This compares to
30 percent debt, 4 percent preferred equity, and 66 percent common equity at the
end of Fiscal 2000.

In addition to cash,  cash  equivalent  and  short-term  investment  balances of
$283.7 as at March 30, 2001, the Company had a revolving  global credit facility
of  approximately  $25.0,  of which $4.9 in letters of credit were  outstanding.
Accordingly,  the Company had unused and  available  demand bank lines of credit
amounting to $20.1 as at March 30, 2001. Management believes the Company is in a
position to meet all  foreseeable  business  cash  requirements,  including  the
Fiscal 2002  restructuring  program  described  elsewhere  in this  Management's
Discussion  and  Analysis,  and debt  service  from its cash  balances  on hand,
existing financing facilities and cash flow from operations.

OTHER

Foreign Currency Translation

Management periodically evaluates the financial and operational  independence of
its  foreign  operations  and the  resulting  accounting  classification  of the
foreign subsidiaries as self-sustaining enterprises. Should a foreign subsidiary
cease to be classified as  self-sustaining,  then translation gains or losses on
consolidating the foreign subsidiary's  financial statements would be charged to
operating  income instead of a separate  component of shareholders'  equity.  At
March 30, 2001, the translation account balance was in a credit position of $4.3
as compared to a debit  position of $3.4 at the end of Fiscal 2000. The weakened
Canadian  dollar as measured  against,  principally,  the U.S. dollar caused the
increase in the translation account balance since the end of last year.

Recently Issued Accounting Standards

The  Financial  Accounting  Standards  Board has issued  Statement  of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"), as amended,  which will be effective for the Company's
March 29, 2002 year end. The Statement will require the Company to recognize all
derivatives on the balance sheet at fair value.  Derivatives that are not hedges
must be adjusted to fair value  through  income.  If the  derivative is a hedge,
depending  on the nature of the  hedge,  changes in the fair value of the hedged
assets, liabilities, or firm commitments through earnings or recognized in other
comprehensive  income  until the hedged  item is  recognized  in  earnings.  The
ineffective  portion of a derivative's  change in fair value will be immediately
recognized  in  earnings.  The  Company  expects  to adopt SFAS 133 in the first
quarter of Fiscal 2002. As at March 30, 2001,  the Company had not completed its
assessment to determine the impact of adopting  this  pronouncement,  if any, on
its consolidated financial statements.


                                       30
<PAGE>

In December 1999,  the SEC issued Staff  Accounting  Bulletin No. 101,  "Revenue
Recognition in Financial Statements" ("SAB 101"), which provides guidance on the
recognition,  presentation  and  disclosure  of revenue in financial  statements
filed with the SEC.  SAB 101  outlines  the basic  criteria  that must be met in
order to recognize  revenue and provides  guidance  for  disclosures  related to
revenue  recognition  policies.  The Company's  accounting  policies for revenue
recognition comply with the provisions of SAB 101.

The Canadian Institute of Chartered Accountants has revised and replaced Section
3500 of the CICA Handbook, "Earnings Per Share", which will be effective for the
Company's  first interim period in the year ending March 29, 2002 (see note 3(m)
to the consolidated  financial  statements).  The Company has not determined the
impact, if any, of this pronouncement on its consolidated financial statements.

European Union and the Euro

On January 1, 1999, 11 of 15 member countries of the European Union  established
fixed conversion rates between their existing currencies  ("legacy  currencies")
and one common  currency - the Euro.  The Euro will trade on currency  exchanges
and may be used in business transactions.  The conversion to the Euro eliminates
currency  exchange  rate  risk  between  the  member  countries.  The  Company's
operating subsidiaries that are affected by the Euro conversion have established
plans to address the issues raised by the Euro currency conversion. These issues
include the need to adapt computer and financial systems, competitive impacts of
cross-border price  transparency,  and recalculating  currency risk. The Company
does not expect any required system  conversion  costs to be material due to its
existing  ability  to  transact  in  multiple  currencies.  Due  to  significant
uncertainties,  the Company  cannot  reasonably  estimate the effects one common
currency will have on pricing and the resulting impact, if any, on the Company's
financial condition or its results of operations.

Forward-Looking Statements

Certain  statements  in this  Management's  Discussion  and Analysis  constitute
forward-looking  statements.  Such forward-looking  statements involve known and
unknown  risks,  uncertainties  and other  factors  that may  cause  the  actual
results,  performance or achievements  of Zarlink,  or industry  results,  to be
materially  different  from any  future  results,  performance  or  achievements
expressed   or  implied  by  such   forward-looking   statements.   Such  risks,
uncertainties  and  assumptions  include the  following:  general  economic  and
business  conditions;  demographic  changes;  import  protection and regulation;
rapid technology development and changes;  timing of product introductions;  the
mix of  products/services;  industry  competition,  industry  capacity and other
industry trends; and the ability of Zarlink to attract and retain key employees.

      Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk

Market risk represents the risk of loss that may impact the financial statements
of the Company due to adverse changes in financial  markets.  Zarlink is exposed
to market risk from changes in interest  rates and foreign  exchange  rates.  To
manage these risks, the Company uses certain  derivative  financial  instruments
including  interest rate swaps,  foreign  exchange  forward  contracts and other
derivative  instruments from time to time, that have been authorized pursuant to
board-approved policies and procedures. Zarlink does not hold or issue financial
instruments for trading or speculative purposes.

The Company  currently  uses forward  contracts,  and to a lesser extent foreign
currency  options,  to reduce the exposure to foreign  exchange  risk.  The most
significant  foreign  exchange  exposures  for the Company  relate to the United
States  dollar  and the U.K.  pound  sterling.  At March 30,  2001,  there  were
unrealized losses of $8.1 on the forward contracts.  These unrealized 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 March 30, 2001,  if unwinding of the  contracts  became  necessary.
Additional potential losses in the net fair value of these contracts, assuming a
5 percent  appreciation in the U.S. dollar against all currencies,  at March 30,
2001, would have been approximately $13.6.  Conversely, a 5 percent depreciation
in the U.S.  dollar against all currencies  would have produced a gain of $13.7.
Management  believes that the established hedges are effective against its known
and anticipated  cash flows,  and that potential future losses from these hedges
being marked to market would be largely offset by gains on the underlying hedged
transactions.


                                       31
<PAGE>

Interest  rate swaps were used in Fiscal  2001 to manage the impact of  interest
rate changes on earnings and cash flows,  and to lower overall  borrowing costs.
In Fiscal 2001, the Company's main exposure to interest rate risk related to its
United States dollar denominated  long-term debt. On February 16, 2001, upon the
sale of the  Systems  business,  the  Company  repaid in full its United  States
dollar  denominated  long-term  debt, and unwound its  offsetting  interest rate
swaps. The Company did not hold any interest rate swaps as at March 30, 2001.

For Fiscal 2002, the Company's primary exposure to interest rates is expected to
be in the rollover of its short-term  investment  portfolio.  In accordance with
Company policy, cash equivalent and short-term investment balances are primarily
comprised of high-grade money market instruments with original maturity dates of
less than one year.  The Company  does not hedge the  re-investment  risk on its
short-term investments.

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 the Company 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 8. Financial Statements and Supplementary Data

      The following  financial  statements and  supplementary  data are filed as
part of this Annual Report on Form 10-K.

      Auditors' Report to the Shareholders

      Consolidated Balance Sheets as at March 30, 2001 and March 31, 2000

      Consolidated  Statements  of Income  (Loss) for the years  ended March 30,
      2001, March 31, 2000, and March 26, 1999

      Consolidated Statements of Retained Earnings (Deficit) for the years ended
      March 30, 2001, March 31, 2000, and March 26, 1999

      Consolidated  Statements of Cash Flows for the years ended March 30, 2001,
      March 31, 2000, and March 26, 1999

      Notes to the Consolidated Financial Statements


                                       32
<PAGE>

AUDITORS' REPORT

To the Shareholders of Mitel Corporation:

We have audited the consolidated balance sheets of Mitel Corporation as at March
30, 2001 and March 31, 2000 and the consolidated statements of income (loss) and
retained  earnings  (deficit)  and cash flows for each of the years in the three
year  period  ended  March  30,  2001.   These  financial   statements  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with Canadian  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.

In our opinion,  these consolidated  financial statements present fairly, in all
material  respects,  the financial  position of the Company as at March 30, 2001
and March 31, 2000 and the results of its operations and its cash flows for each
of the years in the three year period  ended March 30, 2001 in  accordance  with
Canadian generally accepted accounting principles.

The  Company  changed its method of  accounting  for income  taxes and  employee
future benefits in 2001, as described in note 2.

Ottawa, Canada                              Ernst & Young LLP
May 4, 2001, except as to note 27           Chartered Accountants
which is as of June 7, 2001.


                                       33
<PAGE>

                                Mitel Corporation
                     (incorporated under the laws of Canada)
                           CONSOLIDATED BALANCE SHEETS
                        (in millions of Canadian dollars)

                                                          March 30,    March 31,
                                                            2001         2000
                                                          ---------------------
ASSETS

Current assets:
  Cash and cash equivalents                               $  283.7     $  195.5
  Short-term investments                                        --         32.9
  Accounts receivable (notes 4 & 21)                          85.5        288.2
  Inventories (note 5)                                       133.9        187.7
  Investment tax credits recoverable                          15.8         10.1
  Future income tax assets                                     1.9           --
  Prepaid expenses and other                                  23.5         20.7
                                                          ---------------------
                                                             544.3        735.1

Long-term receivables (note 6)                                15.8         18.7
Long-term investments (note 7)                                24.8           --
Fixed assets (note 8)                                        207.0        457.4
Acquired intangible assets (note 9)                           38.1          3.0
Other assets                                                   5.6         11.3
                                                          ---------------------
                                                          $  835.6     $1,225.5
                                                          =====================

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Accounts payable and accrued
    liabilities (note 10)                                 $  149.3     $  211.3
  Income and other taxes payable                               7.1         31.6
  Future income tax liabilities                                7.3           --
  Deferred revenue                                             3.1         44.1
  Current portion of long-term
    debt (note 11)                                             9.2         57.9
                                                          ---------------------
                                                             176.0        344.9
Long-term debt (note 11)                                       7.6        217.5
Pension liability (note 24)                                   17.2         17.5
Future income tax liabilities                                  7.2          9.8
                                                          ---------------------
                                                             208.0        589.7
                                                          ---------------------

Commitments and contingencies
  (notes 12 & 13)

Shareholders' equity:
  Capital stock (note 14)
     Preferred shares                                         36.6         37.0
     Common shares (2001 - 126,136,799;
       2000 - 113,997,734)                                   635.2        325.6
  Contributed surplus (note 14)                                9.2          9.2
  Retained earnings (deficit)                                (57.7)       267.4
  Translation account (note 15)                                4.3         (3.4)
                                                          ---------------------
                                                             627.6        635.8
                                                          ---------------------
                                                          $  835.6     $1,225.5
                                                          =====================

On behalf of the Board:
Dr. Henry Simon, Director                          Patrick J. Brockett, Director

        (See accompanying notes to the consolidated financial statements)


                                       34
<PAGE>

                                Mitel Corporation
             CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (DEFICIT)
                        (in millions of Canadian dollars)

                                                        Years Ended
                                             March 30,    March 31,    March 26,
                                               2001         2000         1999
                                             ----------------------------------
Retained earnings, beginning of year
  (as previously reported)                   $267.4        $218.4        $202.9

Change in accounting policy for
  income taxes (note 2)                        (4.8)           --            --
                                             ----------------------------------

Retained earnings, beginning
  of year (as restated)                       262.6         218.4         202.9

Net income (loss)                            (317.0)         56.0          26.2
                                             ----------------------------------
                                              (54.4)        274.4         229.1

Cost of common share issue (note 14)           (0.1)           --          (7.5)

Common share repurchase (note 14)                --          (3.8)           --

Dividends on preferred shares
  (note 14)                                    (3.2)         (3.2)         (3.2)
                                             ----------------------------------
Retained earnings (deficit),
  end of year                                $(57.7)       $267.4        $218.4
                                             ==================================

        (See accompanying notes to the consolidated financial statements)


                                       35
<PAGE>

                                Mitel Corporation
                    CONSOLIDATED STATEMENTS OF INCOME (LOSS)
           (in millions of Canadian dollars, except per share amounts)

                                                        Years Ended
                                             March 30,    March 31,    March 26,
                                               2001         2000         1999
                                            -----------------------------------
Revenue                                      $674.0        $602.8        $557.7
                                            -----------------------------------
Cost of sales:
  Cost of sales other than amortization       281.0         253.3         252.1
  Amortization of manufacturing assets         54.4          65.3          65.0
                                            -----------------------------------
                                              335.4         318.6         317.1
                                            -----------------------------------
Gross margin                                  338.6         284.2         240.6
                                            -----------------------------------

Expenses:
  Selling and administrative                  139.4         107.0          95.8
  Research and development (net)
    (note 16)                                 125.2          94.4          98.0
  Amortization of acquired intangibles         94.6          14.0            --
  Impairment of capital assets (note 17)      292.3            --            --
  Gain on sale of assets (note 17)               --            --          (6.0)
                                            -----------------------------------
                                              651.5         215.4         187.8
                                            -----------------------------------
Operating income (loss) from continuing
  operations                                 (312.9)         68.8          52.8

Equity loss from investment in
  Optenia, Inc.                                (0.9)           --            --
Interest income                                13.6           8.6           5.9
Interest expense (note 11)                    (16.1)        (21.5)        (23.5)
Debt issue and other costs (note 11)          (12.2)         (0.5)         (7.2)
                                            -----------------------------------

Income (loss) from continuing operations
  before income taxes                        (328.5)         55.4          28.0

Income tax expense (recovery) (notes 17
  and 18)                                       1.9          17.8          (3.9)
                                            -----------------------------------

Net income (loss) from continuing
  operations                                 (330.4)         37.6          31.9
                                            -----------------------------------

Income (loss) from discontinued operations
  (note 19)                                    (9.2)         26.4          10.6
Gain (loss) on disposal of discontinued
  operations (note 19)                         22.6          (8.0)        (16.3)
                                            -----------------------------------
                                               13.4          18.4          (5.7)
                                            -----------------------------------

Net income (loss)                           $(317.0)       $ 56.0        $ 26.2
                                            ===================================

Net income (loss) attributable to common
  shareholders after preferred share
  dividends                                 $(320.2)      $ 52.8        $ 23.0
                                            ===================================

Net income (loss) per common share
  (note 14):
   Net income (loss) per common share
     from continuing operations:
      Basic                                 $ (2.73)      $ 0.30        $ 0.25
                                            ===================================
      Fully diluted                         $ (2.73)      $ 0.30        $ 0.25
                                            ===================================
   Net income (loss) per common share:
      Basic                                 $ (2.62)      $ 0.46        $ 0.20
                                            ===================================
      Fully diluted                         $ (2.62)      $ 0.45        $ 0.20
                                            ===================================
Weighted average number of common shares
  outstanding (millions)
      Basic                                   122.2        114.7         114.0
                                            ===================================
      Fully diluted                           122.2        120.3         115.9
                                            ===================================

        (See accompanying notes to the consolidated financial statements)


                                       36
<PAGE>

                                Mitel Corporation
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                        (in millions of Canadian dollars)

                                                           Years Ended
                                                  March 30,  March 31, March 26,
                                                    2001       2000      1999
                                                  ------------------------------
CASH PROVIDED BY (USED IN)

Operating activities:
  Net income (loss)                                $(317.0)   $ 56.0    $  26.2
  Amortization of capital and other
    assets                                           210.9     157.0      143.2
  Impairment of capital assets                       292.3        --         --
  Loss (gain) on sale of capital assets
    and investments                                    2.7      (1.0)      (5.5)
  Loss related to equity investment                    0.9        --         --
  Loss (gain) on disposal of discontinued
    operations                                       (74.8)      8.0       16.3
  Investment tax credits                              (8.7)     10.1       (7.0)
  Future income taxes                                  2.0      (1.9)      (7.8)
  Change in pension liability                          2.7       5.2        0.9
  Decrease (increase) in working capital
    (note 26)                                         19.8      10.4     (119.8)
                                                   ----------------------------
    Total                                            130.8     243.8       46.5
                                                   ----------------------------

Investing activities:
  Change in short-term investments                    41.5     (33.5)      34.5
  Additions to capital and other assets             (110.1)    (61.8)     (60.7)
  Proceeds from disposal of capital
    assets and investments                             1.6       4.8       11.9
  Proceeds from sale of discontinued
    operations -  net (note 19)                      289.4       9.5         --
  Increase in long-term investments                   (7.7)       --         --
  Acquisitions, net of cash acquired
    (notes 20 and 26)                                 10.3        --      (46.6)
                                                   ----------------------------
     Total                                           225.0     (81.0)     (60.9)
                                                   ----------------------------

Financing activities:
  Increase in long-term debt                            --        --        0.4
  Repayment of long-term debt                       (200.1)    (21.3)    (132.7)
  Repayment of capital lease liabilities             (73.5)    (33.0)      (9.0)
  Debt issue costs                                      --        --       (2.0)
  Dividends on preferred shares                       (3.2)     (3.2)      (3.2)
  Issue of common shares - net (note 14)               8.8       3.9      166.4
  Repurchase of common and preferred
    shares (note 14)                                  (0.4)    (36.6)        --
                                                   ----------------------------
     Total                                          (268.4)    (90.2)      19.9
                                                   ----------------------------

Effect of currency translation on cash                 0.8      (2.4)       2.6
                                                   ----------------------------

Increase in cash and cash equivalents                 88.2      70.2        8.1

Cash and cash equivalents, beginning
  of year                                            195.5     125.3      117.2
                                                   ----------------------------

Cash and cash equivalents, end of year             $ 283.7    $195.5    $ 125.3
                                                   ============================

        (See accompanying notes to the consolidated financial statements)


                                       37
<PAGE>

                                MITEL CORPORATION
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
           (in millions of Canadian dollars, except per share amounts)

1.    NATURE OF OPERATIONS

      Mitel is an international  semiconductor  product supplier.  The Company's
      principal  business  segments comprise the manufacture and distribution of
      microelectronic  components.  The  principal  markets  for  the  Company's
      products are the United  States,  Europe,  the  Asia/Pacific  region,  and
      Canada.

      Discontinued Operations

      On  November  3,  2000,  the  Company   adopted  formal  plans  to  pursue
      divestiture  opportunities  related  to  the  distinct  operations  of the
      communications systems business ("Systems").  Accordingly,  the operations
      related to this business were accounted for as discontinued operations.

      On February 16, 2001,  the Company sold its  worldwide  Systems  business,
      including the name  "Mitel",  to a company  controlled  by Dr.  Terence H.
      Matthews.  As  part  of the  transaction,  Mitel  transferred  most of its
      Ottawa, Canada real estate to Dr. Matthews. The Company received $302.3 in
      cash  proceeds,  after  adjustments,  in exchange for selling a 90 percent
      ownership  interest in the Company's  communications  systems business and
      most of its real  property  in Ottawa,  Canada.  (See also notes 7, 19 and
      27).

2.    CHANGE IN ACCOUNTING POLICY

      Income Taxes

      Effective  April 1, 2000, the Company adopted the new  recommendations  of
      Section 3465 of the Canadian Institute of Chartered  Accountants  ("CICA")
      Handbook  "Income  Taxes" and has  applied  the  provisions  retroactively
      without  restatement  of the  prior  periods'  financial  statements.  The
      adoption of this recommendation had no impact on the results of operations
      in Fiscal 2001. The cumulative adjustment to opening retained earnings was
      a reduction  of $4.8 as a result of the change in  accounting  policy.  In
      addition,  current  future  income tax assets  increased by $9.5;  current
      future income tax  liabilities  increased by $5.3;  and  long-term  future
      income  tax  liabilities  increased  by  $9.0.  Comparative  figures  were
      prepared by applying the previous recommendations of Section 3470, "Income
      Taxes", of the CICA Handbook.

      The new recommendations  require the Company and its subsidiaries to adopt
      the liability  method of accounting  for income taxes.  Under this method,
      future  income  tax  assets  and  liabilities  are  determined   based  on
      differences between the tax and accounting bases of assets and liabilities
      as well as for the benefit of losses  available  to be carried  forward to
      future  years  for tax  purposes  that  are  more  likely  than  not to be
      realized.  Future  income tax assets and  liabilities  are measured  using
      substantively enacted tax rates expected to apply to taxable income in the
      years in which  temporary  differences  are  expected to be  recovered  or
      settled.  Future income tax assets are recognized only to the extent that,
      in the opinion of management,  they will more likely than not be realized.
      For fiscal years prior to the adoption of the new recommendations,  income
      taxes were accounted for using the deferred tax allocation  method,  under
      which the income tax  provision  is based on the  income  reported  in the
      accounts.

      Employee Future Benefits

      Effective  April 1, 2000, the Company adopted the new  recommendations  of
      Section 3461 of the CICA Handbook, "Employee Future Benefits". Under these
      new rules,  the costs of retirement  benefits,  other than  pensions,  and
      certain  post-employment  benefits are recognized over the period in which
      the  employees  render  services  in  return  for  those  benefits.  Other
      post-employment  benefits are  recognized  when the event  triggering  the
      obligation  occurs.  The  adoption  of the new  CICA  recommendations  for
      employee  future  benefits  resulted  in  no  significant  impact  on  the
      Company's financial position or results of operations.

3.    ACCOUNTING POLICIES

      These consolidated  financial  statements have been prepared by management
      in accordance with Canadian generally accepted  accounting  principles.  A
      reconciliation  of amounts  presented  in  accordance  with United  States
      accounting principles is detailed in note 23.


