SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 20-F

(Mark One)

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

OR

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

For the fiscal year ended April 27, 2003

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the transition period from _________________ to ________________

                         Commission file number: 0-49984

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

                                     Canada
                 (Jurisdiction of incorporation or organization)

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

Securities registered or to be registered pursuant to Section 12(b) of the Act:
     None

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

                         Common Shares Without Par Value
                                (Title of Class)

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

Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report: 115,411,586 common shares as of July 18, 2003

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 which financial statement item the registrant has elected
to follow.

Item 17 [ ] Item 18 |X|

<PAGE>

Basis of Presentation

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

Foreign Currency Exchange Rates

On July 18, 2003, the Noon Buying Rate was CDN$1.00 to US$0.7085. The high and
low exchange rates (i.e., the highest and lowest rates at which Canadian dollars
were sold), the average exchange rate (i.e., the average of the exchange rates
on the last day of each full month during the period) and the period end
exchange rate of one Canadian dollar in exchange for United States (U.S.)
dollars for each of the applicable periods, as calculated from the exchange
rates reported by the U.S. Federal Reserve, are set forth below:

<TABLE>
<CAPTION>

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

Fiscal Year Ended April 27, 2003                      0.6880         0.6864        0.6941        0.6690
Fiscal Year Ended April 28, 2002                      0.6397         0.6372        0.6657        0.6200
Ten Week Period Ended April 27, 2001                  0.6486         0.6448        0.6696        0.6333
Forty-six Week Period Ended February 16, 2001         0.6507         0.6656        0.6889        0.6410
Fiscal Year Ended March 31, 2000                      0.6878         0.6810        0.6968        0.6607
Fiscal Year Ended March 26, 1999                      0.6607         0.6627        0.7054        0.6341
</TABLE>

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

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

              February 2003                 0.6724         0.6516
              March 2003                    0.6857         0.6685
              April 2003                    0.6941         0.6690
              May 2003                      0.7461         0.6928
              June 2003                     0.7512         0.7251
              July 2003                     0.7480         0.7085


                                      -i-
<PAGE>

Forward Looking Information

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

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

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


                                      -ii-
<PAGE>

                                TABLE OF CONTENTS


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

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

Item 2.  Offer Statistics and Expected Timetable...............................1

Item 3.  Key Information.......................................................1

     A.  Selected Financial Data...............................................1
     B.  Capitalization and Indebtedness.......................................3
     C.  Reasons for the offer and use of proceeds.............................3
     D.  Risk Factors..........................................................3

Item 4.  Information on Mitel Networks........................................14

     A.  History and Development of Mitel Networks............................14
     B.  Business Overview....................................................16
     C.  Organizational Structure.............................................28
     D.  Property, Plants and Equipment.......................................29

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

     A.  Operating Results....................................................36
     B.  Liquidity and Capital Resources......................................50
     C.  Research and Development, Patents and Licenses, etc..................58
     D.  Trend Information....................................................58

Item 6.  Directors, Senior Management and Employees...........................61

     A.  Directors and Senior Management......................................61
     B.  Compensation.........................................................65
     C.  Board Practices......................................................68
     D.  Employees............................................................69
     E.  Share Ownership......................................................69

Item 7.  Major Shareholders and Related Party Transactions....................74

     A.  Major Shareholders...................................................74
     B.  Related Party Transactions...........................................75
     C.  Interests of Experts and Counsel.....................................80

Item 8.  Financial Information................................................80

     A.  Consolidated Statements and Other Financial Information..............80
     B.  Significant Changes..................................................81


                                      -iii-
<PAGE>

Item 9.  The Offer and Listing................................................81

     A.  Offer and Listing Details............................................81
     B.  Plan of distribution.................................................81
     C.  Markets..............................................................81
     D.  Selling shareholders.................................................81
     E.  Dilution.............................................................82
     F.  Expenses of the issue................................................82

Item 10.  Additional Information..............................................82

     A.  Share Capital........................................................82
     B.  Memorandum and Articles of Incorporation.............................82
     C.  Material Contracts...................................................82
     D.  Exchange Controls....................................................96
     E.  Taxation.............................................................97
     F.  Dividends and Paying Agents.........................................102
     G.  Statement by Experts................................................102
     H.  Documents on Display................................................103
     I.  Subsidiary Information..............................................103

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

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

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

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

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

Item 15.  Controls and Procedures............................................105

Item 16.  [Reserved].........................................................105

PART III.....................................................................105

Item 17.  Financial Statements...............................................105

Item 18.  Financial Statements...............................................105

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


                                      -iv-
<PAGE>

                                     PART I

Item 1. Identity of Directors, Senior Management and Advisors

Not applicable.

Item 2. Offer Statistics and Expected Timetable

Not applicable.

Item 3. Key Information

A. Selected Financial Data

The following sets forth selected financial information derived from (a) Mitel
Networks' unaudited carve-out consolidated statements of operations of the
communications systems business, which is referred to in this annual report as
the Predecessor Business, of Mitel Corporation, now known as Zarlink
Semiconductor Inc., for the fiscal years ended March 26, 1999 and March 31,
2000, which are not included in this annual report, (b) the audited carve-out
combined statement of revenues and direct expenses of the Predecessor Business
for the forty-six week period ended February 16, 2001, included elsewhere in
this annual report, and (c) the audited consolidated financial statements of
Mitel Networks as of, and for the ten week period ended, April 27, 2001 and as
of, and for the fiscal years ended, April 28, 2002 and April 27, 2003, included
elsewhere in this annual report. The selected financial information may not be
indicative of Mitel Networks' future performance as an independent company and
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements and the notes thereto included elsewhere in this annual report.

<PAGE>

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

<TABLE>
<CAPTION>

                                              Mitel Networks                            Predecessor Business
                                 -----------------------------------------    -----------------------------------------
                                                                 Ten         Forty-six
                                        Years Ended              Weeks          Weeks                Years Ended
                                 ---------------------------     Ended          Ended       ---------------------------
                                 April 27,       April 28,       April         Feb. 16,       March 31,      March 26,
                                    2003            2002        27, 2001         2001           2000           1999
                                 -----------     -----------    ----------    ----------    ------------    -----------
                                  (audited)       (audited)     (audited)      (audited)     (unaudited)    (unaudited)
<S>                               <C>            <C>            <C>            <C>           <C>            <C>
Revenue                           $   543.1      $    560.2     $   121.4      $  515.0      $    793.7     $    752.7
Cost of sales                         339.8           331.0          64.4         291.0           388.3          388.7
                                  ---------      ----------     ---------      --------      ----------     ----------
Gross margin                          203.3           229.2          57.0         224.0           405.4          364.0

Research and development               63.5            92.2          20.1          74.2            77.8           71.7
Selling, general and
 administrative                       185.0           228.5          47.0         202.2           233.5          232.6
Purchased in-process research
 and development                         --              --          20.7            --              --             --
Special charges                        21.5            11.7            --          14.8              --           13.1
Loss on disposal of business             --             2.4            --            --              --             --
Amortization of acquired
 intangibles                           45.4            68.6          12.9           2.7            23.1           24.6
                                  ---------      ----------     ---------      --------      ----------     ----------
Operating income (loss)              (112.1)         (174.2)        (43.7)        (69.9)           71.0           22.0

Other expense, net                     (1.4)           (5.3)         (0.7)          N/A             N/A            N/A
Income tax (expense) recovery           4.3            (0.2)         (0.9)          N/A             N/A            N/A
                                  ---------      ----------     ---------      --------      ----------     ----------
Net loss                          $  (109.2)     $   (179.7)    $   (45.3)     $    N/A      $      N/A     $      N/A
                                  =========      ==========     =========      ========      ==========     ==========
Net loss per share:
  Basic and diluted               $   (0.97)     $    (1.73)    $   (0.45)     $    N/A      $      N/A     $      N/A
                                  =========      ==========     =========      ========      ==========     ==========
Weighted average number of
 common shares outstanding            113.1           106.8         100.0           N/A             N/A            N/A
                                  =========      ==========     =========      ========      ==========     ==========
</TABLE>

<TABLE>
<CAPTION>

                                                     As at              As at             As at
                                                   April 27,          April 28,         April 27,
                                                     2003               2002              2001
BALANCE SHEET DATA                              ---------------    --------------    --------------
(in millions)                                     (audited)          (audited)         (audited)
<S>                                                <C>                <C>               <C>
Cash and cash equivalents                          $   32.4           $    5.7          $    8.4
Other current assets                                  177.9              207.0             237.3
Property and equipment                                 36.8               46.4              45.5
Other assets                                           10.7               66.2             127.8
                                                   --------           --------          --------
Total assets                                       $  257.8           $  325.3          $  419.0
                                                   ========           ========          ========
Current liabilities                                $  203.7           $  217.1          $  203.2
Other liabilities                                      65.8               33.9              10.3
Redeemable common shares                               44.7               43.0                --
Capital stock                                         285.9              261.1             251.3
Other capital accounts                                 (1.3)               0.2              (0.5)
Accumulated deficit                                  (341.0)            (230.0)            (45.3)
                                                   --------           --------          --------
Total liabilities and shareholders' equity         $  257.8           $  325.3          $  419.0
                                                   ========           ========          ========
</TABLE>


                                      -2-
<PAGE>

B.  Capitalization and Indebtedness

Not applicable.

C.  Reasons for the offer and use of proceeds

Not applicable.

D.  Risk Factors

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

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

Mitel Networks has been operating since February 2001 and has generated revenues
since its inception. Mitel Networks has incurred net losses from operations
since its inception. The future success of Mitel Networks in building its
revenue and market share at attractive prices for its products is dependent upon
the ability of Mitel Networks to continue to attract orders, manage its
manufacturing and assembly costs, including those supplied by BreconRidge
Manufacturing Solutions Corporation (formerly known as Ridgeway Research
Corporation), a corporation incorporated under the laws of Canada in which Dr.
Terence H. Matthews currently owns a 31.5% interest (fully diluted), and its
subsidiaries (collectively, "BreconRidge"), and develop products that have a
competitive advantage. The high technology industry is characterized by long and
variable delays between expenses incurred for research and development, and
sales and marketing and the generation of revenues, if any, from such
expenditures. There can be no assurance that Mitel Networks will be able to grow
its revenues and market share or that there will not be changes that will
require unanticipated expenditure of Mitel Networks' capital resources. Finally,
there can be no assurance that Mitel Networks will be able to achieve
profitability or that, if achieved, such profitability can be sustained.


                                      -3-
<PAGE>

Mitel Networks' revenues from operations were not sufficient to cover its
operating expenses during Fiscal 2003 and, while Mitel Networks believes that
its expected cash flow from operations and other existing cash resources should
be sufficient to satisfy cash requirements of Mitel Networks in the coming year,
Mitel Networks cannot make any assurance that it will not require additional
equity or debt financing in the future.

During Fiscal 2003, Mitel Networks' revenues from operations were not sufficient
to cover its operating expenses. While Mitel Networks believes that its expected
cash flow from operations and other existing cash resources should be sufficient
to satisfy Mitel Networks' cash requirements in the coming year, there is no
assurance that Mitel Networks will not require additional equity or debt
financing in the future. Failure to generate the expected level of cash flow
from operations, loss of existing financing or inability to renew Mitel
Networks' 364-day revolving credit facilities could result in the delay or
abandonment of some or all of Mitel Networks' business plans, the sale of
assets, or the undertaking of other measures which could have a material adverse
effect on Mitel Networks' business, financial condition and results of
operations. In addition, due to the current general economic and industry
environment, and Mitel Networks' current credit condition, an increased portion
of Mitel Networks' cash and cash equivalents may be restricted as cash
collateral for credit facilities or for customer bid and performance bonds.
There can be no assurance that Mitel Networks will be able to obtain on
satisfactory terms, or at all, any additional financing required to compete
successfully. Any such financing, if obtained, may involve the issuance of
further equity at prices which may dilute an investor's interest in Mitel
Networks. Failure to obtain such financing could have a material adverse effect
on Mitel Networks' business, financial condition and results of operations. In
addition, certain holders of common shares have anti-dilution protection and
redemption rights under certain circumstances, which could be triggered by any
such additional financing.