                                       38
<PAGE>

      The  preparation of financial  statements in conformity  with Canadian and
      United States accounting  principles requires management to make estimates
      and  assumptions  that  affect the  reported  assets and  liabilities  and
      disclosure  of  contingent  assets  and  liabilities  at the  date  of the
      financial  statements  and the  reported  amounts of revenue and  expenses
      during the  reporting  periods.  Actual  results  could  differ from those
      estimates.

(A)   FISCAL YEAR END

      The Company's  fiscal year end is the last Friday in March.  Normally this
      results in a fifty-two  week year with four  thirteen week  quarters.  For
      Fiscal 2000, the year-end of the Company was March 31, 2000 resulting in a
      fifty-three week year.

(B)   BASIS OF CONSOLIDATION

      The consolidated  financial statements include the accounts of the Company
      and of its wholly owned  subsidiary  companies.  Investments in associated
      companies in which the Company has significant influence are accounted for
      by the equity  method.  Investments  in  companies  the  Company  does not
      control  or over  which it does not  exercise  significant  influence  are
      accounted for using the cost method.

(C)   CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

      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.
      Short-term  investments  comprise highly liquid low risk debt  instruments
      with terms of usually not greater  than one year.  Short-term  investments
      are carried at cost, which approximates their fair value.

(D)   INVENTORIES

      Inventories  are  valued at the lower of average  cost and net  realizable
      value for work-in-process and finished goods, and current replacement cost
      for raw materials.  The cost of inventories  includes material,  labor and
      manufacturing overhead.

(E)   CAPITAL AND OTHER ASSETS

      Capital assets are initially recorded at cost, net of related research and
      development  and  other  government  assistance.   Goodwill  is  initially
      recorded at the excess of the  Company's  cost over the amount of the fair
      value of the net identifiable  assets acquired in a business  combination.
      The Company  evaluates  the  realizability  of these assets based upon the
      expected future undiscounted cash flows of the related assets.

      Amortization is provided on the bases and at the rates set out below:

      Assets                                    Basis                 Rate
      --------------------------------------------------------------------------
      Buildings                                 Straight-line               4  %
      Equipment                                 Declining balance     20 - 30  %
                                                Straight-line         10 - 33.3%
      Goodwill and other acquired intangibles   Straight-line              50  %
      Patents and trademarks                    Straight-line         10 - 33.3%

(F)   FOREIGN CURRENCY TRANSLATION

      The Company uses the current rate method of foreign  currency  translation
      to  translate  the  accounts of its foreign  subsidiaries.  The  resulting
      unrealized  gains or losses are  deferred  and  included in  shareholders'
      equity  until  there is a  reduction  in the net  investment  in a foreign
      operation.

      Exchange  gains or losses  related to translation or settlement of foreign
      currency  denominated  long-term monetary items are deferred and amortized
      on a straight-line basis over the remaining life of the items.


                                       39
<PAGE>

(G)   DERIVATIVE FINANCIAL INSTRUMENTS

      The Company enters into forward and option contracts intended to hedge its
      estimated net foreign currency cash requirements,  and certain significant
      transactions,  over the ensuing twelve months. The Company does not engage
      in a trading or speculative  program. All forward and option contracts are
      marked to market  and the  resulting  gains and losses  are  deferred  and
      included in the measurement of the related  transactions  when they occur.
      Premiums paid with respect to option contracts are deferred and charged to
      net earnings over the contract period.

      The Company sometimes uses interest rate swap contracts to manage interest
      rate risk.  Payments and receipts  under  interest rate swap contracts are
      recognized as adjustments to interest expense on a basis that matches them
      with the related  fluctuations in the interest receipts and payments under
      floating rate financial assets and liabilities.

(H)   REVENUE RECOGNITION

      Continuing operations

      Revenue  from the sale of  products  is  recognized  at the time goods are
      shipped to  customers.  Revenue  from  service is  recognized  at the time
      services  are  rendered.  Billings  in advance of  services  and  payments
      received in advance of product shipments are included in deferred revenue.
      Estimated  warranty costs associated with product revenues are accrued for
      at the time of the sale based on the  Company's  experience.  The  Company
      also accrues for distributor  stock rotations and other  allowances at the
      time  of  shipment  based  on  the  Company's  experience.  The  Company's
      accounting  policies for revenue recognition comply with the provisions of
      the Securities and Exchange Commission's Staff Accounting Bulletin No. 101
      (SAB 101).

      Discontinued operations

      Revenue  from the sale of products was  recognized  at the time goods were
      shipped to  customers.  Revenue  from the sale of  communications  systems
      including  integration  and  installation  services  was  recognized  on a
      percentage of completion basis. Revenue from service was recognized at the
      time services were rendered. Billings in advance of services were included
      in  deferred  revenue.  Estimated  warranty  costs  associated  with these
      revenues were provided for at the time of the sale.

(I)   INCOME TAXES

      Income taxes are accounted  for using the  liability  method of accounting
      for  income  taxes.  Under  this  method,  future  income  tax  assets and
      liabilities  are  determined  based  on  differences  between  the tax and
      accounting  bases of assets and  liabilities as well as for the benefit of
      losses  available  to be carried  forward to future years for tax purposes
      that are likely to be realized.  Future income tax assets and  liabilities
      are measured  using  substantively  enacted tax rates expected to apply to
      taxable income in the years in which temporary differences are expected to
      be recovered or settled.  Future income tax assets are recognized  only to
      the extent, in the opinion of management,  it is more likely than not that
      the future income tax assets will be realized.

      Investment tax credits  ("ITC") are taken into income on the same basis as
      the related expenditures are charged to income or applied against acquired
      fixed assets,  as applicable,  provided the Company expects the credits to
      be realized.  Management  periodically reviews the reasonable assurance of
      realizing  the ITC  carryforward  and timing  difference  benefits  in the
      determination of their accounting  recognition.  Such review may result in
      the recording of the accounting  benefit for these timing  differences and
      ITC carryforwards,  as the circumstances  warrant,  and the recognition of
      loss carryforwards, as realized.

(J)   RESEARCH AND DEVELOPMENT COSTS

      Research  costs are  charged to  earnings in the periods in which they are
      incurred.  The Company interprets the criteria for deferral of development
      costs on a very stringent basis under which few, if any, costs qualify for
      deferment. In the three years ended March 30, 2001, all development costs,
      except  acquired  intangibles  purchased in a business  combination,  were
      expensed as incurred.  Management periodically evaluates the realizability
      of  the  purchased  development  costs  based  upon  the  expected  future
      undiscounted cash flows of the related assets.


                                       40
<PAGE>

(K)   STOCK-BASED COMPENSATION PLAN

      The Company has a stock-based  compensation  plan described in note 14. No
      compensation  expense  is  recognized  for this plan  when  stock or stock
      options are issued to employees.  Any  consideration  paid by employees on
      exercise  of stock  options  or  purchase  of stock is  credited  to share
      capital.  If stock or stock options are repurchased  from  employees,  the
      excess of the consideration  paid over the carrying amount of the stock or
      stock option canceled is charged to retained earnings.

(L)   EMPLOYEE FUTURE BENEFITS

      The  costs of  retirement  benefits,  other  than  pensions,  and  certain
      post-employment  benefits  are  recognized  over the  period  in which the
      employees   render   services   in  return  for  those   benefits.   Other
      post-employment  benefits are  recognized  when the event  triggering  the
      obligation occurs.

(M)   RECENT ACCOUNTING PRONOUNCEMENTS

      The Canadian  Institute of Chartered  Accountants has revised and replaced
      Section 3500 of the CICA  Handbook,  "Earnings  Per Share",  which will be
      effective for the Company's  first interim period in the year ending March
      29, 2002. The new recommendations,  which are essentially aligned with the
      requirements of the US Financial  Accounting Standards Board Statement No.
      128 on this subject,  require the use of the treasury stock method instead
      of imputed  earnings  method for  calculating  fully diluted  earnings per
      share.  The  Company  has not  determined  the  impact,  if  any,  of this
      pronouncement on its consolidated financial statements.

4.    ACCOUNTS RECEIVABLE

      Included in accounts  receivable was an allowance for doubtful accounts of
      $0.5 (2000 - $8.0). Also included in accounts  receivable was an amount of
      $nil (2000 - $11.6) for  unbilled  accounts on long-term  contracts.  (See
      also notes 19 and 21).

5.    INVENTORIES

                                                     2001            2000
                                                    ----------------------
      Raw materials                                 $ 19.7          $ 53.5
      Work-in-process                                 73.0            68.3
      Finished goods                                  41.2            65.9
                                                    ----------------------
                                                    $133.9          $187.7
                                                    ======================

6.    LONG-TERM RECEIVABLES

                                                     2001            2000
                                                    ----------------------
      Investment tax credits recoverable            $ 7.8            $ 4.8
      Promissory note, bearing interest at
        8% (2000 - 8%) payable annually,
        due in June 2004 and against
        which a first deed on real
        property was pledged as security              7.1              6.1
      Other long-term receivables                     0.9              7.8
                                                    ----------------------
                                                    $15.8            $18.7
                                                    ======================

7.    LONG-TERM INVESTMENTS

                                                     2001            2000
                                                    ----------------------
      Investment in Mitel Networks
        Corporation, at cost                        $17.2            $ --
      Equity investment in Optenia, Inc.              7.6              --
                                                    ----------------------
                                                    $24.8            $ --
                                                    ======================

      On February 16, 2001, the Company sold a 90 percent ownership  interest in
      its Communications  Systems Business,  subsequently renamed Mitel Networks
      Corporation ("MNC"), to Dr. Terence H. Matthews. As at March 30, 2001, the
      Company held an  ownership  interest of  approximately  ten percent in the
      privately-held MNC. (See also Note 19).


                                       41
<PAGE>

      On January  22,  2001,  the Company  completed  its equity  investment  in
      privately held Optenia, Inc. ("Optenia") with a cash contribution of $7.6,
      an  in-kind   contribution   of  equipment   with  a  carrying   value  of
      approximately $1.0 and skilled personnel. At March 30, 2001, the Company's
      equity  position  was 46  percent  of the  outstanding  voting  shares  of
      Optenia.  The Company  expects that its equity position in Optenia will be
      reduced  proportionally  as other third party  investments  are finalized.
      Optenia is a new  developer  of photonic  components  and  subsystems  for
      high-capacity optical networks.

8.    FIXED ASSETS

                                                     2001            2000
                                                    ----------------------
      Cost:
        Land                                        $  7.5          $ 12.4
        Buildings                                     68.3           155.8
        Equipment                                    410.9           508.6
        Equipment under capital leases                95.9           150.1
        Assets under construction                      4.0              --
                                                    ----------------------
                                                     586.6           826.9
                                                    ----------------------
      Less accumulated amortization:
        Buildings                                     50.4            83.1
        Equipment                                    288.7           226.4
        Equipment under capital leases                40.5            60.0
                                                    ----------------------
                                                     379.6           369.5
                                                    ----------------------
                                                    $207.0          $457.4
                                                    ======================

      On February 16, 2001, Mitel  transferred  most of its Ottawa,  Canada real
      estate  to Dr.  Terence  Matthews  as part of the  Communications  Systems
      business sale. (See also note 19).

      Assets under  construction  represent  costs incurred to March 30, 2001 in
      respect of a building  being  constructed  at the Company's head office in
      Ottawa, Canada. (See also note 12).

      In the  year  ended  March  30,  2001,  the  Company  recorded  a  pre-tax
      write-down of $145.6 in respect of a fixed asset impairment charge for its
      semiconductor  fabrication  facilities  in the United  Kingdom and Canada.
      (See also note 17).

9.    ACQUIRED INTANGIBLE ASSETS

                                                     2001            2000
                                                    ----------------------
      Cost:
        In-process technology                       $  7.6          $  5.2
        Developed technology                          34.8            23.7
        Customer base and work force                   3.1            11.6
        Goodwill                                     233.9             6.3
                                                    ----------------------
                                                     279.4            46.8
                                                    ----------------------
      Less accumulated amortization:
        In-process technology                          2.5             4.7
        Developed technology                          11.6            22.4
        Customer base and work force                   1.2            10.9
        Goodwill                                     226.0             5.8
                                                     241.3            43.8
                                                    ----------------------
                                                    $ 38.1          $  3.0
                                                    ======================

      On July 28, 2000, the Company purchased  completed and in-process research
      and development (R&D), an assembled work-force and goodwill,  amounting to
      $278.1 in connection with the acquisition of Vertex Networks, Incorporated
      ("Vertex")  (see also note 20).  In the year  ended  March 30,  2001,  the
      Company recorded an asset  impairment  charge to reduce the carrying value
      of the Vertex goodwill by $146.7. (See also note 17).


                                       42
<PAGE>

10.   ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

                                                     2001            2000
                                                    ----------------------
      Trade payables                                $ 32.3          $ 68.5
      Employee-related payables                       17.5            30.8
      Provision for disposal of discontinued
        operations (note 19)                          20.2              --
      Goods received not invoiced                     13.7            12.7
      Restructuring and other provisions              10.5              --
      Other accrued liabilities                       55.1            99.3
                                                    ----------------------
                                                    $149.3          $211.3
                                                    ======================

11.   LONG-TERM DEBT

                                                                2001       2000
                                                               -----------------

      AXELs Series B, at a variable interest rate based on a
      defined US base rate plus 1.00% or a successive  three
      month  LIBOR rate plus  2.00%;  at March 31,  2000 the
      effective interest rate was 8.56%; the loan was repaid
      on February 16, 2001 (see below). (2000 - U.S. $112.5)    $  --     $163.5


      Tranche A Term Loan, at a variable interest rate based
      on a defined US base rate plus  0.50% or a  successive
      three month  LIBOR rate plus 1.50%;  at March 31, 2000
      the effective  interest  rate was 8.06%;  the loan was
      repaid in June 2000 (see below). (2000 - U.S. $18.9)         --       27.0

      Capital  leases and other,  at rates varying from 3.9%
      to 11.87% with payment terms ranging from 1 to 7 years
      (2000 - 5.8% to 10.4% with payment  terms ranging from
      1 to 5 years)                                              12.6       80.7

      Non-interest  bearing  1996  Canada-Quebec  government
      loan,  repayable  in three equal  annual  installments
      commencing July, 2001                                       4.2        4.2
                                                               -----------------
                                                                 16.8      275.4

      Less current portion                                        9.2       57.9
                                                               -----------------
                                                                $ 7.6     $217.5
                                                               =================

      The Company  fully repaid the AXELs Series B loan from  proceeds  received
      from the sale of the Company's Communications Systems Business on February
      16, 2001 and in accordance with mandatory prepayment  conditions under the
      credit agreement. (See also note 19).

      The Tranche A Term Loan was fully repaid in June 2000 in  accordance  with
      the terms of the credit  agreement  which required  mandatory  prepayments
      from defined excess cash flows.

      Future  minimum lease  payments of the  obligations  under capital  leases
      total $13.4 of which $8.4,  $3.8,  $0.9,  $0.1,  and $0.2 relate to fiscal
      years 2002 to 2006 and  beyond  respectively.  Interest  costs of $0.8 are
      included in the total future lease payments.

      Scheduled  principal  repayments,   excluding  obligations  under  capital
      leases,  during the next five fiscal years are: 2002 - $1.4;  2003 - $1.4;
      2004 -  $1.4;  2005 - $nil;  2006 -  $nil.  Interest  expense  related  to
      long-term debt was $15.1 in Fiscal 2001 (2000 - $25.9; 1999 - $37.7).


                                       43
<PAGE>

12.   COMMITMENTS

      (A)   OPERATING LEASES

            The future minimum lease payments for operating leases for which the
            Company was  committed as at March 30, 2001 were as follows:  2002 -
            $9.0;  2003 - $8.2;  2004 - $7.2; 2005 - $6.3; 2006 - $5.6; 2007 and
            beyond - $18.6.

            Rental expense on operating  leases from  continuing  operations for
            the year ended March 30, 2001 amounted to $4.5 (2000 - $5.1;  1999 -
            $4.8).

      (B)   LETTERS OF CREDIT

            The Company had letters of credit  outstanding  as at March 30, 2001
            of approximately $6.4.

      (C)   CAPITAL EXPENDITURES

            Capital expenditure commitments under purchase orders outstanding at
            the end of Fiscal 2001 amounted to approximately $12.7.

13.   CONTINGENCIES

      The Company is a defendant  in a number of lawsuits  and party to a number
      of other 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  lawsuits and 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.

14.   CAPITAL STOCK

      The Company's  authorized capital stock consists of an unlimited number of
      preferred and common shares.

      Shares outstanding                                   2001        2000
                                                       ------------------------
      Preferred shares - R&D series                      1,593,900    1,607,900
      Common shares                                    126,136,799  113,997,734

(A)   PREFERRED SHARES

      Dividends - Fixed  cumulative  cash  dividends are payable  quarterly at a
      rate of $2.00 per share per annum.

      Redemption  - The shares are  currently  redeemable,  at the option of the
      Company, at $25.00 per share plus accrued dividends.

      Purchase  Obligation - The Company is required to make reasonable  efforts
      to  purchase  22,400  shares  in each  calendar  quarter  at a  price  not
      exceeding $25.00 per share plus costs of purchase.  The difference between
      the stated capital of the repurchased  shares over the consideration  paid
      for such shares is recorded against contributed  surplus.  During the year
      ended March 31, 2001, the Company  purchased  14,000  preferred shares for
      cash consideration of $0.4.

(B)   COMMON SHARES

      An analysis  of the changes in the number of common  shares and the amount
      of share capital for the three years ended March 30, 2001 is as follows:


                                       44
<PAGE>

                                                     Number          Amount
                                                  -------------------------
      Balance, March 27, 1998                      108,394,631        157.3
      Public share offering, July 23, 1998           8,000,000        172.0
      Exercise of employee stock options               310,900          1.9
                                                  ------------       ------

      Balance, March 26, 1999                      116,705,531        331.2
      Repurchase of common shares                   (3,383,800)        (9.5)
      Exercise of employee stock options               676,003          3.9
                                                  -------------------------

      Balance, March 31, 2000                      113,997,734       $325.6
      Shares issued relating to acquisitions
       (see also note 20)                           10,997,968        300.7
      Exercise of employee stock options             1,141,097          8.9
                                                  -------------------------

      Balance, March 30, 2001                      126,136,799       $635.2
                                                  =========================

      On June 5, 2000,  the Company  announced  its  intention  to continue  its
      normal  course  issuer bid program for up to  5,706,196  common  shares (5
      percent of  114,123,921  common shares issued and  outstanding  at May 30,
      2000) between June 9, 2000 and June 8, 2001. All  repurchased  shares will
      be cancelled. In the year ended March 30, 2001, no shares were repurchased
      under this program. (See also note 27).

(C)   NET INCOME PER COMMON SHARE

      The net income per  common  share  figures  were  calculated  based on net
      income  after the  deduction of preferred  share  dividends  and using the
      weighted  monthly  average  number  of  shares   outstanding   during  the
      respective  periods.  The calculation of fully diluted  earnings per share
      assumes that, if a dilutive effect is produced,  all  outstanding  options
      had been  exercised  at the later of the  beginning of the fiscal year and
      the option issue date, and includes an allowance for imputed  earnings net
      of tax derived from the investment of funds that would have been received.
      In addition,  the fully diluted  earnings per share  calculation  includes
      common shares issued with restrictions. (See also note 20).

(D)   DIVIDEND RESTRICTIONS ON COMMON SHARES

      The Company may not declare  cash  dividends on its common  shares  unless
      dividends on the  preferred  shares have been  declared  and paid,  or set
      aside for payment. No common share dividend is currently being paid out.

(E)   STOCK OPTION PLANS

      At the Company's 1991 Annual General Meeting,  the  shareholders  approved
      resolutions  authorizing  stock options for key employees and non-employee
      directors.   Certain   amendments   to  the  plan  were  approved  by  the
      shareholders at the 1993, 1995 and 1998 Annual General  Meetings  allowing
      for 1,000,000,  2,000,000 and 10,200,000 additional shares,  respectively,
      to be made available for grant. Available for grant at March 30, 2001 were
      1,979,470 (2000 - 3,567,998; 1999 - 7,342,275) shares. All options granted
      prior to  January  29,  1998  have  ten year  terms  and  options  granted
      thereafter  have six year terms.  All options become fully  exercisable at
      the end of four years of continuous employment.

      On July 12, 1999, the Company offered an option exchange program to option
      holders (with the exception of directors, officers and certain executives)
      who received  stock option  grants in calendar  1998 at $17.78 and higher.
      Under the terms of the program,  and with the consent of the Toronto Stock
      Exchange,  1,750,000 options were cancelled and 1,000,657 new options were
      granted at an exercise  price of $9.92 per share.  The reduction in number
      of options was  directly  proportional  to the  decrease  in the  exercise
      price. The new grants have a term of six years.

      On February 21, 2001, the Company  offered an option  exchange  program to
      option  holders  (with the  exception of  directors,  officers and certain
      executives)  who received  stock option  grants after  November 1, 1999 at
      $14.31 and higher. Under the terms of the program, and with the consent of
      the Toronto Stock Exchange,  2,691,350 options were cancelled and an equal
      number of new  options  were  granted at an  exercise  price of $14.06 per
      share. The new grants have a term of six years.


                                       45
<PAGE>

      In  connection  with  the sale by the  Company  of its  worldwide  Systems
      business on February 16, 2001 and further to  negotiations  with the buyer
      to provide the buyer with  assistance  in retaining  employees  during the
      first year  following  the closing,  all  employees of the former  Systems
      business who held options to purchase  common  shares of the Company which
      were vested as at  February  16, 2001 were  provided  with a period  until
      August 14, 2002 to exercise  such options if they  remained  employed with
      the buyer until at least February 15, 2002. In addition,  of the remaining
      unvested  options  held by such  employees  as at February  16,  2001,  50
      percent were  accelerated to vest on February 15, 2002 (provided that such
      employees  remain employed by the buyer as of such date) and the remaining
      50 percent were cancelled as of February 16, 2001. All such employees have
      a further 180-day period  following such  accelerated  vesting to exercise
      such options and any options  remaining  unexercised as at August 14, 2002
      expire on that date.