Each of Mitel Networks' credit facilities contains a financial covenant, with
which it was not in compliance as at April 27, 2003. If Mitel Networks continues
to be unable to comply with these covenants it will, in the absence of future
waivers, adversely affect its ability to access these credit facilities.

Each of Mitel Networks' credit facilities contains a financial covenant
requiring quarterly minimum levels of earnings before interest, taxes,
depreciation and amortization (EBITDA), adjusted for other non-cash income and
non-cash expenses. As of April 27, 2003, Mitel Networks was not in compliance
with the EBITDA covenant; however, the lenders under both credit facilities have
agreed to waive the company's non-compliance for the quarter ended April 27,
2003, subject to certain conditions, including the transfer of $6.6 million to a
cash collateral account until the maturity of the two credit facilities. Mitel
Networks does not expect to be in compliance with the quarterly minimum levels
of EBITDA during Fiscal 2004, and Mitel Networks will request the two financial
institutions to waive any future non-compliance with the EBITDA covenant, as it
arises on a quarterly basis, throughout Fiscal 2004. In the event of
non-compliance by Mitel Networks with future quarterly minimum levels of EBITDA,
failure to obtain waivers from both lenders of the company's non-compliance with
this financial covenant could have a material adverse effect on Mitel Networks'
business, financial condition and results of operations.


                                      -4-
<PAGE>

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

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

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

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


                                      -5-
<PAGE>

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

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

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

In August 2001, Mitel Networks and certain of its subsidiaries signed a supply
agreement with BreconRidge, which at the time was controlled by Dr. Terence H.
Matthews, pursuant to which BreconRidge provides required manufacturing for
Mitel Networks and such subsidiaries. The agreement was amended as of February
27, 2003. Subject to certain exceptions, the supply agreement is now exclusive
until December 31, 2007 with respect to current products and new product
introductions. There are risks inherent in outsourcing key aspects of any
business including: loss of key personnel, loss of proprietary know-how, limited
ability to control the manufacturing process, costs, and quality, dependence on
the third party manufacturers and component suppliers and their related
proprietary technology. While Mitel Networks believes that alternative sources
of manufacturing would be available if this arrangement were to cease,
disruption of its manufacturing could create a temporary, adverse effect on
product shipments.


                                      -6-
<PAGE>

Mitel Networks also has a supply agreement with Zarlink, the former owner of the
Predecessor Business, for the supply of certain semiconductors used in the
manufacture of Mitel Networks' products. Although Mitel Networks believes that
alternative sources of supply would be available for the semiconductor products
supplied by Zarlink, the elimination of this arrangement could create a
temporary adverse effect on the timing of product shipments. There can be no
assurance that the arrangements between Mitel Networks and BreconRidge, or any
other supplier from which Mitel Networks obtains technology, products or
components will achieve Mitel Networks' business objectives.

Certain of Mitel Networks' products contain third party software applications
and components. Mitel Networks' dependence on third party suppliers to provide
these software applications and components could adversely affect its ability to
develop and deliver its products on a timely and reliable basis.

Mitel Networks' business may be harmed by a delay in delivery of software
applications or components from one or more of its third party suppliers. In
addition, most of Mitel Networks' supply agreements can be terminated by the
suppliers under various circumstances and are generally non-exclusive, which
means that the suppliers may develop relationships with, and supply similar or
the same software applications and components to, competitors. In the event that
software application or component suppliers terminate their relationships with
Mitel Networks or are unable to fill Mitel Networks' orders on a timely basis,
Mitel Networks may be unable to deliver its products to meet customers' orders
if it is unable to develop alternative or additional supply sources, which could
have a material adverse effect on its business, financial condition and results
of operations.

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

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


                                      -7-
<PAGE>

Mitel Networks has restructured its business and taken other necessary steps to
respond to adverse industry and market conditions. The assumptions underlying
these restructuring efforts may prove to be inaccurate and Mitel Networks may
have to restructure its business again in the future. In addition, such actions
may have a material adverse effect on Mitel Networks' ability to retain and
attract the employees necessary to meet the demand for its products and services
when and if the global economic contraction in the industry subsides.

Mitel Networks continues to restructure its business to realign resources and
achieve desired cost savings. These restructuring efforts, including workforce
reductions and withdrawal from certain businesses, have been based on certain
assumptions regarding the cost structure of Mitel Networks' business and the
nature, severity and duration of the industry downturn, and certain other
factors, which may or may not prove to be correct. These restructuring efforts
may not be sufficient for Mitel Networks to achieve profitability and the
workforce reductions may impact Mitel Networks' ability to attain its current
and future business objectives. Costs incurred in connection with restructuring
efforts may be higher than anticipated and may not lead to anticipated cost
savings or profitability. In addition, Mitel Networks, as a result of
implementing certain austerity measures affecting wages and benefits, may
experience difficulty in being able to retain employees who might choose to work
in another industry and it may experience difficulty in attracting new employees
to grow the business to meet demand when and if the downturn subsides. The
occurrence of any of these eventualities could have a material adverse effect on
Mitel Networks' business, financial condition and results of operations.

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

Should Mitel Networks experience a need for significant growth in the number of
its employees and the scope of its operations, it may place a significant strain
on Mitel Networks' management and operations, particularly with respect to:

o    Broadening its management team;

o    Attracting and retaining skilled employees;

o    Developing and managing a larger, more complex international organization;

o    Expanding Mitel Networks' treasury and accounting functions and information
     systems to meet the demands imposed by Mitel Networks' growth; and

o    Strengthening Mitel Networks' financial and management controls in a manner
     appropriate for a larger enterprise.

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

The execution of Mitel Networks' business strategy may include the acquisition
of additional businesses, technologies, product lines or services in the future,
and may also include the


                                      -8-
<PAGE>

divestiture or downsizing of product or service groups
or business divisions in order to permit Mitel Networks to focus on its core
competencies. Acquisitions, divestitures and other strategic restructuring
initiatives involve a number of risks, potentially including:

o    disruption to Mitel Networks' business;

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

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

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

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

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

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

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

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

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


                                      -9-
<PAGE>

included global workforce reductions, mandatory unpaid days off and a reduction
in working hours program that will continue until the business climate improves.
There can be no guarantee that further such initiatives will not be necessary
given the ongoing downturn in the high technology industry.

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

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

Mitel Networks is exposed to the risk that its resellers may not be able to
effectively promote and sell its products. In addition, changes in the mix of
Mitel Networks' product distribution model or customer base could materially
adversely affect Mitel Networks' business, financial condition and results of
operations.

Mitel Networks uses various channels to bring products to its customers,
including two-tier distributors, resellers, system integrators, and direct sales
to enterprise accounts. A change in Mitel Networks' mix of customers between
service providers and enterprises, or a change in mix of direct and indirect
sales can adversely affect results of operations. A substantial portion of Mitel
Networks' sales are generated through its network of independent resellers.
Sales of Mitel Networks' products may decrease and operating results could
suffer if these resellers are not successful at promoting and selling Mitel
Networks' products. In addition, Mitel Networks faces significant competition
from other telecommunication solution manufacturers for these resellers'
business, as most of these resellers carry other products that compete with
Mitel Networks' products. Mitel Networks' resellers may choose to promote the
products of competitors to Mitel Networks' detriment. The loss of any
significant reseller or any event or condition harming Mitel Networks' reseller
network could have a material adverse effect on Mitel Networks' business,
financial condition and results of operations.


                                      -10-
<PAGE>

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

There is presently no market through which Mitel Networks' securities may be
sold or resold. Mitel Networks' securities are not listed for trading on any
stock exchange and there is no guarantee that any such listing will be completed
in the future. Mitel Networks' securities have not been registered under the
United States Securities Act of 1933, as amended, or the securities laws of any
of the states of the United States, the securities laws of Canada or any
province thereof, or the securities laws of any other country or province or
state thereof. As a result, there are significant restrictions on the resale of
Mitel Networks' securities and there can be no assurance as to when such
restrictions will cease to apply, if ever. Investors may be unable to liquidate
an investment in Mitel Networks' securities, whether or not a listing is
subsequently effected. In addition, Mitel Networks' securities may be subject to
"hold periods" in accordance with applicable securities legislation, and Mitel
Networks' articles of incorporation currently provide that any transfer of
shares must be approved by the board of directors. An investor should not
purchase securities in Mitel Networks unless such investor is able to endure
lack of liquidity and/or withstand a total loss of his or her investment.

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

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

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

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


                                      -11-
<PAGE>

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

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

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

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

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

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

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

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


                                      -12-
<PAGE>

permit an investor to bring an original action in Canada or to enforce in Canada
a judgment of a United States court based upon civil liability provisions of
United States federal securities laws.

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

Mitel Networks is subject to a variety of federal, state, provincial and local
laws, rules and regulations related to the discharge or disposal of toxic,
volatile or other hazardous chemicals used in its manufacturing process.
Although Mitel Networks believes 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 material noncompliance, the failure to comply with
present or future regulations could result in fines being imposed on Mitel
Networks or a cessation of operations. Such regulations could require Mitel
Networks to incur substantial expenses to comply with environmental regulations.
Any failure by Mitel Networks to control the use, disposal or storage of, or
adequately restrict the discharge of, hazardous substances could subject Mitel
Networks to future liabilities and could have a material adverse effect on Mitel
Networks' business, financial condition and results of operations.

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

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

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

There can be no assurance that the current taxation policy, and other government
policies and provisions applicable to the high technology industry, will not be
adversely changed in the future. Furthermore, since 2001, the high technology
industry has experienced a significant downturn characterized by diminishing
product demand, price erosion and fluctuating inventory levels. The current
downturn and future downturns in the industry may be severe and prolonged, and
there can be no assurance that further deterioration in both the industry and
overall Canadian and global economic conditions, including the potential for
deflationary forces to increase, will


                                      -13-
<PAGE>

not occur, whether in the short term or otherwise. The possibility of renewed
terrorist activity, and its consequent effect on the global economy, remain as
constant threats. Military activity in the Middle East or elsewhere may also
contribute to continued political and economic uncertainty. The occurrence of
certain epidemics like Severe Acute Respiratory Syndrome (SARS) also raises the
potential for economic uncertainty. The occurrence of any of such events could
have a material adverse effect on Mitel Networks' business, financial condition
and results of operations.

Mitel Networks is exposed to the credit risk of certain of its customers and to
credit exposures in weakened markets.

Because of the current downturn in the global economy, Mitel Networks' exposure
to its customers' credit risks has increased. Although Mitel Networks has
programs in place to monitor and mitigate the associated risk, there can be no
assurance that such programs will be effective in reducing Mitel Networks'
credit risks. Although Mitel Networks has not incurred significant financial
losses as a result of customer credit issues to date, there can be no assurance
that, should the economic conditions not improve, such financial losses would
not be incurred. Future financial losses, if incurred, could have a material
adverse effect on Mitel Networks' business, financial condition and results of
operations.

Mitel Networks is exposed to risks inherent in its defined benefit pension plan
which may have a material adverse effect on its business, cash flow
requirements, financial condition and results of operations.

Mitel Networks currently maintains a defined benefit pension plan in the United
Kingdom. The contributions to fund benefit obligations under this plan are based
on actuarial valuations, which themselves are based on certain assumptions about
the long-term operation of the plan, including employee turnover and retirement
rates, the performance of the financial markets and interest rates. If the
actual operation of the plan differs from the assumptions, additional
contributions by Mitel Networks may be required. The equity markets can be, and
recently have been, very volatile, and therefore Mitel Networks' estimates of
future contribution requirements can change significantly in a short period of
time. Similarly, changes in interest rates can impact contribution requirements.
In a low interest rate environment, the likelihood of required contributions in
the future increases. Any future requirements to make significant contributions
to fund the defined benefit plan could have material adverse effects on Mitel
Networks' business, cash flows requirements, financial condition and results of
operations.