      A summary of the Company's stock option  activity and related  information
      for the three years ended March 30, 2001 is as follows:

<TABLE>
<CAPTION>
                                               2001                         2000                        1999
                                   ---------------------------    -------------------------    ------------------------
                                                  Weighted                      Weighted                    Weighted
                                                   Average                       Average                     Average
                                    Options    Exercise Price      Options   Exercise Price    Options   Exercise Price
                                   ---------------------------    -------------------------    ------------------------
<S>                                  <C>               <C>         <C>           <C>           <C>           <C>
   Outstanding options:
     Balance, beginning of year      9,017,262         $12.37      5,918,988     $12.89        6,251,888     $12.30
     Granted                         6,098,025         $17.69      6,439,957     $13.03          403,000     $19.40
     Exercised                     (1,141,097)         $ 7.72       (676,003)    $ 5.84         (310,900)    $ 6.12
     Forfeited                       (841,897)         $15.98       (633,180)    $13.14         (425,000)    $15.38
     Cancelled                     (3,667,600)         $20.49     (2,032,500)    $17.85               --         --
                                   --------------------------     -------------------------    ------------------------
   Balance, end of year              9,464,693         $12.91      9,017,262     $12.37        5,918,988     $12.89
                                   ==========================     =========================    ========================
   Exercisable, end of year          2,542,251         $11.85      1,863,584     $ 9.37        2,367,963     $ 9.55
                                   ==========================     =========================    ========================

   Weighted  average  fair  value
   price   of   options   granted
   during   the  year  using  the
   Black-Scholes    fair    value
   option   pricing   model  (See
   also note 23)                                       $ 9.02                    $ 7.33                          $10.40
                                               ==============                ==============              ==============
</TABLE>

      A summary of options outstanding at March 30, 2001 is as follows:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
----------------------------- Total Outstanding ----------------------------   ------- Total Exercisable -------
                               Weighted Average   Weighted Average Remaining                  Weighted Average
Exercise Price     Options      Exercise Price         Contractual Life           Options      Exercise Price
----------------------------------------------------------------------------------------------------------------
<S>                <C>             <C>                     <C>                  <C>               <C>
$ 1.10-$ 5.75        146,300        $3.94                  3 years                146,300          $3.94
$ 6.39-$ 9.20      2,343,573        $7.58                  4 years                770,500          $7.48
       $ 9.32        308,750        $9.32                  4 years                308,750          $9.32
$ 9.44-$11.73      1,175,353       $10.15                  5 years                434,709          $9.96
$12.03-$17.78      4,082,975       $14.67                  6 years                354,001         $17.64
$18.33-$37.75      1,407,742       $20.66                  5 years                527,991         $19.57
                 =============                                                =============
                   9,464,693                                                    2,542,251
                 =============                                                =============
</TABLE>


                                       46
<PAGE>

15.   TRANSLATION ACCOUNT

      The following table summarizes changes in the translation account:

                                               2001       2000       1999
                                            --------------------------------
      Balance, beginning of year            $  (3.4)    $  28.2     $   5.8

      Increase (decrease):
      Movements in exchange rates -
        U.K. pound sterling                    (9.2)      (14.3)        3.1
        U.S. dollar                            21.6       (11.4)       18.3
        Swedish krona                          (2.0)       (1.9)        1.4
        Other currencies                        0.7        (3.2)        1.2
      Reduction of net investments
       in subsidiaries                         (3.4)       (0.8)       (1.6)
                                            --------------------------------
      Balance, end of year                  $   4.3     $  (3.4)    $  28.2
                                            ================================

16.   INVESTMENT TAX CREDITS AND GOVERNMENT ASSISTANCE

      During the year, the Company recognized Canadian ITCs and other funding of
      $5.5 (2000 - $4.0; 1999 - $5.3) related to eligible R&D expenditures  from
      continuing operations.  Included in discontinued  operations were Canadian
      ITCs of $8.4 in Fiscal 2001 (2000 - $10.0; 1999 - $18.4).

17.   OTHER INCOME AND COSTS

      (a) Impairment of Capital Assets

      In the year ended March 30, 2001, the Company recorded a write-down of its
      capital assets relating to the carrying values of the acquired  intangible
      assets  associated with Vertex and to the carrying values of the buildings
      and equipment associated with the fabrication  facilities in Canada and in
      the United Kingdom.

      The asset impairment charge was as follows:

                                                                     2001
                                                                   -------
      Impairment of capital assets:
        Goodwill                                                   $ 146.7
        Fabrication facilities                                       145.6
                                                                   =======
                                                                   $ 292.3
                                                                   =======
      Income tax recovery on facilities
        impairment                                                 $  14.1
                                                                   =======

      The Company reviewed the carrying value for the acquired intangible assets
      of Vertex.  Based on an analysis of  estimated  future  undiscounted  cash
      flows and current and  expected  adverse  market  conditions,  the Company
      determined that the carrying value of the acquired  intangible  assets was
      impaired  and  recorded  a charge  of $146.7  to write  down the  goodwill
      relating to Vertex.

      The  Company  also  reviewed  the  carrying   value  of  its   fabrication
      facilities.  Based on an analysis of estimated  future  undiscounted  cash
      flows,  current and expected  adverse market  conditions which result in a
      low operating rate for these facilities,  and the Company's  manufacturing
      strategy that is expected to incorporate  higher  degrees of  outsourcing,
      the  Company  determined  that  the  carrying  values  of the  fabrication
      buildings and equipment were impaired and recorded a charge of $131.5, net
      of income tax recoveries of $14.1, to write down these carrying values.

      (b) Gain on Sale of Assets

      In Fiscal 1999,  the Company  realized a pre-tax gain of $6.0  relating to
      the disposal of certain non-strategic technology and other assets.


                                       47
<PAGE>

18.   INCOME TAXES

      As detailed in Note 2, the Company  changed its method of  accounting  for
      income taxes as at April 1, 2000.  The  comparative  balances are based on
      the deferral method of tax allocation.

      Details of income taxes were as follows:

                                              2001          2000          1999
                                            ------------------------------------
      Income (loss) from continuing
        operations before income taxes:
      Canadian                              $(206.8)      $  62.3       $  12.7
      Foreign                                (121.7)         (6.9)         15.3
                                            ------------------------------------
                                            $(328.5)      $  55.4       $  28.0
                                            ====================================
      Income tax expense (recovery):
      Current
        Canadian                            $  12.8       $  19.3       $   8.2
        Foreign                                 3.2           0.4          (6.9)
      Future
        Canadian                               (2.0)          4.5            --
        Foreign                               (12.1)         (6.4)         (5.2)
                                            ------------------------------------
                                            $   1.9       $  17.8       $  (3.9)
                                            ====================================

      Future income taxes  reflect the net tax effects of temporary  differences
      between  the  carrying  amounts of assets and  liabilities  for  financial
      reporting   purposes  and  the  amounts  used  for  income  tax  purposes.
      Significant  components  of the  Company's  future  income  tax assets and
      liabilities as of March 30, 2001, were as follows:

                                                                     2001
                                                                   -------
      Future income tax assets:
        Provisions                                                 $   3.3
        Impairment of fabrication facilities                          14.1
        Income tax loss carryforwards                                 15.6
        Debt issue costs                                               1.1
        Share issue costs                                              1.5
        Other - net                                                    1.1
                                                                   -------
      Future income tax assets                                        36.7
                                                                   -------
      Future income tax liabilities:
        Book and tax differences on fixed assets                      33.8
        Tax credits                                                   13.8
        Other - net                                                    1.7
                                                                   -------
      Future income tax liabilities                                   49.3
                                                                   -------
      Net future income tax liabilities                            $  12.6
                                                                   =======
      Reconciliation to Consolidated Financial Statements:
        Future income tax assets                                   $   1.9
                                                                   -------
        Less:
          Future income tax liabilities - current portion              7.3
          Future income tax liabilities - long-term portion            7.2
                                                                   -------
                                                                      14.5
                                                                   -------
      Net future income tax liabilities                            $  12.6
                                                                   =======

      The reported  income tax expense from continuing  operations  differs from
      the amount  computed by applying the Canadian  rates to the income  before
      income taxes. The reasons for these differences and their tax effects were
      as follows:


                                       48
<PAGE>

                                                    2001       2000       1999
                                                 ------------------------------
      Expected tax rate                               38%        40%        40%
                                                 ------------------------------
      Expected tax expense (recovery)            $(124.8)    $ 22.2     $ 11.2
      Foreign tax rate differences                   4.4       (2.7)      (5.9)
      Tax effect of losses not recognized           46.2        0.2        0.4
      Tax effect of amortization of acquired
        intangibles                                 91.7        4.2         --
      Tax effect of realizing benefit of prior
        years' loss carryforwards and timing
        differences                                (14.2)      (6.3)      12.7)
      Corporate minimum taxes                        2.2        0.4        0.3
      Other                                         (3.6)      (0.2)       2.8
                                                 ------------------------------
      Income tax expense (recovery)              $   1.9     $ 17.8     $ (3.9)
                                                 ==============================

      Unremitted  earnings of subsidiaries  subject to withholding taxes will be
      indefinitely   reinvested  with  no  provision   necessary  for  potential
      withholding taxes on repatriation of subsidiary earnings.  The loss before
      income   taxes   attributable   to  all  foreign   operations,   including
      discontinued  operations,  was $103.1 (2000 - loss of $15.7; 1999 - income
      of $5.0).

      As  at  March  30,  2001,  the  Company  had  tax  loss  carryforwards  of
      approximately  $146.0 for which an  accounting  benefit was  recognized on
      approximately   $65.9  of  these  tax  losses.   The  remaining  tax  loss
      carryforwards  are  available  to  reduce  future  years'  income  for tax
      purposes.  The tax loss  carryforwards for which an accounting benefit has
      been  recognized do not expire while the remaining tax loss  carryforwards
      of $80.1 expire in 2020. The tax loss  carryforwards  relate to operations
      in the United States, the United Kingdom and Sweden. As at March 30, 2001,
      the Company had Canadian ITC carryforwards of approximately  $23.6,  which
      are available to reduce future years' income taxes,  for which the benefit
      was recognized in these financial statements. These ITCs expire during the
      years from 2008 to 2011.

19.   DISCONTINUED OPERATIONS

      (a) Communications Systems Business

      On  November  3,  2000,  the  Company   adopted  formal  plans  to  pursue
      divestiture  opportunities  related  to  the  distinct  operations  of the
      Systems  business.  Accordingly,  the operations  related to this business
      were accounted for as discontinued  operations with November 3, 2000 being
      the effective measurement date.

      On February 16, 2001,  the Company sold its  worldwide  Systems  business,
      including the name  "Mitel",  to a company  controlled  by Dr.  Terence H.
      Matthews.  As  part  of the  transaction,  Mitel  transferred  most of its
      Ottawa, Canada real estate to Dr. Matthews. The Company received $302.3 in
      cash  proceeds,  after  adjustments,  in exchange for selling a 90 percent
      ownership  interest in the Company's  communications  systems business and
      most of its real property in Ottawa,  Canada. The Company must adopt a new
      name, subject to shareholder approval, within six months of the closing of
      the transaction. (See also note 27).

      The results of the Systems business operations were as follows:

<TABLE>
<CAPTION>
                                                            2001       2000       1999
                                                          -----------------------------
<S>                                                       <C>        <C>        <C>
      Sales for the period ended February 16, 2001        $ 515.0    $ 793.7    $ 752.7
                                                          -----------------------------
      Results of operations to the measurement date of
           November 3, 2000:

      Income (loss) before income taxes                   $ (13.7)   $  48.2    $  30.0

      Income tax (expense ) recovery                          4.5      (21.8)     (21.4)
                                                          -----------------------------
      Income (loss) from discontinued operations to the
           measurement date of November 3, 2000           $  (9.2)   $  26.4    $   8.6
                                                          =============================
</TABLE>

      The Company recorded a gain of $22.6,  net of transaction  costs and other
      provisions to separate the Systems  business  totaling  $32.5,  as well as
      post-measurement date operating losses of $50.1 and income taxes of $10.6.


                                       49
<PAGE>

      The significant assets and liabilities of discontinued operations included
      in the financial statements were as follows:

                                                         March 30,   March 31,
                                                            2001        2000
                                                         ---------------------
      Current assets                                      $  --     $  256.7
      Long-term receivables                               $  --     $    7.8
      Fixed assets                                        $  --     $   95.6
      Patents, trademarks and other                       $  --     $    2.5
      Accounts payable and accrued liabilities            $  --     $   86.2
      Deferred revenue                                    $  --     $   27.0

      (b) Lincoln Power and Automotive

      On March 26, 1999, the Company adopted formal plans to pursue  divestiture
      opportunities  related to the distinct operations of the Lincoln Power and
      Automotive  business  segment  ("Lincoln")  which was part of the  Plessey
      Semiconductors   Group  acquired  in  Fiscal  1998  (see  also  note  19).
      Accordingly, the operations related to this business were accounted for as
      discontinued operations.

      On January 19, 2000,  the Company  completed the sale of Lincoln for total
      consideration  of $12.0,  including cash of $9.5 and a note  receivable of
      $2.5.  The  financial  results  of the  discontinued  operations  were  as
      follows:

<TABLE>
<CAPTION>
                                                            2001       2000       1999
                                                          ------------------------------
<S>                                                       <C>        <C>        <C>
      Sales                                               $     --   $   32.2   $   74.3
                                                          ==============================
      Income from discontinued operations,
      net of  income tax recoveries
      of $Nil (2000 - $Nil; 1999 - $0.8)                  $     --   $     --   $    2.0
                                                          ==============================
      Estimated loss on disposal of
      discontinued operations, net of income
      tax recoveries of $Nil (2000 - $3.4; 1999 - $9.7)   $     --   $    8.0   $   16.3
                                                          ==============================
      Basic loss per common share from
      discontinued operations                             $     --   $    0.7   $   0.13
                                                          ==============================
      Fully diluted loss per common share
      from discontinued operations                        $     --   $    0.7   $   0.12
                                                          ==============================
</TABLE>

      The Lincoln  operating  loss of $9.8 for the ten months ended  January 19,
      2000 was charged to the provision for discontinued operations.

      The Fiscal 1999 income before  income taxes  included  allocated  interest
      expense related to long-term debt of $7.0.  Interest expense was allocated
      to  discontinued  operations  based on a ratio of Lincoln revenue to total
      Plessey revenue.

20.   ACQUISITIONS

(a)   On  July  28,  2000,  the  Company  acquired   privately-held   Vertex,  a
      California-based fabless semiconductor company providing silicon solutions
      for the enterprise  switching and wide area network access markets.  Mitel
      acquired Vertex in a share  transaction for approximately 11 million newly
      issued common shares valued at $300.7. Approximately 1.1 million shares or
      10  percent  of the  issued  shares  were  placed in escrow for a two-year
      period to indemnify  the Company for  representations  made by Vertex.  In
      addition,  approximately 535 thousand issued shares are subject to certain
      restrictions over a two-year period.

      The fair value of the consideration was based on the average closing price
      of the  Company's  common  shares on the Toronto  Stock  Exchange  shortly
      before and after the date of  acquisition.  The  acquisition was accounted
      for by the purchase  accounting  method. The purchase price allocation was
      based on fair values assigned to net assets as determined and finalized by
      an  independent  valuation firm using standard  valuation  techniques.  An
      amount of $278.1 was allocated to intangible assets that include completed
      and in-process  research and development and other intangible  assets. The
      difference   between  the  purchase  price  and  the  fair  value  of  the
      identifiable  net  assets  amounted  to  $233.9,  which  was  recorded  as
      goodwill.  The  identifiable   intangible  assets  and  the  goodwill  are


                                       50
<PAGE>

      amortized over a two-year  period.  The allocation to net assets  included
      $1.6 in respect of acquisition costs and costs to integrate the operations
      of the acquired company.

      The purchase transaction is summarized as follows:

      Net assets acquired, at approximate
        fair value:

      Current assets                                               $ 29.9
      Capital assets                                                  2.3
      Goodwill and acquired intangible assets                       278.1
                                                                   ------

      Total assets                                                  310.3
      Current liabilities                                            (9.6)
                                                                   ------

      Total net assets                                             $300.7
                                                                   ======
      Common share consideration                                   $300.7
                                                                   ======

      The preliminary  estimate of acquisition and integration  costs as at July
      28,  2000 was $8.6,  of which $7.0 was  subsequently  determined  to be in
      excess of the  actual  requirement.  Accordingly,  the  excess of $7.0 was
      applied to reduce  goodwill  in the third  quarter of Fiscal  2001.  As at
      March 30, 2001,  the liability in respect of acquisition  and  integration
      costs was $nil.

      In the year ended March 30, 2001, the Company recorded an asset impairment
      charge to reduce the carrying value of goodwill by $146.7.  (See also Note
      17).

      Unaudited Pro Forma  financial  information  for the acquisition as if the
      business had been acquired at the beginning of each respective fiscal year
      is presented as follows:

                                                     2001          2000
                                                   ----------------------
      Revenue                                      $  676.8      $  607.6
                                                   ======================
      Net loss from continuing operations          $ (230.8)     $ (113.8)
                                                   ======================
      Net loss                                     $ (217.4)     $  (94.5)
                                                   ======================
      Net loss attributable to common
        shareholders after preferred
        dividends                                  $ (220.6)     $  (97.7)
                                                   ======================
      Net loss per common share from
        continuing operations:
            Basic and fully diluted                $  (1.78)     $  (0.94)
                                                   ======================
      Net loss per common share:
            Basic and fully diluted                $  (1.68)     $  (0.79)
                                                   ======================
      Weighted average number of common
        shares outstanding (millions):
            Basic                                     131.6         124.1
                                                   ======================
            Fully diluted                             133.2         131.3
                                                   ======================

      The  unaudited  Pro  Forma  information  does  not  include  the  expected
      operating savings or synergies as a result of the combined operations.

(b)   On May 8,  1998,  the  Company  acquired  certain  assets of the  Customer
      Premises Equipment Business Unit of Centigram Communications  Corporation,
      later  operated as the  Advanced  Messaging  business  unit under the name
      Baypoint  Innovations,  for cash consideration of U.S.$22.0.  The Advanced
      Messaging  business  unit  formed  part  of  the  Company's   discontinued
      Communications Systems operations.  The Company also purchased receivables
      and  inventories  related to that business for  approximately  U.S.$4.8 in
      cash.  The Advanced  Messaging  business,  based in San Jose,  California,
      provides  productivity-enhancing,  enterprise-wide  messaging solutions to
      organizations around the world through a broad network of distributors and
      agents.  The  acquisition  was  accounted  for by the purchase  accounting
      method. The purchase price allocation was based on fair values assigned to
      net assets as determined by an  independent  valuation firm using standard
      valuation  techniques.  An amount of $35.9 was  allocated to  identifiable
      intangible  assets that  include  completed  and  in-process  research and
      development  and other  intangible  assets.  The  difference  between  the
      purchase price and the fair value of the net identifiable  assets amounted
      to $0.6,  which was  recorded as  goodwill.  The  identifiable  intangible
      assets  and the  goodwill  were  amortized  over a two  year


                                       51
<PAGE>

      period. The allocation to net identifiable assets included $2.9 in respect
      of the  acquisition  costs and costs to integrate  the  operations  of the
      acquired  company.  As at March 30, 2001 and March 31, 2000, the liability
      in respect of acquisition and  integration  costs was $nil (March 26, 1999
      was $1.3). The purchase transaction was summarized as follows:

      Net assets acquired, at approximate fair values:

      Current assets                                                 $   6.6
      Capital assets                                                    39.2
                                                                     -------
      Total assets                                                      45.8
                                                                     -------

      Current liabilities                                                7.2
                                                                     -------

      Total net assets                                               $  38.6
                                                                     =======
      Cash consideration                                             $  38.6
                                                                     =======

(c)   On May 19, 1998, the Company acquired the products,  technology,  research
      and  development  facilities  and  sales  and  marketing  organization  of
      Glasgow-based  TSc for cash  consideration  of $8.0. TSc, later defined as
      ISDN  PBX,  provided  ISDN  business  products  for the  small  to  medium
      enterprise market. The ISDN PBX business unit formed part of the Company's
      discontinued   Communications  Systems  operations.  The  acquisition  was
      accounted  for by the  application  of the purchase  accounting  method in
      which the results of operations  were  included in the Company's  accounts
      from  the  date of  acquisition.  An  amount  of  $4.5  was  allocated  to
      identifiable   intangible  assets  relating  to  completed   research  and
      development.  The difference between the purchase price and the fair value
      of the net  identifiable  assets  amounted to $2.0,  which was recorded as
      goodwill.  The completed  research and  development  and the goodwill were
      amortized  over a two year  period.  The  allocation  to net  identifiable
      assets  included  $2.0 in  respect of the  acquisition  costs and costs to
      integrate the operations of the acquired company. The liability in respect
      of acquisition and  integration  costs was $nil at the end of Fiscal 2001,
      2000, and 1999. The purchase transaction was summarized as follows:

      Net assets acquired, at approximate fair values:

      Current assets                                                 $  2.4
      Capital assets                                                    7.6
                                                                     ------
      Total assets                                                     10.0
                                                                     ------

      Current liabilities                                               2.0
                                                                     ------

      Total net assets                                               $  8.0
                                                                     ======
      Cash consideration                                             $  8.0
                                                                     ======

21.   RELATED PARTY TRANSACTIONS

      During the year ended March 30, 2001,  the Company  sold to and  purchased
      from jointly controlled and significantly  influenced enterprises products
      and services valued at  approximately  $nil (2000 - $2.7; 1999 - $3.8) and
      $1.1  (2000 - $0.9;  1999 - $1.0)  respectively.  These  transactions  for
      products  and services  were under usual trade terms and were  measured at
      their exchange amounts.