Item 4. Information on Mitel Networks

A. History and Development of Mitel Networks

The registered name of Mitel Networks is Mitel Networks Corporation. Mitel
Networks was incorporated in Canada on January 12, 2001, pursuant to the Canada
Business Corporations Act. Mitel Networks is not a reporting issuer as such term
is defined in the Securities Act (Ontario) or the securities laws of any other
province of Canada. Mitel Networks' registered office and corporate headquarters
are located at 350 Legget Drive, Ottawa, Ontario, Canada, K2K 2W7, Telephone:
(613) 592-2122, Facsimile: (613) 592-4784.


                                      -14-
<PAGE>

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

Also as part of the acquisition transactions:

o    Zarlink's Canadian real estate assets were sold to Mitel Research Park
     Corporation, and substantially all of the intellectual property assets of
     the communications systems division of Zarlink were sold to Mitel Knowledge
     Corporation, both of which are owned by Dr. Matthews or companies wholly
     owned by Dr. Matthews. The intellectual property assets were subsequently
     sold by Mitel Knowledge Corporation to Mitel Networks on November 1, 2002
     pursuant to the terms of the research and development agreement described
     below.

o    Mitel Networks entered into a research and development agreement with Mitel
     Knowledge, dated March 27, 2001, pursuant to which Mitel Knowledge owned
     substantially all of the intellectual property, excluding trademarks,
     developed by Mitel Networks. The research and development agreement
     provided for a license back to Mitel Networks of the rights to exploit the
     intellectual property in Canada, South and Central America, Mexico and the
     Caribbean. The research and development agreement was in effect until
     November 1, 2002, at which time it was terminated. Upon termination, Mitel
     Networks purchased the intellectual property from Mitel Knowledge for a
     price determined in accordance with a formula set forth in the agreement
     and paid through the issuance of common shares of Mitel Networks.

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

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


                                      -15-
<PAGE>

In August 2001, Mitel Networks outsourced its manufacturing and repair
operations, including the sale of related net assets and the transfer of
approximately 660 employees, to BreconRidge, then known as Ridgeway Research
Corporation, in which Dr. Matthews currently owns a 31.5% interest, calculated
on a fully diluted basis. The primary reason for outsourcing the manufacturing
and repair operations was to allow Mitel Networks to focus upon Mitel Networks'
core competencies, being research and development as well as sales and
distribution. As part of the transaction, Mitel Networks and certain of its
subsidiaries entered into supply agreements with BreconRidge, pursuant to which
BreconRidge manufactures Mitel Networks' products and provides repair and
remanufacture services, as well as global logistics and distribution support.
The supply agreement was amended in February, 2003, in order to clarify certain
provisions pertaining to price and exclusivity, and to extend the agreement's
initial term to December 31, 2007.

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

B. Business Overview

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

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


                                      -16-
<PAGE>

Mitel Networks outsources the manufacture and repair of its products, as well as
global logistics and distribution support, to BreconRidge, a company in which
Dr. Terence H. Matthews owns a 31.5% interest, calculated on a fully diluted
basis. Mitel Networks has entered into a supply agreement with BreconRidge that
is exclusive, subject to certain exceptions. Pursuant to an amendment executed
February 27, 2003, the initial term of the supply agreement was extended until
December 31, 2007, followed by automatic one year renewal terms thereafter, all
subject to the right of either party to terminate the agreement on at least one
hundred eighty days prior notice during any renewal term. The supply agreement
and the amendment were negotiated on an arm's length basis and contain certain
price protections and annualized cost reduction arrangements that management
believes benefit Mitel Networks, as well as those rights and protections
typically afforded to a customer of such services. BreconRidge agreed to an
"open books" approach to arrive at reasonable, competitive pricing, and has
multiple sources of supply for all essential components. Upon any termination of
the supply agreement, Mitel Networks has a right to obtain a license of any
intellectual property owned by BreconRidge that is required to make or have made
all of Mitel Networks' products.

In September 2001, Mitel Networks entered into a strategic alliance with March
Networks Corporation, a Canadian corporation controlled by Dr. Terence H.
Matthews, which is intended to enable Mitel Networks to broaden its product
portfolio to the converged market sector and to provide another channel of
distribution. Activities undertaken pursuant to the strategic alliance may also
include joint product marketing and research and development activities. March
Networks develops, manufactures and distributes broadband Internet Protocol
applications and delivery platforms, including digital video security systems.

As of July 18, 2003, Mitel Networks had approximately 1,966 employees primarily
located in North America and in the U.K. with more than 800 distributors
worldwide. Mitel Networks operates in four major geographic regions: North
America; Europe, the Middle East and Africa; Asia Pacific; and Central
America/Latin America.

Mitel Networks' traditional products include the SX-200 and SX-2000 Private
Branch Exchange systems, a suite of SuperSET telephones, NuPoint voicemail
systems and other related applications such as contact center software. Mitel
Networks has also developed and introduced an array of Internet Protocol-based
communications systems that combine voice, video and data processing
technologies into a single integrated system. These products include the Mitel
Networks 3050, 3100, 3300 and 3340 integrated communications platforms (ICP) as
well as a host of Internet Protocol-based desktop telephones, peripherals and
applications.

Mitel Networks offers a migration strategy that allows customers to gain cost
efficiencies of Internet Protocol-based systems by leveraging their investment
in existing communications infrastructure and minimizing their incremental
investment. Customers do not have to replace their entire business
communications systems in order to obtain the features and functionality
provided by Mitel Networks' products and services. For the purposes of reporting
revenue by product, Mitel Networks combines revenues from traditional and new
Internet Protocol-enabled products under the "Communications Platforms and
Desktop Appliances" category due to the similar nature of the products. See Item
5.A "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Operating Results."


                                      -17-
<PAGE>

     Small Business Portfolio:

Mitel Networks offers both traditional and the newer Internet Protocol-based
communications products to the small business markets. The SX-200 is a
traditional Private Branch Exchange voice system that addresses single site and
small multi-site businesses having under 400 users. It is designed to provide
voice communications to this customer segment and is complemented by a broad
portfolio of digital and analog telephones and a suite of applications. The
systems' distributed architecture allows for flexibility in deployment and ease
of growth. In the fall of 2002, Mitel Networks released an Internet Protocol
(IP) node for the SX-200 PBX. The SX-200 with the IP node provides Internet
Protocol capability on the traditional Mitel Networks SX-200 PBX system. This
allows Mitel Networks the ability to migrate the installed base of traditional
SX-200 systems to IP capabilities such as IP networking, teleworking and IP
desktop devices and applications.