      Included in accounts receivable as at March 30, 2001 were amounts due from
      jointly controlled and significantly  influenced enterprises of $0.3 (2000
      - $0.5).

22.   INFORMATION ON BUSINESS SEGMENTS

      The Company's reportable business segments from continuing  operations are
      comprised of the  Communications and Medical groups.  Reportable  segments
      are  business  units that offer  different  products  and services and are
      managed  separately  because of these  differences.  Prior to the  Company
      adopting  formal  plans  to  sell  the  Systems  business,  the  Company's
      reportable   business   segments   were   comprised  of  the  Systems  and
      Semiconductor groups.


                                       52
<PAGE>

      The  Communications   business   specializes  in  broadband   connectivity
      solutions  over wired,  wireless  and optical  media.  The  Communications
      business includes network access products that provide connectivity to the
      network's  core  backbone  such as feeder,  aggregation  and  transmission
      applications  and those  that  address  the  multi-protocol  physical  and
      network layers.  In addition,  the  Communications  business includes user
      access products that allow users to connect to the network. These products
      include  wireless  and  infotainment   applications.   The  Communications
      business also includes  custom  products that involve the design of custom
      applications-specific  integrated  circuits  ("ASICs")  as well as  custom
      foundry services for external parties.

      The Medical  business  provides ASIC  solutions for  applications  such as
      pacemakers, hearing aids and portable instruments.

      The  Company  evaluates  the  performance  of each  business  segment  and
      allocates resources based on operating income from continuing  operations,
      which excludes any intersegment sales of products and services. Mitel does
      not  allocate  amortization  of  intangibles,  special  charges  or gains,
      interest  income or  interest  expense or income  taxes to its  reportable
      segments.  In addition,  total assets are not  allocated to each  segment;
      however, depreciation of capital assets is allocated to the segments based
      on the asset usage. The accounting policies of the reportable segments are
      the same as those  described  in the  summary  of  significant  accounting
      policies.

<TABLE>
<CAPTION>
                                                                                Unallocated
Year Ended March 30, 2001                           Communications    Medical      Costs          Total
                                                    ------------------------------------------------------
<S>                                                     <C>           <C>          <C>            <C>
      Total external sales revenue                      $625.4        $ 48.6       $   --         $674.0
      Amortization of buildings and equipment             96.4           1.0           --           97.4
      Amortization of acquired intangibles                  --            --         94.6           94.6
      Impairment of capital assets                          --            --        292.3          292.3
      Segment's operating income (loss) from
           continuing operations                          72.6           1.4       (386.9)        (312.9)

                                                                                Unallocated
Year Ended March 31, 2000                           Communications    Medical      Costs          Total
                                                    ------------------------------------------------------
      Total external sales revenue                      $562.4        $ 40.4       $   --         $602.8
      Amortization of buildings and equipment             77.0           0.8           --           77.8
      Amortization of acquired intangibles                  --            --         14.0           14.0
      Segment's operating income from continuing
           operations                                     72.4          10.4        (14.0)          68.8

                                                                                Unallocated
Year Ended March 26, 1999                           Communications    Medical      Costs          Total
                                                    ------------------------------------------------------
      Total external sales revenue                      $509.8        $ 47.9       $   --         $557.7
      Amortization of buildings and equipment             84.0           0.9           --           84.9
      Amortization of acquired intangibles                  --            --           --             --
      Gain on sale of assets                                --            --         (6.0)          (6.0)
      Segment's operating income from continuing
           operations                                     37.8           9.0          6.0           52.8
</TABLE>

Geographic Segments

      Revenues from continuing operations from external customers are attributed
      to countries based on location of the selling organization.


                                       53
<PAGE>

Geographic information is as follows:

<TABLE>
<CAPTION>
                                 2001                              2000                    1999
                   -------------------------------   ---------------------------------   ----------
                                        Acquired                            Acquired
                                Fixed  Intangible                Fixed     Intangible
                    Revenue    Assets    Assets      Revenue     Assets      Assets       Revenue
                   -------------------------------   ---------------------------------   ----------
<S>                 <C>         <C>       <C>        <C>         <C>         <C>           <C>
Canada              $117.8      $ 64.5    $ 38.1     $130.9      $140.4      $  0.4        $ 66.9
United States        259.0         5.6        --      227.6        11.2         1.8         227.8

United Kingdom       232.9       116.6        --      195.2       285.4         0.8         198.8
Sweden                37.9        19.1        --       26.0        19.3          --          30.2
Other foreign
countries             26.4         1.2        --       23.1         1.1          --          34.0
                   -------------------------------   ---------------------------------   ----------
Consolidated
total               $674.0      $207.0    $ 38.1     $602.8      $457.4      $  3.0        $557.7
                   ===============================   =================================   ==========
</TABLE>

      Major Customers

      For the year ended  March 30,  2001,  the Company  had  revenues  from one
      external customer, a major distributor, which exceeded 10 percent of total
      net revenues (2000 - nil; 1999 - nil). Sales to this distributor in Fiscal
      2001 amounted to $96.8 and related to the Communications segment.

23.   UNITED STATES ACCOUNTING PRINCIPLES

      The  consolidated  financial  statements  have been prepared in accordance
      with accounting  principles  generally  accepted in Canada (Canadian GAAP)
      which, in the case of the Company,  conform in all material  respects with
      those in the United States (U.S.  GAAP) and with the  requirements  of the
      Securities and Exchange Commission (SEC), except as follows:

(A)   Purchased R&D under  Canadian GAAP is  capitalized  and amortized over the
      remaining  useful life of the  technology to which it relates.  Under U.S.
      GAAP, the purchased in-process R&D is expensed at the time of acquisition.
      The  Company  has  not  established  the  technical   feasibility  of  the
      in-process R&D and it has no alternative future use.

(B)   Under Canadian  GAAP,  unrealized and realized gains and losses on foreign
      currency  transactions  identified  as hedges may be  deferred  as long as
      there is reasonable assurance that the hedge will be effective. Under U.S.
      GAAP, deferral is allowed only on foreign currency  transactions  intended
      to hedge identifiable firm foreign currency commitments.

(C)   Under  Canadian  GAAP,  exchange gains or losses related to translation of
      foreign  currency  denominated  long-term  monetary items are deferred and
      amortized over the remaining life of the items. Under U.S. GAAP,  deferral
      is not allowed and such gains or losses are included in the  determination
      of net income.

(D)   Under  Canadian  GAAP,  certain  costs  related  to  the  acquirer  may be
      recognized in the purchase price  allocation  when accounting for business
      combinations.  These costs,  subject to certain conditions,  qualify where
      they are a direct  substitute  for costs that would  otherwise be incurred
      with  respect  to the  acquired  business.  Under  U.S.  GAAP,  only costs
      relating  directly  to the  acquired  business  may be  considered  in the
      purchase  price  allocation.  This has  resulted  in a  difference  in the
      valuation of goodwill at the time of the  purchase  and in the  subsequent
      amortization of the goodwill.

(E)   Under  U.S.  GAAP the fully  diluted  earnings  per share is  computed  in
      accordance  with the  treasury  stock  method  and  based on the  weighted
      average number of common shares and dilutive common share equivalents.

(F)   U.S.  GAAP  requires  the  presentation  of  comprehensive  income,  which
      includes  all  changes  in  shareholders'  equity  during a period  except
      shareholders   transactions.   In   addition,   items   defined  as  other
      comprehensive income such as


                                       54
<PAGE>

      foreign currency translation adjustments, are separately classified in the
      financial  statements and the accumulated  balance of other  comprehensive
      income  (loss)  is  reported  separately  in  shareholders'  equity on the
      balance sheet.

(G)   Redeemable  preferred shares are excluded from shareholders'  equity under
      requirements of the SEC.

(H)   Under  Canadian  GAAP,  stock issue costs may be shown as an adjustment to
      retained  earnings.  The carrying  amount of capital stock is shown net of
      issue costs under U.S. GAAP.

(I)   Reductions in stated capital and deficit are not recorded under U.S. GAAP.
      The  Company  had  previously   undertaken   stated  capital  and  deficit
      reductions in fiscal years 1985, 1986, 1987 and 1992.

(J)   Under  Canadian  GAAP,  the fair  value of the  share  consideration  in a
      business  combination  is based on the quoted  market  value of the shares
      shortly before and after the date of acquisition.  Under US GAAP, the fair
      value of the share  consideration  is based on the quoted  market value of
      the shares  shortly before and after the first date on which the number of
      shares becomes fixed and the proposed  transaction is announced.  This can
      result in a  difference  in the fair value of the  purchase  price and the
      resulting  valuation  of goodwill at the time of the  purchase  and in the
      subsequent amortization of the goodwill.

(K)   As  allowed  under  SFAS 123,  Accounting  for  Stock-Based  Compensation,
      management  has  determined  that it will  continue  to  apply  Accounting
      Principles  Board Opinion No. 25 (APB 25), in accounting  for its employee
      stock  options for  purposes of  reconciliation  to U.S.  GAAP because the
      alternative fair value accounting provided for under SFAS 123 requires the
      use of option  valuation models that were not developed for use in valuing
      employee stock options.  In accordance with Company  policy,  the exercise
      price of the Company's  employee  stock options equals the market price of
      the underlying stock on the date of grant.  Accordingly under the rules of
      APB 25, no related  compensation  expense was  recorded  in the  Company's
      results of  operations  for U.S.  GAAP  purposes  at the grant date of the
      Company's options.

      Under  Canadian  GAAP,  there is no  requirement  to record a stock option
      compensation expense when the terms of a previously fixed stock option are
      modified.  Under U.S.  GAAP, a stock option  compensation  expense must be
      recorded  in the  Company's  results  of  operations  when the  terms of a
      previously fixed stock option are modified.

(L)   Under  Canadian  GAAP,  shares  contingently   issuable  to  employees  in
      connection with an acquisition, under certain conditions, form part of the
      cost of the purchase at the date of acquisition.  Under U.S. GAAP,  shares
      contingently  issuable to employees in connection  with an acquisition are
      excluded  from the  purchase  price  and  recorded  as stock  compensation
      expense.

(M)   Under  Canadian  GAAP,  the  impairment  of fixed assets is  determined by
      comparing the carrying  value,  less related  future income taxes,  to the
      future undiscounted cash flows. Under U.S. GAAP, the comparison is made to
      fair value which is estimated by reference to discounted  expected  future
      cash flows.

(N)   Under Canadian GAAP, the use of substantively  enacted income tax rates is
      used in determining income tax expense.  Under U.S. GAAP, the effect of an
      enacted  change in tax rates is only  recognized  in income tax expense at
      the date of enactment.

(O)   The Financial Accounting Standards Board has issued Statement of Financial
      Accounting Standards No. 133,  "Accounting for Derivative  Instruments and
      Hedging Activities" ("SFAS 133"), as amended,  which will be effective for
      the  Company's  March 29, 2002 year end.  The  Statement  will require the
      Company to recognize all  derivatives  on the balance sheet at fair value.
      Derivatives  that are not hedges must be  adjusted  to fair value  through
      income.  If the  derivative  is a hedge,  depending  on the  nature of the
      hedge,  changes in the fair value of the hedged  assets,  liabilities,  or
      firm  commitments  through  earnings or recognized in other  comprehensive
      income until the hedged item is  recognized in earnings.  The  ineffective
      portion  of a  derivative's  change  in fair  value  will  be  immediately
      recognized in earnings. The Company expects to adopt SFAS 133 in the first
      quarter  of  Fiscal  2002.  As at March  30,  2001,  the  Company  had not
      completed  its  assessment  to  determine  the  impact  of  adopting  this
      pronouncement, if any, on its consolidated financial statements.

      The  following  table  reconciles  the  net  income  as  reported  on  the
      consolidated  statements  of income to the net income that would have been
      reported had the financial  statements  been  prepared in accordance  with
      U.S. GAAP and the requirements of the SEC:


                                       55
<PAGE>

<TABLE>
<CAPTION>
                                                                        2001        2000        1999
                                                                      --------------------------------
<S>                                                                   <C>         <C>         <C>
Net income (loss) from continuing operations in accordance with
 Canadian GAAP                                                        $ (330.4)   $   37.6    $   31.9

Acquirer's redundancy provisions                                           2.0         4.2        (3.4)
Write-off of acquired in-process technology                               (7.6)         --          --
Amortization of acquired in-process technology                             2.5          --          --
Amortization of  goodwill                                                  1.2          --          --
Impairment of capital assets                                             (67.4)         --          --
Stock compensation expense                                                (5.7)         --          --
Adjustment to deferred income taxes                                         --          --       (16.3)
Income tax expense                                                        (2.4)         --          --
Effect of deferral accounting related to foreign exchange contracts       (8.6)         --         1.4
Translation of foreign currency denominated debt                          (1.1)        8.8       (14.1)
                                                                      --------------------------------

U.S. GAAP and SEC requirements:
Net income (loss) from continuing operations                            (417.5)       50.6        (0.5)

Income (loss) from discontinued operations                                (7.4)       31.5         7.4
Gain (loss) on disposal of discontinued operations                        20.1        (8.0)      (16.3)
                                                                      --------------------------------
Net income (loss)                                                       (404.8)       74.1        (9.4)
Less: dividends on cumulative preferred shares                             3.2         3.2         3.2
                                                                      --------------------------------
Net income (loss) attributable to common shareholders                 $ (408.0)   $   70.9    $  (12.6)
                                                                      ================================
Net income (loss) per common share from continuing operations:
   Basic                                                              $  (3.47)   $   0.41    $  (0.03)
                                                                      ================================
   Diluted                                                            $  (3.47)   $   0.40    $  (0.03)
                                                                      ================================
Net income (loss) per common share:
   Basic                                                              $  (3.37)   $   0.62    $  (0.11)
                                                                      ================================
   Diluted                                                            $  (3.37)   $   0.61    $  (0.11)
                                                                      ================================
Weighted average shares for basic EPS (millions)                         121.1       114.7       114.0
Weighted average issued shares subject to restrictions (millions)          1.1          --          --
Weighted average shares on conversion of stock options (millions)           --         2.4         1.5
                                                                      ================================
Adjusted weighted average shares and share equivalents (millions)        122.2       117.1       115.5
                                                                      ================================
</TABLE>

      The following options were excluded in the computation of diluted earnings
      per share from continuing  operations  because the options' exercise price
      exceeded the average market price of the common shares and, therefore, the
      effect would be antidilutive: options outstanding for the year ended March
      30, 2001 to purchase  nil (2000 - 3,424,622;  1999 - 3,142,250)  shares of
      common stock at an average  exercise price of $nil (2000 - $19.19;  1999 -
      $17.90) per share.

      US GAAP earnings  included  foreign  exchange  losses of $9.7 for the year
      ended  March 30,  2001  (2000 -  foreign  exchange  gains of $9.4;  1999 -
      foreign exchange losses of $14.0)

      The components of comprehensive income (loss) are as follows:

<TABLE>
<CAPTION>
                                                                        2001        2000        1999
                                                                      --------------------------------
     <S>                                                              <C>         <C>         <C>
      Net income (loss) - U.S. GAAP                                   $(404.8)   $ 74.1       $(9.4)
      Change in foreign currency adjustment                               7.7     (31.6)       22.4
      Comprehensive income (loss)                                     $(397.1)   $ 42.5       $13.0
                                                                      ================================
</TABLE>


                                       56
<PAGE>

<TABLE>
<CAPTION>
                                                                                   2001        2000
                                                                                ----------------------
<S>                                                                              <C>         <C>
      Balance sheet items, which vary,  in conformity
        with U.S. GAAP and SEC requirements:
      Prepaid expenses and other                                                 $  12.7     $  21.2
      Future income taxes                                                        $   1.2     $     -
      Fixed assets                                                               $ 154.2     $ 445.6
      Acquired intangible assets                                                 $   6.2     $   2.5
      Long-term receivables:  long-term deferred tax asset                       $   7.8     $   5.1
      Accounts payable and accrued liabilities                                   $ 149.3     $ 212.9
      Income and other taxes payable                                             $   8.1     $  31.6
      Redeemable preferred shares                                                $  33.8     $  34.2
      Shareholders' equity:
        Common shares                                                            $1076.8     $ 763.1
        Contributed surplus                                                      $     -     $     -
        Accumulated other comprehensive income                                   $   4.3     $  (3.4)
        Deficit                                                                  $(584.0)    $(171.2)
</TABLE>

      Pro Forma financial  information  required by SFAS 123 has been determined
      as if the Company had accounted  for its employee  stock options using the
      Black-Scholes   fair  value  option   pricing  model  with  the  following
      weighted-average assumptions for fiscal years 2001, 2000, and 1999:

<TABLE>
<CAPTION>
                                                                             2001       2000         1999
                                                                           --------------------------------
<S>                                                                        <C>          <C>        <C>
      U.S. GAAP Pro Forma net income (loss) attributable to
       common shareholders after preferred dividends                       $(437.6)     $48.7      $(23.3)
      U.S. GAAP Pro Forma net income (loss) per common share:
        Basic                                                              $  (3.61)    $ 0.42     $ (0.20)
        Diluted                                                            $  (3.61)    $ 0.42     $ (0.20)
</TABLE>

<TABLE>
<CAPTION>
                                                                             2001       2000         1999
                                                                           --------------------------------
<S>                                                                            <C>       <C>         <C>
      Risk-free interest rate                                                  5.08%     6.02%       5.04%
      Dividend yield                                                            nil       nil         nil
      Volatility factor of the expected market price
        of the Company's common stock                                         0.583     0.509       0.495
      Weighted-average expected life of the options                         6 years   6 years     6 years
</TABLE>

      The  Black-Scholes  option  valuation  model  was  developed  for  use  in
      estimating  the  fair  value  of  traded  options  that  have  no  vesting
      restrictions  and are fully  transferable.  In addition,  option valuation
      models require the input of highly  subjective  assumptions  including the
      expected  stock price  volatility.  Because the Company's  employee  stock
      options have characteristics  significantly different from those of traded
      options,  and because  changes in the  subjective  input  assumptions  can
      materially affect the fair value estimate,  in management's  opinion,  the
      existing  models do not  necessarily  provide a reliable single measure of
      the fair value of its employee stock options.

      For purposes of Pro Forma  disclosures,  the  estimated  fair value of the
      options is  amortized to expense  over the  options'  vesting  period on a
      straight-line basis (see also note 14).

24.   PENSION PLANS

      The Company  maintains  several  defined  contribution  and three  defined
      benefit  pension plans for its  employees.  The  components of the pension
      expense were as follows:


                                       57
<PAGE>

<TABLE>
<CAPTION>
                                                                             2001           2000           1999
                                                                          --------------------------------------
<S>                                                                        <C>             <C>            <C>
      Continuing operations:
        Defined contribution plans                                         $ 2.0           $ 1.5          $ 1.4
        Defined benefit plans (see table below)                              3.4             5.6            1.7
                                                                          --------------------------------------
        Pension expense from continuing operations                           5.4             7.1            3.1
                                                                          --------------------------------------
      Discontinued operations:
        Defined contribution plans                                           4.5             4.8            4.9
        Defined benefit plans (see table below)                              4.5             1.4            2.2
                                                                          --------------------------------------
        Pension expense from discontinued operations                         9.0             6.2            7.1
                                                                          --------------------------------------
      Pension expense                                                      $14.4           $13.3          $10.2
                                                                          ======================================
</TABLE>

<TABLE>
<CAPTION>
                                                                             2001           2000           1999
                                                                          --------------------------------------
<S>                                                                         <C>            <C>            <C>
      Defined benefit pension expense:
        Employer service cost                                               $ 7.8          $ 6.4          $ 3.5
        Interest cost                                                         7.1            6.0            5.3
        Expected asset return                                                (7.1)          (5.4)          (4.9)
        Net amortization and deferral                                         0.1             --             --
                                                                          --------------------------------------
        Net periodic pension expense                                          7.9            7.0            3.9
        Less:  discontinued operations                                        4.5            1.4            2.2
                                                                          --------------------------------------
      Defined benefit pension expense from continuing operations            $ 3.4          $ 5.6          $ 1.7
                                                                          ======================================
</TABLE>

(a)   Defined Contribution Pension Plans

      Both the Company and the employees  contribute to these plans based on the
      employees' earnings.

(b)   Defined Benefit Pension Plans

      The  Company's  policy  is  to  fund  defined  benefit  pension  plans  in
      accordance  with  independent  actuarial  valuations  and as  permitted by
      pension regulatory authorities.

      There is one contributory  defined benefit plan that covers  substantially
      all  employees  of Mitel  Semiconductor  Limited  ("MSL"),  a wholly owned
      subsidiary of the Company.  This plan provides  pension  benefits based on
      length of service and final pensionable earnings.  Employee  contributions
      are based on pensionable earnings. The actuarial report in connection with
      this  defined  benefit  plan,  updated  to March  30,  2001,  was based on
      projections of employees' compensation levels to the time of retirement.

      For  purposes of an actuarial  valuation,  pension fund assets were valued
      using the discounted income method. Under this approach,  the value of the
      assets is  obtained by  estimating  the  receipts  which will arise in the
      future from the plan's investments and then discounting the amounts to the
      valuation date, at the valuation rate of return on assets.

      As at March 30, 2001, the actuarial  present value of MSL accrued  pension
      benefits was $12.3 (2000 - $6.9).

      The second  defined  benefit  plan  covers all  employees  over the age of
      twenty-eight  in Sweden and provides  pension  benefits based on length of
      service and final pensionable  earnings.  There are no pension fund assets
      under the plan. The associated  pension  liability is calculated each year
      by the Pension  Registration  Institute  and is insured in its entirety by
      Forsakringsbolaget Pensionsagaranti.  The pension liability of $12.6 (82.8
      SEK) (2000 - $13.0 (76.9  SEK)) was  actuarially  determined  based on the
      present  value of the accrued  future  pension  benefits and in accordance
      with applicable laws and regulations in Sweden.

      The third  defined  benefit plan covers all employees in Germany with over
      ten years of  active  service  and  provides  benefits  based on length of
      service and final pensionable  earnings.  There are no segregated  pension
      fund  assets  under  the  plan.  The  pension   liability  is  actuarially
      determined  each year and is  insured  in its  entirety  by the Swiss Life
      Insurance  Company.  The pension  liability of $5.0 (7.0 DEM) (2000 - $4.7
      (6.6 DEM)) was  actuarially  determined  based on the present value of the
      accrued future pension benefits and in accordance with applicable laws and
      regulations in Germany.

      On February 16, 2001, the Company sold its worldwide Systems business (see
      note 19). As part of the  divestiture,  the  contributory  defined benefit
      pension plan for the employees of Mitel Telecom Limited was assumed by the
      buyer as part of the Systems  business  sale.  The plan  provided  pension
      benefits  based on  length of  service  and  final


                                       58
<PAGE>

      pensionable  earnings.  Employee  contributions  were based on pensionable
      earnings.  An actuarial  report in  connection  with this defined  benefit
      plan, updated to February 16, 2001, was based on projections of employees'
      compensation levels to the time of retirement.

      The following table shows the plans' funded status reconciled with amounts
      reported in the consolidated  balance sheets,  and the assumptions used in
      determining the actuarial present value of the benefit obligations:

<TABLE>
<CAPTION>
                                                                 2001            2000
                                                               -----------------------
<S>                                                             <C>             <C>
      Change in accrued pension benefits:
        Benefit obligation at beginning of year                 $115.6          $101.7
        Service cost                                              11.6            11.6
        Interest cost                                              7.1             6.0
        Plan participants' contributions                           1.8             2.4
        Actuarial (gain) loss                                     (2.1)            2.2
        Benefits paid                                             (1.2)           (1.5)
        Foreign exchange                                          (4.7)           (6.8)
        Divestiture of Systems business                          (94.4)              -
                                                               -----------------------
        Benefit obligation at end of year                         33.7           115.6
                                                               -----------------------

      Change in plan assets:
        Fair value of plan assets at beginning of year            94.5            81.6
        Actual return on plan assets                              (3.8)            5.7
        Employer contributions                                     7.4             8.3
        Employee contributions                                     3.8             5.2
        Benefits paid                                             (1.2)           (1.5)
        Foreign exchange                                          (3.1)           (4.8)
        Divestiture of Systems business                          (83.9)              -
                                                               -----------------------
        Fair value of plan assets at end of year                  13.7            94.5
                                                               -----------------------

      Unfunded status                                            (20.0)          (21.1)
      Unrecognized net actuarial loss                              3.7             4.5
                                                               =======================
         Net pension benefit liability                          $(16.3)         $(16.6)
                                                               =======================
</TABLE>

The net pension benefit liability is reflected in the consolidated balance sheet
as follows:

<TABLE>
<CAPTION>
                                                                 2001            2000
                                                               -----------------------
<S>                                                             <C>             <C>
      Other assets                                              $  0.9          $  0.9
      Pension liability                                          (17.2)          (17.5)
                                                               =======================
      Net pension benefit liability                             $(16.3)         $(16.6)
                                                               =======================
</TABLE>

<TABLE>
<CAPTION>
      Assumptions:                                                2001           2000       1999
                                                                ---------------------------------
<S>                                                                  <C>          <C>       <C>
        Discount rate                                                6%           6%        6%-8%
        Compensation increase rate                               3-4.5%         3%-5%       3%-6%
        Investment return assumption                                 9%           8%         8%
</TABLE>

25.   FINANCIAL INSTRUMENTS

(a)   Fair Value

      The Company's  financial  instruments  include cash and cash  equivalents,
      short-term  investments,   accounts  receivable,   long-term  receivables,
      accounts payable, long-term debt, interest rate swaps and foreign exchange
      forward and option contracts.  Due to the short-term  maturity of cash and
      cash  equivalents,   short-term  investments  and  accounts  payable,  the
      carrying  values of these  instruments  are reasonable  estimates of their
      fair value. The fair value of long-term debt was determined by discounting
      future payments of interest and principal at estimated interest rates that
      would be available to the Company at year-end.  The fair value of interest
      rate swaps was determined by discounting,  at market rates, the future net
      cash payments.  The fair value of the foreign  exchange forward and option
      contracts  reflects the estimated  amount that the Company would have been
      required to pay if


                                       59
<PAGE>

      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 financial
      instruments   approximate   their   carrying   value  with  the  following
      exceptions:

                                              2001               2000
                                      ---------------------------------------
                                      Carrying    Fair      Carrying     Fair
                                       amount    Value       amount     value
                                      ---------------------------------------
Long-term debt:
   Non-interest bearing 1996
     Canada-Quebec government loan      $4.2      $3.9         $4.2     $3.6

Derivatives
   Interest rate swap                     --        --           --     $1.8

(b)   Derivative Financial Instruments

      The Company  operates  globally,  and therefore may  experience  risk that
      earnings  and cash flows may be  adversely  impacted  by  fluctuations  in
      foreign exchange.  The Company uses forward and option contracts to manage
      foreign  exchange  risk.  Generally,  forward  and  option  contracts  are
      designated for firmly committed or forecasted sales and purchases that are
      expected to occur in less than one year.

      At March 30, 2001,  the Company  owned nil call option  contracts  (2000 -
      four  U.S.-to-Canadian  dollar call option  contracts  outstanding)  for a
      total  notional  value of $nil U.S.  dollars  (2000 - US$40.0).  The total
      premium  paid for options in Fiscal 2001 was $nil (2000 - $1.2).  The cost
      of the premium is deferred and amortized over the life of the options. The
      fair value of the options at March 30, 2001, was $nil (2000 - $0.5).

      The  notional  amounts for forward  contracts  represent  the U.S.  dollar
      equivalent of an amount  exchanged.  Most of the forward  contracts mature
      within six months with the longest maturity extending to February 2002. At
      March 30,  2001,  deferred  gains  totaled $4.1 (2000 - $6.4) and deferred
      losses totaled $12.2 (2000 - $1.6).  The following  table presents the net
      notional amounts of the forward contracts in U.S. dollars:

               Buy (Sell): (U.S. dollars)                 2001         2000
                                                    -------------------------
               Forward contracts:
                 British pounds                         $ 19.0         $(60.7)
                 Canadian dollars                        147.6           88.3
                 Swedish krona                             4.5            8.2
                 Euro                                      2.1            2.6
                 Other                                     0.1            0.6
                                                    =========================
               Total                                    $173.3         $ 39.0
                                                    =========================

(c)   Credit Risk

      The  Company's  financial  assets that are exposed to credit risk  consist
      primarily of cash and cash equivalents,  short-term investments,  accounts
      receivable  and  derivative  contracts.  Cash  and  cash  equivalents  and
      short-term  investments  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 (see also note 22).

      Mitel is exposed  to credit  risk in the event of  non-performance  by its
      counterparties  on its foreign  exchange  contracts.  The Company does not
      anticipate non-performance, by any of the counterparties, as it deals with
      counterparties  that  are  major  financial   institutions.   The  Company
      anticipates the  counterparties  will satisfy their  obligations under the
      contracts.

(d)   Interest Rate Risk

      The Company is not exposed to  significant  interest  rate risk due to the
      short-term maturity of its monetary assets and current liabilities.


                                       60
<PAGE>

(e)   Unused Bank Lines of Credit

      The  Company  has a line of  credit  for  $25.0,  of  which  up to $5.0 is
      available for letters of credit.  At March 30, 2001, $4.9 (U.S.$2.4) (2000
      - $2.4)  in  letters  of  credit  were  outstanding  against  this  credit
      facility,  thus the Company had unused and available  demand bank lines of
      credit amounting to  approximately  $20.1 (U.S. 12.7) (2000 - $106.6) at a
      rate of  interest  based on the prime  lending  rate plus  0.25%.  Amounts
      stated for Fiscal  2000  related to a previous  credit  facility  that was
      cancelled in Fiscal 2001.

26.   SUPPLEMENTARY CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                                              2001            2000           1999
                                                          -----------------------------------------
<S>                                                           <C>            <C>           <C>
      Net change in non-cash working capital
       balances related to operating activities:

      Accounts receivable                                     $ 81.9         $ 22.4        $ (19.0)
      Inventories                                              (25.3)           1.1          (28.7)
      Accounts payable and accrued liabilities                 (29.6)         (18.8)         (75.4)
      Deferred revenue                                          (6.9)           9.2            3.0
      Other                                                     (0.3)          (3.5)           0.3
                                                          -----------------------------------------
                                                              $ 19.8         $ 10.4        $(119.8)
                                                          =========================================
      Cash interest paid                                      $ 15.1         $ 26.0        $  38.7
                                                          =========================================
      Cash taxes paid                                         $ 23.7         $  2.9        $  17.2
                                                          =========================================
</TABLE>

      The following  table  summarizes  the Company's  cash flows from (used in)
      investing activities from acquisitions:
<TABLE>
<CAPTION>
                                                              2001            2000           1999
                                                          -----------------------------------------
<S>                                                           <C>            <C>           <C>

      Cash acquired                                          $ (11.1)         $ --          $  --
      Net assets acquired other than cash                     (289.6)           --           (46.6)
                                                          -----------------------------------------
      Total purchase price                                    (300.7)           --           (46.6)
      Less: cash acquired                                       11.1            --             --
      Less: non-cash consideration paid                        300.7            --             --
      Less: cash paid for other investments                     (0.8)           --             --
                                                          =========================================
      Acquisitions, net of cash acquired                     $  10.3          $ --          $(46.6)
                                                          =========================================
</TABLE>

27.   SUBSEQUENT EVENTS

      (a)   Change in Operating Name

      Following  the sale of the name  "Mitel",  on May 29,  2001,  the  Company
      adopted Zarlink  Semiconductor  as its operating name. The Company expects
      to  formally  change its name to Zarlink  Semiconductor  Inc.,  subject to
      shareholder approval at its next annual general  shareholders'  meeting on
      July 25, 2001.

      (b)   Workforce Reduction

      On May 10, 2001, the Company's Board of Directors approved a restructuring
      program to reduce the Company's manufacturing costs and operating expenses
      in the  light of  current  adverse  market  conditions.  Accordingly,  the
      Company will record in the first quarter of Fiscal 2002 a pre-tax  special
      charge of approximately $37.0 related to that program.  The special charge
      comprises a workforce  reduction charge of  approximately  $28.4 primarily
      relating to the cost of  severance  and benefits  for the  termination  of
      approximately  430  employees  throughout  the  world in Fiscal  2002.  In
      addition,  the  special  charge  includes  the cost of lease and  contract
      settlements  approximating  $8.6.  The Company  will employ  approximately
      2,000 people  worldwide after the  restructuring is completed in the first
      quarter of Fiscal 2002.


                                       61
<PAGE>

      (c)   Common Share Repurchase Program

      On June 7,  2001,  the  Company  announced  its  Board  of  Directors  had
      authorized  the  continuation  of its normal  course issuer bid program to
      repurchase  up to  6,308,907  common  shares,  representing  5 percent  of
      126,178,148  common shares  issued and  outstanding  at May 28, 2001.  The
      purchases will take place on the open market  through the stock  exchanges
      of New York and Toronto over a  twelve-month  period  beginning on June 9,
      2001 and ending on June 8, 2002,  or on such  earlier  date as the Company
      may complete its  purchases  pursuant to the notice of intention to make a
      normal  course  issuer  bid filed with The  Toronto  Stock  Exchange.  The
      Company, which intends to cancel the repurchased shares,  believes that at
      present no director,  senior officer or insider of the Company  intends to
      sell  any  common  shares  under  this  program.  No  common  shares  were
      repurchased under the previous program during the period from June 9, 2000
      to June 8, 2001.

28.   COMPARATIVE FIGURES

      Certain of the 2000 and 1999 comparative figures have been reclassified so
      as to conform to the presentation adopted in 2001.

      Item 9. Changes in and  Disagreements  with  Accountants on Accounting and
      Financial Disclosure

      None.


                                       62
<PAGE>

                                    PART III

Item 10. Directors and Executive Officers of the Registrant

Directors

      The following table sets forth the name, age and position with the Company
of each director and nominee for director of the Company.

<TABLE>
<CAPTION>
      Name                             Age    Director Since         Positions
<S>                                    <C>    <C>                    <C>
      Andre Borrel                     64     July 23, 1998          Director
      Patrick J. Brockett(3)           53     April 9, 2001          Director, President and CEO
      Jean-Jacques Carrier(4)          50     October 28, 1998       Director
      Anthony L. Craig                 55     May 16, 1996           Director
      Hubert T. Lacroix(1,3,4)         45     July 21, 1992          Director
      Kirk K. Mandy(3,4)               45     July 23, 1998          Director
      Donald G. McIntyre               53     July 23, 1998          Director
      Donald W. Paterson(1,2)          68     May 16, 1996           Director
      Kent H.E. Plumley(3)             65     August 22, 2000        Director
      Dr. Henry Simon(3,4)             71     July 21, 1992          Director and Chairman
      Dr. Semir D. Sirazi(1)           46     September 27, 1999     Director
      Peter van Cuylenburg(2,4)        53     March 15, 1996         Director
      Jonathan I. Wener(2)             50     July 21, 1992          Director
</TABLE>

----------
(1)   Member of the Audit  Committee  (established in accordance with the Canada
      Business Corporations Act)

(2)   Member of the Compensation and Human Resources Development Committee

(3)   Member of the Nominating Committee

(4)   Member of the Executive Committee

      Mr.  Borrel  has  been  an  independent  consultant  to the  semiconductor
industry since 1995. From 1967 to 1994, he served in senior management positions
with Motorola, Inc. in Europe and the United States. Mr. Borrel is a director of
Chartered  Semiconductors  Manufacturing  in Singapore and Pixtech in the United
States

      Mr.  Brockett  joined the  Company in April  2001 as  President  and Chief
Executive  Officer.  Prior to that he held a  variety  of  executive  management
positions at National Semiconductor Corporation.

      Mr.  Carrier  joined the Company in 1993 as Vice  President of Finance and
Chief  Financial  Officer and became Senior Vice  President of Finance and Chief
Financial Officer in October 1998.

      Mr.  Craig has been  Chairman  and CEO of Arbinet  Holdings,  an  internet
telecommunications  exchange  company  since  January  2000.  From  June 1998 to
December  1999 he was  President of Tamandra Inc. and, from 1996 to 1998, he was
President and Chief Executive Officer of Global Knowledge Network.  From October
1993 to January  1996,  he was Vice  President,  World Wide Sales  Operations of
Digital  Equipment  Corporation  and


                                       63
<PAGE>

from June 1992 to June 1993,  he was Senior Vice  President,  International  for
Oracle Corporation. He is also a director of Global Knowledge Network.

      Mr. Lacroix has been Executive Chairman of Telemedia Corporation,  a media
and  telecommunications  company, since February 2000. Prior to his appointment,
he was a partner  with  McCarthy  Tetrault  (law firm) since 1984.  He is also a
director  of  G.T.C.   Transcontinental  Group  Ltd.,  ITS  Investments  Limited
Partnership and Secor Inc..

      Mr.  Mandy  joined the  Company in 1984  serving in  executive  management
positions until his appointment as President and Chief Executive Officer on July
23, 1998. Mr. Mandy retired from the Company and was appointed  Vice-Chairman of
the  Board of  Directors  on April  6,  2001.  He also  serves  on the  board of
directors of several private companies.

      Mr. McIntyre joined the Company in 1987 as Vice President, General Counsel
and Secretary and became Vice President,  Human  Resources,  General Counsel and
Secretary in 1991.  In October 1998 he was  appointed  Senior Vice  President of
Human  Resources,  General Counsel and Secretary.  Mr. McIntyre also served as a
director of the Company from 1993 to 1996.

      Mr.  Paterson has been  President of  Cavandale  Corporation,  a strategic
advisor,  since  September  1988.  Mr.  Paterson  is also a  director  of  Lorus
Therapeutics Inc.

      Mr. Plumley has been a partner in Osler, Hoskin & Harcourt since May 1990.
He is also a director of Bridgewater Systems Corp and Optenia, Inc.

      Dr.  Simon is Chairman of Schroder  Ventures  Life  Sciences  Advisers,  a
venture capital company advising on investments in the life sciences.  Dr. Simon
has been Chairman of the Company's Board of Directors since July 21, 1994.

      Dr.  Sirazi has been a consultant  to the  semiconductor,  networking  and
telecommunications  industries  since  July  1997.  He  has  held a  variety  of
executive  management  positions at U.S.  Robotics/3COM  and Zenith  Electronics
Corporation.  He is an active advisor and investor to several private  companies
in the  high-technology  field and  serves on the  board of  directors  of these
companies.

      Mr. van Cuylenburg is Chairman of  Pixelfusion  plc and Elixent Ltd. and a
director of QAD Inc. Mr. van Cuylenburg has been an independent  advisor to high
technology  companies  since 1999.  . He was  President,  DLT & Storage  Systems
Group, of Quantum  Corporation from September 1996 to October 1999. From January
1996 to August 1996, he was an independent consultant to Xerox Corporation.

      Mr. Wener has been Director and President of Canderel  Management  Inc., a
real estate  investment  company,  since 1983. Mr. Wener is a founding member of
the Urban  Development  Institute  of Quebec.  Mr.  Wener is also a director  of
Laurentian Bank of Canada.

      There are no family  relationships among directors,  nominees for director
or executive  officers of the Company.  Under the terms of the Company's By-Laws
and the Canada  Business  Corporations  Act, a majority of the directors must be
resident Canadians.

STATEMENT OF CORPORATE GOVERNANCE PRACTICES

General

      In February  1995,  The Toronto  Stock  Exchange  Committee  on  Corporate
Governance in Canada  issued its final report  containing a series of guidelines
for effective  corporate  governance (these guidelines,  as amended from time to
time, are herein referred to as the "Governance Guidelines").  These guidelines,
which are not mandatory,  deal with the  constitution of boards of directors and
board  committees,  their functions,  the


                                       64
<PAGE>

effectiveness   and  education  of  board  members,   their   independence  from
management,  their relationship with management and shareholders and other means
of ensuring  sound  corporate  governance.  The Toronto  Stock  Exchange has, in
accordance  with the  recommendations  contained  in such  report,  adopted as a
listing  requirement  that  disclosure  be made by each  listed  company  of its
corporate governance system with reference to the Governance Guidelines.

      In 1999, The Toronto Stock Exchange amended the Governance  Guidelines and
companies are now required to disclose their corporate governance practices with
specific reference to each of the 14 Governance Guidelines.

      The Board of Directors and the members of the Corporation's management are
committed to the highest  standard of corporate  governance.  The  Corporation's
principal  objective  in  directing  and managing its business and affairs is to
enhance  shareholder  value. The Corporation  believes that effective  corporate
governance improves corporate performance and benefits all shareholders.

      The Board of Directors of the Corporation has always endorsed the concept,
principles  and practices of sound  corporate  governance  and believes that the
Corporation is in substantial compliance with the Governance Guidelines.

      The following is a summary of the  particulars  of the system of corporate
governance of the Corporation.

Mandate of the Board

      The  Board  of  Directors   establishes  the  overall   policies  for  the
Corporation and monitors and evaluates the Corporation's strategic direction and
retains  plenary power for those functions not  specifically  delegated by it to
management.  Accordingly,  the mandate of the Board of Directors is to supervise
the  management  of the business and affairs of the  Corporation  with a view to
evaluate,  on an ongoing basis,  whether the  Corporation's  resources are being
managed  in a  manner  consistent  with  enhancing  shareholder  value,  ethical
considerations and corporate social  responsibility.  In order to better fulfill
its mandate, the Board of Directors has formally acknowledged its responsibility
for, among other matters:

      (i)   reviewing and  approving,  at the beginning of each fiscal year, the
            business plan, capital budget and financial goals of the Corporation
            as well as longer term  strategic  plans  prepared and elaborated by
            management and,  throughout the year,  monitoring the achievement of
            the objectives set;

      (ii)  ensuring that it is properly  informed,  on a timely  basis,  of all
            important  issues  (including  environmental,  cash  management  and
            business   development   issues)  and  developments   involving  the
            Corporation and its business environment;

      (iii) identifying,   with   management,   the   principal   risks  of  the
            Corporation's  business and the systems put in place to manage these
            risks as well as  monitoring,  on a regular  basis,  the adequacy of
            such systems;

      (iv)  ensuring proper succession planning, including appointing,  training
            and monitoring senior executives;

      (v)   assessing performance of senior executives;

      (vi)  ensuring  proper  communication  with  shareholders,  customers  and
            governments; and

      (vii) monitoring  the  efficiency  of  internal   control  and  management
            information systems,

and has taken, when necessary, specific measures in this respect.