The Mitel Networks small business, Internet Protocol-based system, the Mitel
Networks 3100 ICP is an all-in-one communications solution for small businesses
with up to 55 users. The 3100 ICP provides converged features by integrating a
hybrid key telephone system, voicemail and auto-attendant, a router, a line
powered switched Ethernet Local Area Network and high-speed Internet
connectivity packaged into one simple-to-install platform. It supports the same
range of IP phones used with the Mitel Networks 3300 ICP Enterprise platform,
with the exception of the Mitel Networks 5230.

Mitel Networks is also engaged in the ongoing development of the Mitel Networks
3050 ICP. The 3050 ICP is a Session Initiation Protocol (SIP)-based
communications system designed for eight users and below. The 3050 ICP is
undergoing a phased introduction process and is currently being introduced to a
limited number of solution providers.

     Enterprise Business Portfolio:

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

The Mitel Networks 3300 ICP is the cornerstone of the Internet Protocol-based
enterprise business offering and is designed for organizations with more than 40
users. The system provides an evolutionary migration that can be used to enable
existing SX-2000 customers and those of other traditional Private Branch
Exchange vendors to evolve to an Internet Protocol-based infrastructure. The
Mitel Networks 3300 ICP includes a suite of applications and Internet
Protocol-enabled telephones that allow enterprise customers to save operational
expense by merging their voice, video and data services to a single
infrastructure. Mitel Networks believes that carrier costs are reduced and that
the single management and administration of the information technology
infrastructure provides additional cost benefits to the end customer. The use of
Internet Protocol also enables Mitel Networks to provide new applications that
are


                                      -18-
<PAGE>

designed to improve the interaction and collaboration between employees,
customers and suppliers of an enterprise for increased productivity, efficiency
and better customer loyalty and retention.

     Branch Offices and Remote Working Solutions:

Mitel Networks' branch office and remote working products seek to address the
needs of the integrated branch office market and are centered around the Mitel
Networks 3340 ICP. This system is designed to provide branch offices of up to
100 users with seamless communications between corporate offices and local
survivability of full telephone service should corporate network links become
unavailable. Through a combination of the Mitel Networks 3340 ICP as well as the
same applications and Internet Protocol desktop telephones available to larger
corporate offices, Mitel Networks believes it offers a comprehensive portfolio
designed to address the communications challenges facing organizations with
decentralized operations and personnel.

Mitel Networks' solutions portfolio consists of applications developed wholly by
Mitel Networks, by Mitel Networks in conjunction with another vendor, or
completely by a third party vendor, and include some of the following
applications: contact center applications, wireless telephony, video
applications, soft phone applications, unified communications, and teleworking.

     Contact Center Applications:

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

     Wireless Telephony:

Mitel Networks offers wireless telephony for in-building mobility. The wireless
telephony is a standard gateway combined with a Mitel Networks 3300 ICP that
permits employees to be accessible and stay in touch, while providing them with
the same communication features that they would utilize if they were in their
offices. The wireless users are integrated with the wired telephony community
through extension-to-extension dialing, attendant functions, voice mail,
messaging, external calling and other capabilities designed to be common and
seamless.

     Video Applications:

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

As part of a strategic alliance with March Networks, Mitel Networks offers
digital security monitoring and transaction reporting products. This product
supports browser-based video


                                      -19-
<PAGE>

security monitoring, transaction reporting, digital storage and rapid retrieval
from networked locations.

     Desktop Applications:

Mitel Networks' Your Assistant is a computer-based soft phone and collaboration
application. It interacts with a user's and/or a business's contact database,
offers instant messaging capabilities and enables simplified `drag and drop'
call set up and conference call initiation. By matching the calling party's
number identification to the local database, it can automatically display
pertinent contact information prior to the call being established. Your
Assistant also enables users to record, store and forward calls, annotate notes
and maintain a history of dialed, received and missed calls, as well as store
other user defined contact information.

     Unified Messaging:

Mitel Networks' Unified Messaging is a speech-enabled application that gives
users the ability to control their telephony functions through voice-activated
commands. Unified Messaging supports conversational speech recognition,
recognizing entire sentences and not simply single words, allowing users to
answer or forward voice and email messages with voice or text responses.

     Teleworking:

Mitel Networks' teleworking solution enables users to work out of the office
from remote locations. Mitel Networks' teleworking solution provides seamless
integration between the remote locations and the corporate office, while
maintaining full functionality of voicemail, conferencing and other features of
the office telephony system. It uses standard high-speed Internet connection to
make a remote Mitel Networks IP phone a secure extension off a corporate
network.

     Desktop Portfolio:

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

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


                                      -20-
<PAGE>

     Services:

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

Business Segments and Principal Markets

Mitel Networks reports its operations in two segments: the Communications
Solutions, or Solutions, segment and the Customer Services, or Services,
segment. The Solutions segment consists of enterprise voice, video and data
communications systems and software and communications applications provided
through Mitel Networks' dealer and reseller network. The Services segment
includes direct product sales and services, professional services, Managed
Services, maintenance and technical support services.

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

<TABLE>
<CAPTION>

                                                  Mitel Networks                                  Predecessor Business
                      -----------------------------------------------------------------------     ---------------------
                                                                                                    Forty-Six Weeks
                                        Year Ended                         Ten Weeks Ended               Ended
                         April 27, 2003           April 28, 2002           April 27, 2001            Feb. 16, 2001
                      ---------------------    ----------------------    --------------------    ----------------------
                                     % of                      % of                    % of                      % of
(in millions)          Revenues     Total          Revenues   Total         Revenues  Total          Revenues   Total
-----------------------------------------------------------------------------------------------------------------------
<S>                       <C>          <C>          <C>          <C>         <C>         <C>          <C>           <C>
Business Segments:

Solutions                 $ 254.1      47%          $ 248.7      44%         $ 47.9      39%          $ 244.7       48%
Services                    289.0      53%            311.5      56%           73.5      61%            270.3       52%
-----------------------------------------------------------------------------------------------------------------------
                          $ 543.1     100%          $ 560.2     100%        $ 121.4     100%          $ 515.0      100%
-----------------------------------------------------------------------------------------------------------------------

Geographic Markets:

Canada                     $ 38.7       7%           $ 35.8       6%          $ 8.4       7%           $ 33.5        7%
United States               267.3      49%            289.6      52%           59.7      49%            248.5       48%
United Kingdom              194.3      36%            196.5      35%           44.1      36%            186.2       36%
Other countries              42.8       8%             38.3       7%            9.2       8%             46.8        9%
-----------------------------------------------------------------------------------------------------------------------
                          $ 543.1     100%          $ 560.2     100%        $ 121.4     100%          $ 515.0      100%
-----------------------------------------------------------------------------------------------------------------------
</TABLE>


                                      -21-
<PAGE>

Sales, Marketing and Distribution

Mitel Networks uses a combination of direct and indirect sales channels to
market and distribute its products and services on a global basis. Mitel
Networks' communications products and services are distributed in over 55
countries worldwide and are supported either directly or indirectly through an
extensive network of value added resellers, system integrators, carriers and
service providers. Mitel Networks' world headquarters are located in Ottawa,
Ontario, Canada, and it maintains regional headquarters in Caldicot, Wales,
U.K., Herndon, Virginia, U.S.A., and in Hong Kong, China. In addition, Mitel
Networks has sales and/or service offices throughout the world, including
Canada, the U.S., Mexico, the U.K., Spain, Germany, Italy, France, the
Netherlands, the United Arab Emirates, South Africa, Australia, China and Korea.

Direct Sales: Mitel Networks focuses its direct sales efforts on key customer
accounts in Canada, the United States, and the United Kingdom, while augmenting
and strengthening relationships with service providers, system integrators, and
technology providers on the indirect side. The direct sales force is flexible in
its approach to market. Mitel Networks may serve customers directly by
performing the staging, configuring and programming of the communications
systems sold, as well as the subsequent installation and maintenance.
Alternatively, Mitel Networks may opt to sub-contract these services to a
solution provider who is best positioned to address the needs of the customer.

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

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

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


                                      -22-
<PAGE>

added resellers can contract with Mitel Networks for services including, but not
limited to, planning, implementation, maintenance and support.

As of July 18, 2003, Mitel Networks had approximately 600 value added resellers
in North America, 155 value added resellers in Europe, the Middle East and
Africa, 40 value added resellers in Asia Pacific, and 20 value added resellers
in Latin America.

Service Providers: Providers of communications services, including traditional
telephone companies, supply a large portion of the customer premise equipment
sold into the small and enterprise business markets. Service providers undertake
responsibility, on a non-exclusive basis, for marketing and selling Mitel
Networks' communications solutions pursuant to a written carrier distribution
agreement. Service providers purchase equipment directly from Mitel Networks.
They either install and maintain the products themselves, or subcontract the
work back to Mitel Networks or Mitel Networks' value added resellers, depending
upon the location of the customer site.

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

Technology Providers: Mitel Networks has entered into strategic relationships
with several technology companies to jointly market and deploy integrated voice
and data solutions. This initiative has generated significant value to end users
of Mitel Networks' solutions by offering a broad range of functionality which
takes advantage of Mitel Networks' core IP telephony communication platform
technologies.

To extend the value of third party components, Mitel Networks introduced the
MiSolutions Network (MiSN) program in the fall of 2002. The program provides
resources and infrastructure to assist other companies to integrate their
products with Mitel Networks' platforms. As of July 2003 the MiSN program
consisted of approximately 40 members, increasing Mitel Networks' ability to
provide custom solutions that meet the demands of enterprise customers.

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

Seasonality

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


                                      -23-
<PAGE>

Growth Strategy

Mitel Networks is pursuing a growth strategy to:

     o    increase and broaden distribution channels within its core markets;

     o    expand geographic penetration into new markets;

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

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

The expansion of geographic penetration outside of its core markets is seen by
management as an essential component of Mitel Networks' growth strategy. Mitel
Networks has opened a number of sales offices in newly-targeted regions, and has
invested significant resources to develop and deliver regionally-compliant
products. Since the acquisition transactions in 2001, Mitel Networks has opened
sales offices in Italy, Spain, Germany, France, the Netherlands, the United Arab
Emirates, South Africa, Mexico, Hong Kong, Australia, China and South Korea.
Given the current uncertainty in the high technology sector, as well as the
global economy generally, it is difficult to predict timeframes for further
expansion into new markets.

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

Competition

Over the past three to five years, the competitive landscape of enterprise
communications has changed dramatically. The rapid growth and subsequent
unprecedented downturn in the global communications market, coupled with the
emergence of Internet Protocol communications and converged networks, have
caused a tremendous disruption in the marketplace. This disruption has resulted
in a significant change in the composition of the competitive landscape. Several
major diversified communications equipment suppliers, including Fujitsu,
Philips, Ericsson, Harris, DeTeWe, Ascom, and Bosch, have either exited the
enterprise voice systems business or have not introduced Internet Protocol-based
products, or have downsized their focus and presence in the enterprise
communications market. Today's business communications vendors are largely split
among three main market segments. The first consists of the traditional vendors
such as Mitel Networks, Nortel Networks, Avaya, Siemens, and Alcatel. The second
consists of the incumbent data-centric players such as Cisco and 3Com, and the
third reflects smaller start-up companies such as Shoreline and Vertical
Networks.

The data-centric vendors have a background in data networking. Through the
emergence of converged networks, they have now extended their presence into
voice communications through Local Area Network telephony. The leaders in this
area are Cisco and 3Com, which have leveraged data networking technology to
incorporate voice, delivering an end-to-end networking solution. These vendors
were first to market with their offerings and consequently jumped to a sizeable
lead in market share. It is only in the last twelve to eighteen months that the
traditional


                                      -24-
<PAGE>

voice system vendors have begun to offset this advantage through Internet
Protocol-based products and services.