                                       65
<PAGE>

      Long-term  goals and strategies for the  Corporation are developed as part
of its annual strategic planning process with the Board of Directors, which also
includes the preparation of a detailed  one-year  operating  plan.  Through this
process,  led by the President and Chief Executive Officer and senior management
of the  Corporation,  the Board of Directors  adopts the operating  plan for the
coming financial year and monitors senior management's relative progress through
a regular  reporting  and review  process.  The Board of Directors  reviews on a
quarterly  basis the extent to which the  Corporation has met the current year's
operating plan.

      To comply with the Governance  Guidelines  which recommend that a board of
directors  should  assume  responsibility  for  succession  planning,  including
appointing,  training and monitoring senior  management,  the Board of Directors
reviews all appointments of officers.

      The Board of  Directors  has put  policies  in place to ensure  effective,
timely  and   non-selective   communications   between  the   Corporation,   its
stakeholders and the public.  The Board, or the appropriate  committee  thereof,
reviews the content of the  Corporation's  major  communications to shareholders
and the  investing  public,  including the  quarterly  and annual  reports,  and
approves the proxy circular,  the annual  information  form and any prospectuses
that may be issued.  The disclosed  information is released  through mailings to
shareholders,  news  wire  services,  the  general  media and a home page on the
internet.

      The Corporation has an investor relations group which responds to analyst,
institutional  and  individual  shareholder  inquiries and maintains a toll-free
telephone line for ease of contact.  Individual queries, comments or suggestions
can be made at any time by  calling  or writing  directly  to the  Corporation's
registered office in Ottawa, Ontario, Canada. In addition, the Corporation has a
communications  group to respond to  inquiries  from media,  government  and the
public.  Together,  these groups deal with stakeholder  concerns and ensure that
all inquiries receive a full and timely response.

Composition of the Board and of its Committees

      The  Governance   Guidelines  recommend  that  a  board  of  directors  be
constituted of a majority of individuals  who qualify as "unrelated  directors".
The Governance  Guidelines  define an "unrelated  director" as a director who is
independent  of  management  and is free from any  interest  and any business or
other  relationship which could, or could reasonably be perceived to, materially
interfere with the  director's  ability to act with a view to the best interests
of  the  Corporation,  other  than  interests  and  relationships  arising  from
shareholding.  The  Governance  Guidelines  also  make an  informal  distinction
between "inside" and "outside" directors.  The Governance Guidelines and related
rules  consider an inside  director of a corporation  to be a director who is an
officer or employee of the corporation or any of its subsidiaries.

      The directors of the Corporation have examined the relevant definitions of
the Governance  Guidelines and have  individually  considered  their  respective
interests in and relationships with the Corporation. As a consequence, the Board
of Directors has determined that on a rigorous application of these definitions,
it would be composed of six unrelated  directors out of nine board members.  The
Board of Directors  continues to seek two  additional  unrelated  directors with
semiconductor industry and customer  perspectives.  This will further strengthen
the Corporation's commitment to good corporate governance practices.

      The Governance  Guidelines also recommend that a board of directors should
examine  its  size.  The Board of  Directors  believes  that the  number of nine
directors will be sufficient and  appropriate to effectively  conduct  business.
The Board of  Directors,  as  presently  constituted,  brings  together a mix of
skills,  backgrounds  and  individual  attributes  that the  Board of  Directors
considers appropriate to the stewardship of the Corporation.

      The Governance  Guidelines also recommend that, in  circumstances  where a
corporation  has a "significant  shareholder"  (that is, a shareholder  with the
ability to exercise the majority of the votes for the election of the  directors
of a corporation),  the Board of Directors  should include a number of directors
who do not have interests in or relationships with either the corporation or the
significant  shareholder  and  should  fairly  reflect  the  investment  in  the
corporation  by  shareholders  other  than  the  significant  shareholder.   The
Corporation does not presently have a significant shareholder.


                                       66
<PAGE>

      A further Governance Guideline recommends that the Audit Committee be made
up of outside and unrelated  directors  only.  This  guideline  also states that
other board committees should be comprised of outside  directors,  a majority of
whom  should  be  unrelated  directors.   The  Corporation  currently  has  four
committees,   being  the  Audit  Committee,   the  Compensation  Committee,  the
Nominating  Committee and the Executive Committee.  All of these committees,  as
presently constituted, comply with the Governance Guideline recommendations.  It
is the intention of the Board of Directors to  reevaluate  from time to time the
composition of the various committees.

      The four committees of the Board of Directors have been  established  with
specific  mandates  and defined  authorities  with a view to assist the Board of
Directors  in  efficiently  carrying  out its  responsibilities.  The  Committee
members are reviewed and appointed yearly after the election of Directors at the
Meeting.  Set out below is a general  description of the committees of the Board
and their respective mandates.

Audit Committee

      The Corporation has a standing Audit Committee, required to be composed of
three outside  directors who are  financially  literate and at least one of whom
has accounting or related financial management expertise.  Information regarding
the functions performed by the Audit Committee,  its membership,  and the number
of  meetings  held  during the fiscal  year,  is set forth in the "Report of the
Audit Committee," included in the Circular.

      The Audit  Committee is presently  composed of three outside and unrelated
directors who are current members of the Board of Directors:  Hubert T. Lacroix,
Donald W. Paterson and Semir Sirazi.

Compensation Committee

      The mandate of the Compensation  Committee is outlined above under "Report
on  Executive  Compensation".  This  mandate  further  includes  a review of the
compensation of directors to ensure the compensation  realistically reflects the
responsibilities  and  risk  involved  in  being  an  effective  director.   The
Compensation  Committee is  presently  composed of three  outside and  unrelated
directors who are current members of the Board of Directors: Donald W. Paterson,
Peter van Cuylenburg and Jonathan I. Wener.

      Pursuant  to an  agreement  entered  into on August 1,  2000  between  the
Corporation  and Canderel  Holdings  Ltd., a corporation  of which Mr.  Jonathan
Wener acts as  Chairman,  Canderel  Holdings  Ltd.  was engaged as  construction
manager in connection  with the  construction of a new building at the north end
of the current Ottawa  facility of the  Corporation  at a cost of  approximately
$15.5  million and Canderel  will  receive a fee of 5.5 % of the project  costs,
plus all  reasonable  disbursements  incurred in  connection  with the  project.
Management  considers the services  performed to be very  professional  and at a
competitive cost in the marketplace.

Nominating Committee

      The  mandate  of the  Nominating  Committee  is to  seek  out  and  review
potential  additional  Board of  Director  candidates  as  submitted  by  search
consultants   retained  by  the   Corporation,   to  evaluate   the   structure,
responsibility  and  composition  of committees of the Board of Directors and to
make  recommendations  to the  Board of  Directors  with  respect  thereto.  The
Nominating  Committee  is  presently  composed  of four  outside  and  unrelated
directors:  Dr.  Henry  Simon,  Hubert T.  Lacroix,  Kirk K. Mandy and Kent H.E.
Plumley and one inside and related director: Patrick J. Brockett. In view of the
contribution to the  Corporation of the President and Chief  Executive  Officer,
Patrick J. Brockett,  the Board of Directors considered the participation of Mr.
Brockett on the  Nominating  Committee to be  essential  and  concluded  that he
should serve on such Committee.

Executive Committee

      The mandate of the Executive Committee is to supervise, control and manage
the business and affairs of the Corporation  when the Board is not in session in
order to execute in a timely fashion corporate plans and


                                       67
<PAGE>

programs.  The  Executive  Committee is  presently  composed of four outside and
unrelated directors who are current members of the Board of Directors: Hubert T.
Lacroix, Kirk K. Mandy, Dr. Henry Simon, and Peter van Cuylenburg and one inside
and related director:  Jean-Jacques  Carrier. In view of the contribution to the
Corporation and the focus on financial  performance  provided by the Senior Vice
President of Finance and Chief  Financial  Officer,  Jean-Jacques  Carrier,  the
Board  of  Directors   considered  the   participation  of  Mr.  Carrier  to  be
appropriate.

Independence from Management

      The  Governance  Guidelines  state  that  the  independence  of a Board of
Directors is most simply  achieved by  appointing a chair who is not a member of
management.  The Chairman of the Board is separate from  management  and ensures
that the  Board of  Directors  can  function  independently  of  management.  In
addition,  the Board of Directors,  from time to time,  holds  sessions at Board
meetings without management present.

Decisions Requiring Prior Approval by the Board of Directors

      The Board of Directors has delegated to the President and Chief  Executive
Officer and senior management the responsibility  for the day-to-day  management
of the  business  of the  Corporation,  subject  to  compliance  with the  plans
approved  from  time to time by the Board of  Directors.  In  addition  to those
matters,  which must by law or by the articles of the Corporation be approved by
the  Board of  Directors,  the  Board  of  Directors  has  specified  limits  to
management's  responsibility  as recommended in the Governance  Guidelines,  and
retains  responsibility  for significant  changes in the Corporation's  affairs,
such as  approval  of major  capital  expenditures,  debt and  equity  financing
arrangements and significant acquisitions and divestitures.

Other

      The  Board  of  Directors  considers  that  orienting  and  educating  new
directors is an important element of ensuring  responsible  corporate governance
and the Governance  Guidelines  recommend that a corporation should provide such
an orientation and education program for new directors.  Therefore,  in addition
to having extensive  discussions with the Chairman of the Board of Directors and
the  President  and Chief  Executive  Officer  with  respect to the business and
operations of the  Corporation,  a new director  receives a record of public and
other  information  concerning  the  Corporation  and  prior  minutes  of recent
meetings of the Board of Directors and applicable committees. The details of the
orientation of each new director will be tailored to that director's  individual
needs and areas of  interest.  By  ensuring  that  Board  members  are  properly
informed  of the  business  of the  Corporation,  the  Board  considers  that it
complies with the Governance Guidelines.

      A singular  position  description has been adopted for each  non-executive
member of the Board of Directors.

      The Board of Directors has determined to retain general responsibility for
dealing with corporate  governance issues,  while maintaining the flexibility of
asking certain  committees of the Board of Directors to address  specific issues
as they may arise from time to time. Therefore, a corporate governance committee
will not be created at this time.

      In certain circumstances, it may be appropriate for an individual director
to engage an outside advisor at the expense of the Corporation.  The Chairman of
the Board will  determine  if the  circumstances  warrant the  engagement  of an
outside advisor.

Executive Officers

      The names,  ages and positions with the Company of the executive  officers
of the Company, other than Mssrs. Brockett, Carrier, and McIntyre who are listed
in the table of directors, are as follows:


                                       68
<PAGE>

      Name                    Age     Positions
      ----                    ---     ---------
      Mark E. Levi            64      Vice President, Corporate Marketing
      Shirley J. Mears        46      Vice President, Treasurer
      Timothy R. Saunders     40      Vice President and Corporate Controller

      Mr. Levi was appointed Vice President, Corporate Marketing on May 7, 2001.
From April 1990 until his appointment, Mr. Levi served as Vice President, Analog
Marketing at National Semiconductor Corporation.

      Ms. Mears was appointed Vice President, Treasurer in April 1992. Ms. Mears
served as Vice President,  Corporate  Taxation and Canadian Human Resources from
April 1991 to March 1992 and Vice  President,  Corporate  Taxation from February
1990 to March 1991. Ms. Mears joined the Company in 1983.

      Mr. Saunders was appointed Vice President and Corporate Controller in July
1998. Mr. Saunders served as Director,  Corporate Finance from July 1992 to June
1997 and as  Corporate  Controller  from June 1997 to July  1998.  Mr.  Saunders
joined Mitel in 1992.

Item 11. Executive Compensation

      The  aggregate  compensation  paid by the  Company  to its  directors  and
executive  officers for services  rendered  during Fiscal 2001 was  $15,505,395.
This amount includes salary,  bonuses,  severance  payments,  car allowances and
other perquisites and excludes the amount set out below for pension,  retirement
and similar benefits paid to executive officers.

      The  aggregate  amount  set  aside  or  accrued  by the  Company  and  its
subsidiaries  during  Fiscal 2001 for the provision of pension,  retirement  and
similar benefits to the directors and executive  officers the Company as a group
was $359,891, excluding adjustments for market value fluctuations related to the
current year and previous  year  accruals  which  totaled  $45,049 for the above
executive officers.

Summary Compensation Table

      The  following  table sets forth  compensation  information  for the three
fiscal  years  ended  March  30,  2001,  March  31,  2000 and  March  26,  1999,
respectively,  for the Chief  Executive  Officer,  the four  other  most  highly
compensated  executive officers of the Corporation who were serving as executive
officers of the Corporation on March 30, 2001 and two other  executive  officers
who would  have been  included  in the four most  highly  compensated  executive
officers of the  Corporation,  but for the fact that they were no longer serving
as executive  officers of the Corporation on March 30, 2001  (collectively,  the
"Named Executive Officers").


                                       69
<PAGE>

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
                                                   Annual Compensation           Long-Term

                                        --------------------------------------
                                                                               Compensation
                                                                                  Awards
                                                       Bonus         Other      Securities
           Name and                                   (Annual       Annual         Under       All Other
          Principal             Fiscal               Incentive      Compen-       Options       Compen-
           Position              Year     Salary      Awards)      sation(1)      Granted      sation(2)
                                           ($)          ($)           ($)           (#)           ($)
------------------------------------------------------------------------------------------------------------

<S>                              <C>     <C>         <C>             <C>         <C>          <C>
Kirk K. Mandy(3)                 2001    598,514     1,082,901        --          150,000      5,444,861
President and Chief              2000    519,208      795,000         --          245,000        81,142
Executive Officer                1999    434,089      100,000         --            --           66,319

Paul Butcher(4)                  2001    311,815      302,076                       --          816,260
Senior Vice President            2000    259,229      275,000         --          134,100        25,453
and General Manager, Mitel       1999    267,285       58,729         --            --           95,515
Communications Systems

Jean-Jacques Carrier             2001    284,152      300,000         --          50,000       1,447,123
Senior Vice President of         2000    281,025      275,000         --          110,000        44,150
Finance and Chief Financial      1999    266,836       40,000         --            --           42,668
Officer

Donald G. McIntyre               2001    257,235      300,000         --          50,000       1,341,701
Senior Vice President of         2000    230,187      275,000         --          110,000        38,869
Human Resources, General         1999    211,139       40,000         --            --           36,934
Counsel and Secretary

Moris Simson(5)                  2001    253,362         --           --            --          947,943
Senior Vice President            2000    259,352      275,000         --          100,000        38,026
Corporate Strategy &             1999       --           --           --            --             --
Development

Shirley J. Mears                 2001    174,866      150,000         --          10,000        284,668
Vice President, Treasurer        2000    167,428       66,375         --          22,400         26,505
                                 1999    155,461       8,000          --                         25,279

Francois Cordeau(6)              2001    289,509         --                       50,000       1,091,794
Senior Vice President and        2000    255,435      275,000       143,729       120,000       440,517
General Manager,                 1999    242,791       40,000       248,372         --           36,971
Semiconductor Division
----------------------------------------------------------------------------------------------=============
</TABLE>

----------
(1)   The value of benefits not  exceeding  the lesser of $50,000 and 10% of the
      sum of salary and bonuses has been omitted for each of the Named Executive
      Officers.

(2)   "All Other  Compensation"  includes  contributions made and accrued by the
      Corporation to a defined contribution pension plan, excluding  adjustments
      for market  value  fluctuations  related to the current  year and previous
      year accruals which totaled $46,239 for the Named Executive  Officers.  It
      also  includes  amounts  for the  exercise of stock  options  based on the
      excess of the market  price of the common  shares on the date of  exercise
      over the exercise price thereof and severance  payments for Messrs.  Mandy
      and Simson.

(3)   The employment of Kirk K. Mandy with the Corporation  terminated effective
      April  6,  2001.   See  "Other   Compensation   -  Executive   Termination
      Agreements".  (4) The  employment  of Paul  Butcher  with the  Corporation
      terminated   effective  February  16,  2001.  See  "Other  Compensation  -
      Executive Termination Agreements".

(5)   The employment of Moris Simson with the Corporation  terminated  effective
      January  15,  2001.  See  "Other  Compensation  -  Executive   Termination
      Agreements".


                                       70
<PAGE>

(6)   The  employment  of  Francois  Cordeau  with  the  Corporation  terminated
      effective April 27, 2001. See "Other Compensation - Executive  Termination
      Agreements".

Employee Share Ownership Plan

      The Employee  Share  Ownership Plan was approved by the Board of Directors
in May 1997. The purpose of this plan is to enable employees to invest in equity
shares of the Corporation through employee savings. Employees make contributions
by  means of  payroll  deductions  and  common  shares  of the  Corporation  are
purchased twice per month by  Computershare  Trust Company of Canada who assumed
the  administration  role for  Montreal  Trust  Company of Canada  (the  trustee
appointed  to  administer  the  plan)  through  normal  market  facilities.  The
Corporation  pays all brokerage  commissions,  transfer taxes, and other charges
and expenses of the purchase and sale of the common  shares  except for sales of
fewer than 100 shares, in which case the employee is responsible for such costs.

      During April 2001, the Corporation  implemented a matching contribution in
connection  with  the  Employee  Share  Ownership  Plan  which  provides  for  a
contribution  by the Corporation  equal to 15% of each  employee's  contribution
under the Plan,  subject to a maximum  of $500 per  employee  per year.  A total
contribution  by the  Corporation of  approximately  $200,000 is estimated under
this plan for the next year.

1991 Stock Option Plan for Key Employees and Non-Employee Directors

      The 1991 Stock Option Plan for Key  Employees and  Non-Employee  Directors
(the "Option  Plan")  provides for the granting of  non-transferable  options to
purchase  common shares to certain key employees and  non-employee  directors of
the  Corporation  and its  subsidiaries  as determined  from time to time by the
Compensation  and  Human  Resources  Development  Committee  (the  "Compensation
Committee")  administering  the Option Plan. The Option Plan was approved by the
Shareholders at the 1991 Annual and Special Meeting of Shareholders  and certain
amendments  were approved by the  Shareholders at the 1993, 1995 and 1998 Annual
and Special Meetings of Shareholders. Further amendments were made to the Option
Plan by the directors on May 9, 2001 (see  "Amendments  to the 1991 Stock Option
Plan for Key Employees and Non-Employee Directors").

      All  options  granted  under the Option  Plan must be  exercised  within a
maximum of ten years  following  the date of grant or within such other  shorter
time or times as may be determined by the Compensation  Committee at the time of
grant.  Since 1998, all option grants have had a six-year term.  Under the terms
of the Option Plan, up to twenty-five percent of the common shares in respect of
each option may be purchased  after one year from the date of grant, up to fifty
percent after two years from the date of grant, up to seventy-five percent after
three  years  from the date of grant and up to one  hundred  percent  after four
years from the date of grant or at such other time or times as may be determined
by the Compensation Committee at the time of grant.

      The price at which  common  shares may be  purchased  upon  exercise of an
option is the average of the market price (as defined in the Option Plan) of the
common  shares on The Toronto  Stock  Exchange  for the five  trading day period
immediately preceding the date of grant.

      The  Option  Plan  provides  that,  in the event of the death of an option
holder,  the  exercise  period of any options  unexercised  at the date of death
would be accelerated so that the option  holder's legal personal  representative
would be  permitted  to purchase  and take  delivery of all common  shares under
option and not  purchased or delivered at the date of death,  during the 180-day
period  following  such  option  holder's  death  (but  in no  event  after  the
expiration date of such option).

      The Option Plan also provides that, in the event of the  termination of an
employee's  employment for any reason other than cause or death,  the employee's
options may be exercised,  to the extent the options are  exercisable  as of the
termination date, within 30 days following the date the employee's employment is
terminated;  provided,  however,  that the Board of Directors of the Corporation
may, in its discretion,  amend the terms of any option to permit the employee to
exercise such options as if such employee's  employment had not been terminated,
for up to a maximum of three  years  following  the date of  termination  of the
employee's


                                       71
<PAGE>

employment  (but in no event after the expiration  date of such option).  In the
event the employee's  employment has been  terminated for cause,  the employee's
options may be exercised only during the next business day following the date of
personal  delivery  of a  written  notice  by the  Corporation  to the  employee
confirming such termination.

      The Option Plan further provides that, in the event of a change of control
(whether in fact or in law) of the  Corporation  which results in a non-employee
director being replaced,  the vesting period shall be waived with respect to the
options  then held by such  non-employee  director  in order to permit  the full
exercise of all outstanding  options then held by such person. In the event that
the non-employee  director ceases to act as a director of the  Corporation,  all
options  held by such  director,  which are then  exercisable,  may be exercised
within  180 days  following  the  announcement  of the  quarterly  results  next
following  the date of  resignation  of such  person  (but in no event after the
expiration  date of such  option).  The  Option  Plan  also  provides  that  the
Compensation  Committee may determine  that any option  granted under the Option
Plan shall include provisions which accelerate the date on which an option shall
become  exercisable  upon  the  happening  of such  events  as the  Compensation
Committee may determine and as permitted in the Option Plan.

      On January 11, 2000,  the Board of Directors  of the  Corporation  decided
that all unvested stock options held by each  director,  the President and Chief
Executive Officer, the then five Senior Vice Presidents and any other executives
of the  Corporation  as may be designated by the Board of Directors from time to
time will be accelerated and become fully vested and immediately  exercisable in
the event of (i) the making by any person of a take-over  bid (as defined in the
Securities Act (Ontario))  for the common shares of the  Corporation,  or (ii) a
change of control  (whether in fact or in law and as more fully  defined in such
Board resolution) of the Corporation.

      In  connection   with  the  sale  by  the  Corporation  of  its  worldwide
communications systems business on February 16, 2001 and further to negotiations
with the buyer to  provide  the buyer with  assistance  in  retaining  employees
during the first year following the closing  (February 16, 2001),  all employees
of the former systems business who held options to purchase common shares of the
Corporation  which were vested as at  February  16,  2001 were  provided  with a
period until August 14, 2002 to exercise such options if they remained  employed
with the buyer until at least  February 15, 2002. In addition,  of the remaining
unvested  options  held by such  employees  as at February  16,  2001,  50% were
accelerated to vest on February 15, 2002  (provided  that such employees  remain
employed by the buyer as of such date) and the remaining  50% were  cancelled as
of February 16, 2001. All such employees have a further 180-day period following
such  accelerated  vesting to exercise  such  options and any options  remaining
unexercised as at August 14, 2002 expire on that date.

      In addition,  on March 5, 2001,  the  Corporation  offered  certain of its
semiconductor  employees (other than directors and senior executive  officers of
the  Corporation)  an opportunity to exchange  options granted to such employees
after  November  1, 1999 at prices  which  varied up to $35.60  for new  options
exercisable  at a lower price of $14.06,  which was the market price (as defined
in the Option Plan) of the common  shares on February  21, 2001,  as approved by
The Toronto Stock Exchange. The vesting period for any new option granted to any
employees who chose to exchange their former options in this manner restarted as
of February 21, 2001 and the  optionholders  thereby forfeited any vesting which
had already  accrued as at such date with  respect to the former  options.  This
one-time  offer was made to employees in  recognition  of the fact that,  due to
recent  market  conditions,  certain  recently  awarded  options no longer  were
providing the appropriate level of incentive to such employees.

      Under the terms of the Option Plan, the maximum number of common shares as
to which options may be granted is 16,000,000 (representing  approximately 12.7%
of the common shares  outstanding  as of May 30, 2001).  As of May 30, 2001, the
closing price of the common shares of the Company on The Toronto Stock  Exchange
was  $13.65  and  therefore  the  total  market  value  as of  such  date of the
10,504,267 common shares (excluding  4,613,496 common shares as to which options
have been previously  exercised) that are or may be subject to options  pursuant
to the Option Plan was $143,383,245.


                                       72
<PAGE>

      During  Fiscal  2001,  the  Company  granted  options  to  purchase  up to
6,098,025 common shares to 965 employees and nine non-employee  directors of the
Company at an average  exercise price of $17.69 per share,  of which options for
300,000  common  shares were  granted to four  executive  officers at an average
exercise price of $17.94 per share. During Fiscal 2001, seven executive officers
of the Company  exercised  options to purchase  338,500  common shares having an
aggregate net value (being the market value less the exercise  price on the date
of the exercise) of $7,032,462.48 as of such date.

      As at May 30, 2001, there were  outstanding  under the Option Plan options
for an aggregate of  10,504,267  common  shares at prices  ranging from $1.10 to
$37.35 per share and expiring at various  dates  through  2007. Of such options,
options for an aggregate of 1,744,800 common shares were held by seven executive
officers, three of whom are directors of the Company.

Stock Option Grants in Last Fiscal Year

      The following  table sets forth the details  regarding  options granted to
the Named Executive Officers under the Option Plan during Fiscal 2001.

                        Option Grants During Fiscal 2001
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
                                                                         Market Value
                                           % of Total                     of Securities
                           Securities       Options                        Underlying
                             Under         Granted to       Exercise      Options/SARS
                            Options        Employees           or          on the Date
                            Granted        in Fiscal      Base Price(1)     of Grant         Expiration
          Name                (#)             2001        ($/Security)    ($/Security)          Date
--------------------------------------------------------------------------------------------------------

<S>                          <C>              <C>             <C>             <C>               <C>
Kirk K. Mandy                50,000           (2)             37.35           38.90         May 4, 2006
                            100,000           1.70            14.06           13.75      February 21, 2007

Paul Butcher                  Nil

Jean-Jacques Carrier         50,000           (2)             14.06           13.75      February 21, 2007

Donald G. McIntyre           50,000           (2)             14.06           13.75      February 21, 2007

Moris Simson                  Nil

Shirley J. Mears              Nil

Francois Cordeau             50,000           (2)             14.06           13.75      February 21, 2007
----------------------------------------------------------------------------------------------------------
</TABLE>

(1)   Exercise price is determined by the five day averaging  formula as defined
      in the Option  Plan and market  value is the market  price on The  Toronto
      Stock Exchange on the date of grant.

(2)   The percentage of total options granted was less than 1%.

Year End Option Values Table

      The following table summarizes,  for each of the Named Executive Officers,
the aggregated  options  exercised during Fiscal 2001 and option values at March
30, 2001.


                                       73
<PAGE>

                 Aggregated Options Exercised During Fiscal 2001
                        and Fiscal Year-End Option Values

<TABLE>
<CAPTION>
=======================================================================================================
                        Securities    Aggregate                                  Value of Unexercised
                         Acquired       Value      Unexercised Options at        In-the-Money Options
         Name          On Exercise    Realized          March 30, 2001             at March 30, 2001
                           (#)           ($)                 (#)                          ($)
                                                 --------------------------   -------------------------
                                                 Exercisable  Unexercisable   Exercisable Unexercisable
=======================================================================================================

<S>                       <C>         <C>           <C>           <C>           <C>            <C>
Kirk K. Mandy             91,250      2,061,637     433,750       150,000       871,550             --

Paul Butcher              30,250        773,560      51,025       121,575       114,486        265,158

Jean-Jacques Carrier      70,000      1,400,250     125,000       145,000       376,350        254,100

Donald G. McIntyre        57,000      1,296,440      86,250       143,750       209,600        236,800

Moris Simson              50,000        550,225       6,250            --            --             --

Shirley J. Mears          10,000        228,750      36,975        19,925       127,869         45,012

Francois Cordeau          30,000        721,600      55,000       163,750        43,713        326,538
=======================================================================================================
</TABLE>

OTHER COMPENSATION

Employment Agreement of the President and CEO

      On March 20, 2001, the  Corporation  entered into an employment  agreement
with Mr.  Patrick J.  Brockett  with respect to his  employment as President and
Chief Executive Officer.

      Pursuant to the agreement,  Mr.  Brockett is entitled to receive an annual
base salary in the amount of $775,000,  plus an annual bonus,  conditional  upon
the successful achievement by Mr. Brockett of specific target objectives in each
fiscal year, as follows: (i) if a minimum of 85% of the objectives are achieved,
the annual  bonus will be equal to 30% of the annual  base  salary,  (ii) if the
objectives  are  achieved in full,  the annual bonus will be equal to 60% of the
annual base salary,  and (iii) if all  objectives  are exceeded by at least 25%,
the  annual  bonus will be equal to 120% of the annual  base  salary.  The bonus
objectives  for each fiscal year are  reviewed and  finalized  with the Board of
Directors of the Corporation  within 45 days following the  commencement of each
fiscal year.

      Mr.  Brockett  is also  entitled  to  customary  benefits  and  options to
purchase one million  common shares  priced as follows:  (i) 25% of such options
are priced at the  market  price (as  defined  in the Option  Plan) in effect on
April 9, 2001 (being the start date by Mr.  Brockett of his employment  with the
Corporation)  (the "Initial Market Price"),  (ii) 25% of such options are priced
at 120% of the Initial  Market  Price,  (iii) 25% of such  options are priced at
144% of the Initial Market Price, and (iv) the remaining 25% of such options are
priced at 173% of the Initial  Market Price.  The options  provide for staggered
equal vesting over a period of four years  commencing one year  following  their
date of grant,  and are  otherwise  governed by the terms and  conditions of the
Option Plan.

      Mr. Brockett's  employment  agreement  provides further that, in the event
that the Corporation  terminates his employment  without legal grounds for which
an employer is entitled to dismiss an employee without notice or compensation in
lieu of notice, he will be entitled to the following  termination package: (i) a
lump sum payment  equal to two times his annual  base salary and average  earned
annual bonus over the previous three fiscal years (or such shorter period during
which Mr.  Brockett  will then have been  employed by the  Corporation),  (ii) a
payment of two years' regular annual contributions to the Executive Pension Plan
(or a contribution  equal to 30% of the


                                       74
<PAGE>

then current base salary,  to the extent Mr. Brockett is not then  participating
in the  Executive  Pension  Plan) and (iii)  continuous  group  life and  health
benefits  coverage during such two-year period.  In addition,  Mr. Brockett will
have a period of six months  following the date of  termination  to exercise all
stock options that are vested up to the end of such exercise period.

Executive Termination Agreements

      In  addition to the  termination  package  provided  to the  Corporation's
President  and CEO,  Patrick  J.  Brockett,  under the  terms of his  employment
agreement   described   above,   the  Corporation  has  entered  into  executive
termination   arrangements  with  five  senior  executives  (the  "Executives"),
including  two  of  the  Named  Executive  Officers,   to  provide  for  certain
entitlements  in the event of the  involuntary  termination  of the  Executives'
employment with the Corporation in any circumstances  considered to constitute a
"termination  without  good legal  cause",  as such term is  interpreted  by the
Courts of the Province of Ontario from time to time.

      The agreements generally provide that, in the event of such an involuntary
termination of employment  without good legal cause, the Executive would receive
as  compensation:  (i) for three  Executives - two times the Executive's  annual
base salary and annual target bonus,  and (ii) for two  Executives - one and one
half times the Executive's annual base salary and average annual bonus, based on
the actual bonus  payments  made to such  Executive  for the previous two fiscal
years.

      In addition to such  compensation,  the  agreements  provide for continued
contributions to the Executive Pension Plan and continuous group life and health
benefits coverage during the two or one and one half year period, as applicable.
In all cases,  the Executives have a period of six months  following the date of
termination  to exercise all stock  options that are vested up to the end of the
exercise period.

      These  agreements   replace  the  former  VP  Termination  Policy  of  the
Corporation as well as all previous compensation  arrangements entered into with
the  Executives  and were  developed  under the  direction  of the  Compensation
Committee  in  consultation  with outside  compensation  and  independent  legal
advisors  in  order  to  reflect  current  North  American   competitive  market
practices.

      In  accordance  with the  terms  of the  executive  termination  agreement
entered into with Mr. Kirk K. Mandy on January 12, 2000, the Corporation  made a
lump sum payment of $3 million to Mr. Mandy on April 12, 2001 in connection with
the  termination  of Mr.  Mandy's  employment as President  and Chief  Executive
Officer of the Corporation. In addition to this lump sum, Mr. Mandy will receive
certain  payments  on account of the  Executive  Pension  Plan and on account of
group  benefits,  as provided  for under his  executive  termination  agreement.
Finally, all unvested options to purchase common shares (other than the two most
recent  grants of 50,000 and 100,000  options,  respectively)  held by Mr. Mandy
were  accelerated as of April 12, 2001 and are exercisable for a two-year period
following the date of his termination.  The remaining  options held by Mr. Mandy
will continue as director  options and will vest in accordance with the terms of
the Option Plan as long as Mr. Mandy remains a director of the Corporation.

      Pursuant to negotiations  with the buyer of the systems  business,  all of
the unvested  options to purchase  common  shares held by Mr. Paul Butcher as of
February 16, 2001 were accelerated  following the sale by the Corporation of its
systems  business,  provided that Mr. Butcher remains in the employ of the buyer
at least until  February 15, 2002,  and such options are  exercisable  only from
February 15, 2002 to August 14, 2002.

      Pursuant  to the  termination  and  severance  agreement  entered  into on
December 18, 2000 with Mr. Moris Simson in connection  with his  departure  from
the  Corporation  to start up Optenia,  Inc.,  the  Corporation  made a lump sum
payment to Mr. Simson in the amount of $310,000 (representing one year's salary)
plus $155,000  (representing his annual target bonus), in addition to a one-year
contribution to the Executive  Pension Plan.  Furthermore,  50% of each grant of
unvested  options to purchase common shares held by Mr. Simson were  accelerated
and remain  exercisable for a two-year  period  following the termination of his
employment  with the  Corporation  (unless Mr. Simson  voluntarily  resigns from
Optenia,  Inc. prior to such time, in which case the


                                       75
<PAGE>

exercise  period is reduced to six months  following his departure from Optenia,
Inc.). The Corporation has a 43% equity interest in Optenia, Inc.

      Pursuant to the  executive  termination  agreement  entered  into with Mr.
Francois Cordeau on January 12, 2000, the Corporation undertook,  further to Mr.
Cordeau's  departure from the Corporation on April 27, 2001, to continue payment
of Mr. Cordeau's base salary for a period of six months  commencing on April 30,
2001 and  ending  on  October  26,  2001.  A lump  sum  payment  of  $483,115.38
(representing  18  months'  base  salary)  will be made  to Mr.  Cordeau  by the
Corporation  on November 9, 2001.  In addition,  the  Corporation  paid a target
bonus to Mr. Cordeau on May 11, 2001 in the amount of $318,000 (representing two
years of annual target bonus).  Furthermore,  Mr.  Cordeau will receive  regular
monthly  installments  from May to October  2001  totaling  $23,850,  a lump sum
payment of $23,850 on November 9, 2001 and a further lump sum payment of $47,700
on April 27, 2002, for a total amount  representing a two-year  contribution  on
account of the Executive Pension Plan.  Finally,  all of Mr. Cordeau's  unvested
options were  accelerated  and remain  exercisable  for one year  following  the
October 26, 2001 effective termination date.

COMPENSATION OF NON-EMPLOYEE DIRECTORS

      During the fiscal year ended March 30, 2001,  each  director who was not a
salaried  officer of the  Corporation  or its  subsidiaries  received  an annual
stipend of $10,000 and a director's  fee of $2,000 for each meeting of the Board
of Directors or any Committee  thereof attended in person and for each day spent
on the affairs of the  Corporation or $1,250 for each  telephone  meeting of the
Board of  Directors  and was  reimbursed  for his  expenses.  In  addition,  the
Chairman of each  Committee  of the Board of  Directors  received an  additional
annual fee of $6,000.  The  Corporation  also pays the  Chairman of the Board of
Directors,  when such person is not an employee  of the  Corporation,  an annual
stipend of $100,000  (inclusive of Board and  Committee  meeting fees) and a per
diem of $2,500 for  attendance on  Corporation  business to an annual maximum of
$50,000.

      The following table summarizes the aggregate number of unexercised options
held by non-employee directors at May 30, 2001.

                 Option Information For Non-Employee Directors

    |==============================|====================================|
    |                              |   exercised Options at May 30, 2001|
    |            Date of Grant     |      Exercisable / Unexercisable   |
    |------------------------------|------------------------------------|
    | January 26, 1993             |           50,000 / --              |
    |------------------------------|------------------------------------|
    | May 12, 1994                 |           48,000 / --              |
    |------------------------------|------------------------------------|
    | May 17, 1995                 |           60,000 / --              |
    |------------------------------|------------------------------------|
    | March 15, 1996               |           20,000 / --              |
    |------------------------------|------------------------------------|
    | May 16, 1996                 |          104,500 / --              |
    |------------------------------|------------------------------------|
    | July 24, 1996                |           20,000 / --              |
    |------------------------------|------------------------------------|
    | May 22, 1997                 |          153,500 / --              |
    |------------------------------|------------------------------------|
    | March 12, 1998               |          120,000 / 37,500          |
    |------------------------------|------------------------------------|
    | July 17, 1998                |          100,000 / --              |
    |------------------------------|------------------------------------|
    | July 23, 1998                |           12,500 / 12,500          |
    |------------------------------|------------------------------------|
    | May 20, 1999                 |          168,750 / 70,000          |
    |------------------------------|------------------------------------|
    | August 27, 1999              |            5,000 / 15,000          |
    |------------------------------|------------------------------------|
    | January 12, 2000             |          140,000 / 120,000         |
    |------------------------------|------------------------------------|
    | May 4, 2000                  |           12,500 / 37,500          |
    |------------------------------|------------------------------------|
    | August 22, 2000              |               -- / 20,000          |
    |------------------------------|------------------------------------|
    | February 21, 2001            |              -- / 280,000          |
    |==============================|====================================|


                                       76
<PAGE>

DIRECTORS' AND OFFICERS' LIABILITY INSURANCE

      As at May 30, 2001, the Corporation had in force  Directors' and Officers'
Liability  Insurance policies in the amount of U.S.  $30,000,000 for the benefit
of the directors and officers of the Corporation and its subsidiaries. The total
amount of the premiums  paid by the  Corporation  for the policies in effect for
the fiscal  year ended  March 30,  2001 was Cdn.  $283,720.  No portion of these
premiums was paid by the directors and officers of the Corporation. The policies
do not provide for a deductible for any loss in connection  with a claim against
a director or an officer. For claims brought against the Corporation relating to
violations  of United  States  securities  laws  governed  by the United  States
Securities  and  Exchange  Commission  ("SEC"),  a  deductible  applies  of U.S.
$500,000.  For other  claims  brought  against  the  Corporation  in  Canada,  a
deductible applies of Cdn. $100,000.  For claims brought against the Corporation
in the United States  (excluding  SEC  violations)  and the rest of the world, a
deductible applies of U.S. $250,000.

INDEBTEDNESS OF OFFICERS, DIRECTORS AND EMPLOYEES

      As at May 30, 2001, no officer,  director,  employee,  or former  officer,
director or employee of the Corporation or its  subsidiaries was indebted to the
Corporation in connection with the purchase of securities of the Corporation.

      As  at  May  30,  2001,  the  aggregate  amount  of  indebtedness  of  the
Corporation  incurred,  other than in connection with the purchase of securities
of the  Corporation  and  other  than  routine  indebtedness,  by all  officers,
directors,  employees  and  former  officers,  directors  and  employees  of the
Corporation or its subsidiaries, amounted to $40,262.01.

REPORT ON EXECUTIVE COMPENSATION

      The  Compensation  Committee is comprised of three current  members of the
Board of Directors: Peter van Cuylenburg, the Chairman of the Committee,  Donald
W. Paterson and Jonathan Wener.

      It is the responsibility of the Compensation Committee to recommend to the
Board of Directors  compensation policies and levels,  compensation plans, stock
option/purchase  plans and benefit  plans.  The  Compensation  Committee is also
responsible  for  developing  and  reviewing  succession  plans that sustain the
long-term viability of the Corporation.

General Principles of Executive Compensation

      Compensation  of  executive   officers,   including  the  Named  Executive
Officers,  is determined by the Board of Directors upon  recommendations made by
the Compensation Committee.

      The Corporation's  executive compensation programs are designed to attract
and  retain  competent  individuals  who can ensure the  current  and  long-term
success  of the  Corporation.  Each  component  of the  Corporation's  executive
compensation  program is designed to be  competitive  with leading  Canadian and
U.S. high technology companies of similar size.

      Executive  positions are formally evaluated by an independent  consultant,
using a widely  recognized  point-factor job evaluation  system,  resulting in a
specific  number of points for each  position.  Using total points to compare to
the external  comparator  group,  a market rate for each  executive  position is
established based on information furnished through independent survey data.

      The total  compensation  program for  executive  officers is  comprised of
three components: base salary, an annual incentive and a long-term incentive.


                                       77
<PAGE>

Base Salary

      Base  salary  recommendations  are  determined  based on  market  data for
positions of similar  responsibilities  and complexity in the comparator  group,
internal equity  comparisons and the  individual's  ability and experience.  The
Corporation's base salaries are competitive with those of the comparator group.

Annual Incentive Compensation Arrangements

      The   Corporation's   annual   incentive  plans  are  intended  to  incent
individuals to focus on achievement of current year Operating Income targets and
key  strategic  performance  objectives  within  each  of  the  business  units.
Individual  target  awards  and  performance  weightings  within  the  plans are
dependent on the  individual's  ability to influence  results.  Operating Income
targets are set by the Board of Directors at the commencement of the fiscal year
and awards for  business  unit and  individual  performance  are  payable if the
corporate Operating Income is at least 85% of target  performance.  Payments may
be made  for  performance  below  this  threshold  at the  Board  of  Directors'
discretion.

Long-Term Incentive

      Options  to  purchase  common  shares are  granted to the Named  Executive
Officers   and  other  key   employees  to  sustain   commitment   to  long-term
profitability and maximize shareholder value over the long term. Under the terms
and conditions of the Option Plan,  participants  are granted  options which are
exercisable  for periods of time determined by the  Compensation  Committee to a
maximum of ten years  following the date of grant at an exercise  price equal to
the average market price of the Corporation's common shares on The Toronto Stock
Exchange  during the five trading day period  immediately  preceding the date of
grant.  See  "Executive  Compensation - 1991 Stock Option Plan for Key Employees
and Non-Employee Directors".

Compensation of the President and Chief Executive Officer

      In April 2001,  Patrick J.  Brockett  was  appointed  President  and Chief
Executive Officer of the Corporation.  Mr. Brockett's  compensation was approved
by the Compensation Committee and the Board of Directors.

      The base  salary and  long-term  incentive  components  of Mr.  Brockett's
compensation  are  determined  in accordance  with the policies  applying to all
executive  officers of the Corporation.  Mr.  Brockett's  current base salary is
$775,000.

      Mr. Brockett's annual  discretionary  bonus is determined,  at each fiscal
year end, based on the  Compensation  Committee's  assessment of Mr.  Brockett's
performance, particularly in improving the Corporation's long-term profitability
and financial  condition.  See "Other Compensation - Employment Agreement of the
President and CEO".

      The Compensation Committee of the Board of Directors,  whose names are set
out below,  has approved the issue of this Report on Executive  Compensation and
its inclusion in this Circular.

Mr. Donald W. Paterson

Mr. Peter van Cuylenburg

Mr. Jonathan I. Wener


                                       78
<PAGE>

Performance Graph

      The following graph compares the cumulative  total  Shareholder  return on
$100  invested in common shares of the  Corporation  with the  cumulative  total
return of The Toronto Stock  Exchange 300 Stock Index for the five most recently
completed fiscal years, assuming reinvestment of all dividends.


                                [Graph omitted}


Item 12. Security Ownership of Certain Beneficial Owners and Management

      The following table sets forth information as at May 30, 2001 with respect
to (1) all  shareholders  known by the Company to be  beneficial  owners  (which
includes shares over which control or direction is exercised) of more than 5% of
its  outstanding  common  shares;  and (2)  ownership of common shares and $2.00
Cumulative  Redeemable  Convertible  Preferred  Shares,  1983 R&D  Series  ("R&D
Preferred Shares") by each director and nominee for director,  each of the Named
Executive Officers and all executive officers and directors as a group.


                                       79
<PAGE>

<TABLE>
<CAPTION>
                                                             Class of Shares     Amount Beneficially     Percent of
            Name and Address                                                            Owned             Class(1)

<S>                                                          <C>                       <C>                   <C>
            Andre Borrel                                     Common                    28,750                (6)
                     Chemin du bois de Seyme, 1
                     1253 Vandoeuvres - GE - Suisse
            *Patrick J. Brockett                             Common                      --                  (6)
            *Paul Butcher                                    common                    53,525                (6)
            *Jean-Jacques Carrier                            common                    177,500               (6)
            *Francois Cordeau                                common                    218,750               (6)
            Anthony L. Craig                                 common                    37,200                (6)
                     33 Whitehall Street, 19th Floor
                     New York, NY 10004

            Hubert T. Lacroix                                common                    126,278               (6)
                     1 Place Ville Marie, Suite 3333
                     Montreal, Quebec H3B 3N2

            Mark Levi                                        Common                      --                  (6)
            Kirk K.  Mandy                                   common                    449,250               (6)
                     400 March Road
                     Kanata, ON  K2K 3H4

            *Donald G. McIntyre                              common                    107,500               (6)
            *Shirley Mears                                   common                    40,075                (6)
            Donald W. Paterson                               common                    49,250                (6)
                     141 Adelaide St. West, Suite 1200
                     Toronto, Ontario M5H 3L9

            Kent H. E. Plumley                               Common                      --                  (6)
                     1500 - 50 O'Connor Street
                     Ottawa, ON  K1P 6L2

            *Tim Saunders                                    common                    34,900                (6)
            Dr. Henry Simon                                  common                    218,750               (6)
                     1 Telegraph Hill
                     London, England NW3 7NU

            *Moris Simson                                    common                     6,250                (6)
            Dr. Semir D. Sirazi                              common                    10,000                (6)
                     500 Elmwood Ave
                      Wilmette, Illinois 60091

            Peter van Cuylenburg                             common                    73,750                (6)
                     720 Bair Island Road
                     Redwood City, CA  94063

            Jonathan I. Wener                                common                    269,230               (6)
                     2000 Peel Street, Suite 900
                     Montreal, Quebec H3A 2W5

            19  directors  and  executive   officers  as  a  common                   1,900,958
            group(3,5)                                       R&D Preferred               nil
</TABLE>

----------
*     These officers are located c/o Mitel Corporation,  400 March Road, Ottawa,
      Ontario, Canada K2K 3H4.

The persons named hold the sole  investment and voting power except as set forth
below:

(1)   Percentage  ownership is  calculated  based upon total shares in the class
      outstanding  plus  shares  in  the  class  subject  to  options  currently
      exercisable  or  exercisable  within  sixty  days by the  entity  or group
      indicated.


                                       80
<PAGE>

(2)   These holdings include stock options currently  exercisable or exercisable
      within 60 days by: Mr. Borrel - 28,750;  Mr. Brockett - nil; Mr. Butcher -
      51,025; Mr. Carrier - 147,500;  Mr. Cordeau - 218,750; Mr. Craig - 35,750;
      Mr. Lacroix - 117,750; Mr. Levi - nil; Mr. Mandy - 446,250; Mr. McIntyre -
      107,500; Ms. Mears - 40,075; Mr. Paterson - 47,250; Mr. Plumley - nil; Mr.
      Saunders - 34,900;  Dr. Simon - 93,750;  Mr. Simson - 6,250;  Dr. Sirazi -
      10,000; Mr. van Cuylenburg - 73,750 and Mr. Wener - 167,750.

(3)   Does not include stock options granted to non-employee directors which are
      not currently  exercisable,  as follows:  Mr. Borrel - 51,250; Mr. Craig -
      51,250; Mr. Lacroix - 51,250; Mr. Mandy - 137,500;  Mr. Paterson - 51,250;
      Mr.  Plumley - 40,000;  Dr. Simon - 51,250;  Dr. Sirazi - 50,000;  Mr. van
      Cuylenburg - 51,250, and Mr. Wener - 51,250.

(4)   The  holdings  of Mr.  Wener  are  held by and  registered  in the name of
      MOI-MEME  Holdings  Inc.  Mr.  Wener is the sole  shareholder  of MOI-MEME
      Holdings Inc.

(5)   Represents less than 1% of the class.

      Statements  contained in the table as to securities  beneficially owned by
persons  referred to therein or over which they  exercise  control or  direction
are, in each instance, based upon information provided by such persons.

      Item 13. Certain Relationships and Related Transactions

      During  the  fiscal  year  ended  March 30,  2001 the  Company  engaged as
construction  manager of the building of its Phase V, Canderel  Holdings Ltd. of
which Jonathan Wener, a member of the Board of Directors,  is Chairman.  Project
construction  costs are  estimated  at  approximately  $15.5  million,  of which
Canderel will receive a fee of 5.5% of the project  costs,  plus all  reasonable
disbursements incurred in connection with the project.  Management considers the
services  performed to be very  professional  and at a  competitive  cost in the
marketplace.

                                     PART IV

      Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

      a) The following financial  statements and supplementary data are filed as
      part of this report under

Item 8:

<TABLE>
<CAPTION>
      1. Consolidated Financial Statements.                                                    Page Number
                                                                                           (within the 10-K)
<S>                                                                                                <C>
      Auditor's Report to the Shareholders                                                         33

      Consolidated Balance Sheets at March 30, 2001, March 31, 2000, and March 26, 1999            34

      Consolidated Statements of Income and Retained Earnings for the fiscal years ended
      March 30, 2001, March 31, 2000, and March 26, 1999                                           36

      Consolidated Statements of Cash Flows for the fiscal years ended
      March 30, 2001, March 31, 2000, and March 26, 1999                                           37

      Notes to the Consolidated Financial Statements                                               38
</TABLE>

      2.   Financial   Statement   Schedules.   The  Schedules   supporting  the
      consolidated  financial  statements which are filed as part of this report
      are as follows:

                 Schedule II - Valuation and qualifying accounts


                                       81
<PAGE>

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

      3. Exhibits

         Exhibit             Description
         Number

      2.1   Acquisition Agreement by and among Mitel Corporation, 3755461 Canada
            Inc. and Dr. Terence H.  Matthews,  dated as of January 2, 2001 (the
            "Acquisition Agreement")(incorporated by reference to Exhibit 2.1 to
            Form 8-K filed on March 2,  2001).  The  following  exhibits  to the
            Acquisition   Agreement  were  omitted.  The  Company  will  furnish
            supplementally  a copy of any omitted exhibit to the Commission upon
            request.

      Omitted exhibits:

      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
      Schedule 6.23              Tangible Personal Property
      Schedule 7.1(i)            Form of Opinion of Vendor's Counsel (Canada, UK
                                   and US)


                                       82
<PAGE>

      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


      3.1   Articles  of  Continuance  of the  Company  and  Amendments  thereto
            (incorporated by reference to Exhibit 3.1 to Registration  Statement
            No.2-88432 on Form S-1)

      3.2   Certificate and Articles of Amendment of Mitel Corporation dated May
            16, 1984  (incorporated by reference to Exhibit 3.2 to Form 10-K for
            the fiscal year ended February 24, 1984)

      3.3   Certificates  and Articles of Amendment of Mitel  Corporation  dated
            June 27, 1984,  September 7, 1984 and October 9, 1984  (incorporated
            by  reference  to Exhibit 3.3 to Form 10-K for the fiscal year ended
            February 22, 1985)

      3.4   Certificate and Articles of Amendment of Mitel Corporation dated May
            23, 1986  (incorporated by reference to Exhibit 3.4 to Form 10-K for
            the fiscal year ended March 28, 1986)

      3.5   Certificate and Articles of Amendment of Mitel Corporation dated May
            27, 1987  (incorporated by reference to Exhibit 3.5 to Form 10-K for
            the fiscal year ended March 25, 1988)

      3.6   Certificate  and Articles of Amendment  of Mitel  Corporation  dated
            January 21, 1988  (incorporated  by reference to Exhibit 3.6 to Form
            10-K for the fiscal year ended March 25, 1988)

      3.7   By-Laws of the Company  (incorporated by reference to Exhibit 3.7 to
            Form 10-K for the fiscal year ended March 29, 1996)

      3.8   Certificate  and Articles of Amendment  of Mitel  Corporation  dated
            August 24, 1995  (incorporated  by  reference to Exhibit 3.8 to Form
            10-K for the fiscal year ended March 29, 1996)

      10.1  Share Sale and Purchase Agreement,  dated February 12, 1998, between
            The  General  Electric  Company  p.l.c.,  London,  England and Mitel
            Telecom Limited,  Portskewett,  Gwent,  Wales and Mitel Corporation,
            Kanata, Ontario, Canada (incorporated by reference to Exhibit 2.1 to
            Form 8-K filed on February 27, 1998)

      10.2  Deed of Tax Covenant,  dated February 12, 1998,  between The General
            Electric Company p.l.c.  and Mitel Telecom Limited  (incorporated by
            reference to Exhibit 2.2 to Form 8-K filed on February 27, 1998)

      10.3  Environmental  Deed,  dated  February 12, 1998,  between The General
            Electric Company p.l.c.  and Mitel Telecom Limited  (incorporated by
            reference to Exhibit 2.3 to Form 8-K filed on February 27, 1998)

      10.4  Agreement and Plan of  Reorganization  and Merger by and among Mitel
            Corporation,   U.S.   Acquisition   Corp.   and   Vertex   Networks,
            Incorporated  ("Vertex"),  dated  as of June 6,  2000  (the  "Merger
            Agreement")  (incorporated  by reference to Exhibit 2.1 to Form 10-K
            for the fiscal year ended  March 31,  2000 filed on June 22,  2000).
            Except for the  Escrow  Agreement  and


                                       83
<PAGE>

            Restricted  Stock  Agreement  listed  below as Exhibits 2.2 and 2.3,
            respectively,  the following  exhibits to the Merger  Agreement were
            omitted.  The  Company  will  furnish  supplementally  a copy of any
            omitted exhibit to the Commission upon request.

            Omitted exhibits:

             Exhibit A     Form of  Merger Agreement
             Exhibit C     2000 Financial Statements
             Exhibit D     Form of Written Consent and Agreement

             Exhibit E     Form of Purchaser/Acquisition Corp. Tax
                              Representation Letter
             Exhibit F-1   Form of Employment Agreement (Founders)
             Exhibit F-2   Form of Employment Agreement (Non Founders)
             Exhibit G-1   Form of Non-competition Agreement (Founders)
             Exhibit G-2   Form of Non-competition Agreement (Non Founders)
             Exhibit H-1   Form of Lock Up Agreement
             Exhibit H-2   Form of Lock Up Agreement (Designated Employees)
             Exhibit I     Form of Voting Agreement
             Exhibit J     Form of Affiliate Agreement
             Exhibit L     Form of Opinion of Counsel to the Company
             Exhibit M     Form of Shareholder Letter
             Exhibit N     Form of FIRPTA Notification Letter
             Exhibit O     Form of Opinion of Counsel to Purchaser


      10.5  Form  of  Escrow  Agreement  to be  executed  and  delivered  by the
            Company,  the Shareholder  Representatives (as defined in the Merger
            Agreement)  and the Escrow  Agent  named  therein  (incorporated  by
            reference  to  Exhibit  2.2 to Form 10-K for the  fiscal  year ended
            March 31, 2000 filed on June 22, 2000).

      10.6  Form of Restricted  Stock  Agreement to be executed and delivered by
            the  Company  and  certain   holders  of  capital  stock  of  Vertex
            (incorporated  by  reference  to  Exhibit  2.3 to Form  10-K for the
            fiscal year ended March 31, 2000 filed on June 22, 2000).

      21    Subsidiaries of the Company

      23    Consent of Ernst & Young

      24    Power of Attorney (included on the signature page to this Form 10-K)

      (b)   Reports on Form 8-K. The Company filed a Current  Report on Form 8-K
            in the fourth  quarter of the fiscal year ended March 30, 2001.  The
            Report was dated  February  16,  2001 and related to the sale of its
            worldwide communications systems business, the name "Mitel" and most
            of its Ottawa,  Canada real  estate to a company  controlled  by Dr.
            Terence H. Matthews.

                                   Signatures

      Pursuant  to the  requirements  of Section 13 or 15 (d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                                   MITEL CORPORATION

                                                   By:   /s/ Patrick J. Brockett
                                                         (Patrick J. Brockett)
                                                     ---------------------------
         Dated:    June 28, 2001                         President and Chief
                                                            Executive Officer


                                       84
<PAGE>

                                Power of Attorney

      KNOW ALL  PERSONS BY THESE  PRESENTS,  that each  person  whose  signature
appears  below  constitutes  and  appoints  Jean-Jacques  Carrier  and Donald G.
McIntyre, jointly and severally, his attorneys-in-fact,  each with full power of
substitution,  for him in any and all capacities, to sign any amendments to this
Report on Form  10-K,  and to file the same,  with  exhibits  thereto  and other
documents in connection therewith,  with the Securities and Exchange Commission,
hereby  ratifying and  confirming  all that each said  attorney-in-fact,  or his
substitute or substitutes, may do or cause to be done by virtue hereof.

      Pursuant to the requirements of the Securities  Exchange Act of 1934, this
Report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
         Signature                                  Title                                   Date
         ---------                                  -----                                   ----
<S>                                        <C>                                             <C>
         /s/ Henry Simon                   Chairman of the Board                          June 28, 2001
    -----------------------------
         (Henry Simon)

         /s/ Kirk K Mandy                  Vice Chairman of the Board                     June 28, 2001
    -----------------------------
         (Kirk K. Mandy)

         /s/ Patrick J. Brockett           President and Chief Executive Officer          June 28, 2001
    -----------------------------
         (Kirk K. Mandy)

         /s/ Andre Borrel                  Director                                       June 28, 2001
    -----------------------------
         (Andre Borrel)

         /s/ Jean-Jacques Carrier          Senior Vice President of Finance and           June 28, 2001
    -----------------------------          Chief Financial Officer
         (Jean-Jacques Carrier)

         /s/ Anthony L. Craig              Director                                       June 28, 2001
    -----------------------------
         (Anthony Craig)

         /s/ Peter van Cuylenburg          Director                                       June 28, 2001
    -----------------------------
         (Peter van Cuylenburg)

         /s/ Hubert T. Lacroix             Director                                       June 28, 2001
    -----------------------------
         (Hubert T. Lacroix)

         /s/ Donald G. McIntyre            Senior Vice President of Human                 June 28, 2001
    -----------------------------          Resources, General Counsel and
         (Donald G. McIntyre)              Secretary


         /s/ Donald W. Paterson            Director                                       June 28, 2001
    -----------------------------
         (Donald W. Paterson)

         /s/ Kent Plumley                  Director                                       June 28, 2001
    -----------------------------
         (Kent Plumley)

         /s/ Semir D. Sirazi               Director                                       June 28, 2001
    -----------------------------
          (Semir D. Sirazi)

         /s/ Jonathan I. Wener             Director                                       June 28, 2001
    -----------------------------
         (Jonathan I. Wener)
</TABLE>


                                       85
<PAGE>

                                   SCHEDULE II

                                MITEL CORPORATION
                        VALUATION AND QUALIFYING ACCOUNTS
                                 March 30, 2001
                        (in millions of Canadian dollars)

<TABLE>
<CAPTION>
                                                         Additions

                                   Balance,
                                   Beginning       Charged to        Charged to                           Balance, End
         Description               of Period         expense       other accounts      Deductions          of Period

<S>                                      <C>              <C>                 <C>          <C>               <C>
         Allowance for doubtful accounts:
         Fiscal 2001                     $ 8.0            $ 3.0                --         $ (10.5)           $ 0.5
         Fiscal 2000                       8.7              2.6                --            (3.3)             8.0
         Fiscal 1999                      10.2              0.2                --            (1.7)             8.7

         Restructuring and other provisions:
         Fiscal 2001                     $  --            $16.8                --         $  (6.3)          $ 10.5
         Fiscal 2000                      32.2               --                --           (32.2)              --
         Fiscal 1999                      59.3             13.7               0.4           (41.2)            32.2
</TABLE>

      (1)Amounts  charged to other accounts are in respect of acquisition  costs
and costs to  integrate  the  operations  of the acquired  companies  with Mitel
Corporation.


                                       86
<PAGE>

                                    ANNEX "A"
                                GLOSSARY OF TERMS

      Application Specific Integrated Circuit (ASIC): A chip designed for use on
a particular circuit board or for a very narrow range of use. The digital signal
processor chip on a modem is an ASIC.

      Asynchronous  Transfer Mode (ATM):  A fast packet  switching  technique by
which short packets or cells  containing  data, voice or video signals are moved
over networks at high speed.

      Asymmetric Digital Subscriber Line (ADSL): A technology that delivers high
speed data rates over a twisted pair of copper wires. ADSL provides asymmetrical
megabit access for two general types of applications, interactive video and high
speed data communications.

      Bipolar:   Refers  to   transistors   formed  with  two  (N-  and  P-type)
semiconductor types. Such transistors are generally termed NPN or PNP types.

      BluetoothTM:  The  industry  name for a radio  system  specification  that
allows  very  short-range  transmission  of voice  and data  between  electronic
devices, without connecting wires.

      Broadband  Connectivity:  A new term that refers to moving and  connecting
high  volumes  of  different  types of  traffic  (voice,  data and  image)  over
different networks (copper wire, cable, fiber-optic and wireless).

      CMOS or Complementary Metal Oxide  Semiconductor:  A technology for making
integrated circuits known for requiring less electricity.

      Duplex  Device:  A  device  that  contains  both  a LED  and  a PIN  Diode
Photodetector in the same package.  The LED emits light in a specific wavelength
range  while  the PIN  detects  light  in a  different  wavelength  range,  thus
providing the capability to transmit light in both directions.

      E1: A 2.048 Mpb/s  digital  transmission  link,  the digital  transmission
standard used in Japan and Europe.

      Fab: A factory that makes integrated circuit chips.

      Fabless:  Refers to  semiconductor  companies whose designed  products are
manufactured in fabs owned by third parties.

      Gallium Arsenide:  A compound  semiconductor  material made of Gallium and
Arsenic.

      Gigabit  Ethernet:  Transmission  protocol  over a LAN that  operates at a
speed of gigabit (10 billion bits) per second.

      Indium  Phosphide:  A compound  semiconductor  material made of Indium and
Phosphorus.

      Integrated  Circuit  ("IC"):  A single  electronic  device  that  contains
thousands of previously separate (discrete)  components.  An IC is produced on a
small slice of semiconductor material, commonly silicon.

      Internet  Protocol  ("IP"):   Part  of  the  TCP/IP  family  of  protocols
describing  software that tracks the Internet address of nodes,  routes outgoing
messages, and recognizes incoming messages.

      LAN: Local Area Network that connects  computers together within an office
complex.  When such connections are distributed over a city or even larger area,
the LAN becomes a WAN or Wide Area Network.


                                       87
<PAGE>

      Light Emiting Diode (LED): An active semiconductor device that emits light
in a specific  wavelength  range in response to an electrical  signal applied to
it.

      PIN Diode Photodetector: An active semiconductor device that detects light
in a specific  wavelength  range and transforms the detected optical signal into
an electrical signal.

      Pin for Pin: A phrase used to describe a  semiconductor  component that is
not unique and is easily replaceable.

      Radio Frequency ("RF"): Electromagnetic waves operating between 10 kHz and
3 MHz, propagated without wire or cable in free space.

      Set-Top  Box:  The  electronic  box that sits on top of or near a TV,  and
interfaces between the TV and the network.

      Short-Reach  Optical  Interconnect:  The use of  fiber-optic  modules  and
components  to  interconnect  boards,  backplanes,  shelves and racks within and
between switches, routers, and transport equipment.

      System-On-A-Chip:  A complete system designed in the form of an integrated
circuit from which blocks of functionality may be selected to build a product.

      T1: A 1.544 Mbp/s digital  transmission  link, the North American standard
for digital transmission.

      Time Division  Multiplex  ("TDM"):  A technique for transmitting  separate
data, voice and video simultaneously over one continuous medium.

      VCSEL or Vertical Cavity Surface Emitting Laser: The latest development of
laser light  sources used in optical fiber  communications  at speeds of several
gigabits per second such that all  information  stored on a PC's hard disk could
be transferred in a few seconds.

      Voice-over-Internet  Protocol ("VoIP"): The movement of voice traffic over
an Internet Protocol network.

      WAN: Wide Area Network that connects  computers  distributed  throughout a
city or even larger area.

      Wireless:  Wireless  originally  meant radio,  but now refers to different
modes of  communication  without  wires.  Cellular is wireless in the  strictest
sense of the term, but wireless now includes wireless systems that work within a
building.

      Wireline:  The  transmission  of  information  over  wires - for  example,
conventional, wired telephone systems.


                                       88
<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION

                                MITEL CORPORATION

                           ANNUAL REPORT ON FORM 10-K

                      FOR THE PERIOD ENDING MARCH 30, 2001

                                    EXHIBITS