While the data-centric players were first to market, that accomplishment did not
come without a price. Traditional Private Branch Exchange vendors offer robust
feature sets, while data-centric vendors do not, thereby requiring the customers
of data-centric vendors to sacrifice functionality in adopting Internet Protocol
telephony. Management believes that the largest barrier to long-term success for
the data-centric vendors is their inability to provide businesses with
sufficient levels of migration and investment protection. Customers with an
existing voice infrastructure investment are not attracted to a forklift
approach, which necessitates the replacement of the entire voice system and
supporting infrastructure. Unless the system is for a new site, customers would
rather look for a cost-effective migration whereby a phased transition to
Internet Protocol can be made at their own pace. Although the data-centric
vendors profess to be addressing these issues, this does not appear to be a
reality as of yet.

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

Mitel Networks' approach to the Internet Protocol telephony market is focused on
leveraging the advantages of both these respective approaches. Mitel Networks is
committed to the concept of investment protection and migration through an
approach that allows customers to cost-effectively deploy a true Internet
Protocol system but have it fully support a traditional infrastructure. This
approach is effective for both Mitel Networks' customers and those of other
incumbent Private Branch Exchange manufacturers. Through best-in-class
partnerships in data networking, Mitel Networks seeks to offer businesses the
choice of an end-to-end solution or standalone interoperability on virtually any
Local Area Network infrastructure. Mitel Networks offers a diverse array of
systems to address the needs of the small business, branch office and large
corporate enterprise. These systems are augmented by a large portfolio of user
devices and applications. With a field-proven portfolio of products and
services, as well as aggressive channel recruitment activities, management
believes that Mitel Networks is well positioned to prosper in this emerging
market.

According to data published by the Synergy Research Group in May 2003, Mitel
Networks had 14% worldwide market share as of the end of the first quarter of
2003 in terms of IP phone units shipped, positioning it behind Cisco and Avaya.


                                      -25-
<PAGE>

Intellectual Property

Mitel Networks' intellectual property assets include patented technology,
industrial designs, proprietary software and the copyright therein, operating
and instruction manuals, trade secrets and confidential business information.
Until November 1, 2002, most intellectual property was licensed from Mitel
Knowledge, a Canadian corporation that is indirectly wholly owned by Dr. Terence
H. Matthews. On November 1, 2002, Mitel Networks purchased the intellectual
property from Mitel Knowledge as described below.

Ownership and Exploitation of Intellectual Property

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

The research and development agreement also provided for a license from Mitel
Knowledge to Mitel Networks for the rights to exploit the intellectual property
in Canada, South and Central America, Mexico and the Caribbean. The research and
development cost sharing agreement provided for a license from Mitel Knowledge
to Mitel Networks Overseas Limited for the rights to exploit the intellectual
property in the United States, Europe, the Middle East, Africa and the
Asia/Pacific region, in return for which Mitel Networks Overseas Limited
contributed towards the funding of Mitel Networks' research and development
activities.

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

Effective November 1, 2002, Mitel Networks exercised the call right and acquired
the intellectual property from Mitel Knowledge for a price of approximately
$12.5 million, satisfied through the issuance of 4,555,169 common shares from
treasury based upon an assigned value of $5.25 per share in accordance with the
formula in the research and development agreement. The


                                      -26-
<PAGE>

shares issued had a fair value of $2.75 per share on the date of issuance based
upon an independent valuation previously obtained. The purchase price was
determined in accordance with the formula described above. As a result, both the
research and development agreement and the research and development cost-sharing
agreement were terminated.

Description of Intellectual Property

Mitel Networks and the Predecessor Business accumulated, through development or
acquisition, a significant body of intellectual property related to customer
premise communications products and related applications. The intellectual
property consists of approximately 134 inventions for which patents have been
granted in at least one country, and approximately 115 additional inventions for
which patent applications have been filed. This intellectual property has been
primarily embodied and expressed in telecommunications products based on analog,
Time Division Multiplexing, and Internet Protocol technologies. Over the last
number of years, particular emphasis has been placed on Voice over Internet
Protocol implementations and on applications leveraging the features and
capabilities provided by Internet Protocol/packet-based technologies. As a
result, 18 of the patents granted or patent applications referred to above
relate specifically to Internet Protocol and its associated technologies. In
connection with the acquisition transactions, Mitel Networks has entered into an
Intellectual Property License Agreement with Zarlink under which Zarlink granted
Mitel Networks a perpetual non-exclusive license to certain intellectual
property retained by Zarlink to enable Mitel Networks to continue the operations
of the Predecessor Business.

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

Additionally, Mitel Networks depends on third party suppliers to provide
software applications and components for certain of its products, pursuant to
supply agreements entered into with such third parties.

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

Government Regulations

There are certain United States regulatory policies that require the disabled to
have access to communications solutions to the same extent that non-disabled
persons do. Failure to achieve this form of accessibility could either subject
Mitel Networks to liability with respect to commercial sales of its products
and/or could prevent the government from procuring Mitel Networks' products to
the extent the products of others are deemed to be more accessible and otherwise
a better value. Mitel Networks' design experts are aware of these and other
regulations and design Mitel Networks' products accordingly. Mitel Networks is
likewise aware of the fact that the U.S. Department of Defense requires
interoperability certification from its vendors before procuring new
communications systems and Mitel Networks is in the process of applying for such
certification testing to be conducted. There is no assurance that the
above-


                                      -27-
<PAGE>

noted government regulations will not have a material effect on Mitel Networks'
capital expenditures, results of operations, cash flows or competitive position.

C. Organizational Structure

As of July 18, 2003, Mitel Systems, a corporation controlled by Dr. Terence H.
Matthews, owned approximately 78% of Mitel Networks' outstanding common shares;
Zarlink owned approximately 9% of Mitel Networks' outstanding common shares;
Mitel Knowledge, a corporation controlled by Dr. Terence H. Matthews, owned
approximately 4%; Power Technology Investment Corporation owned approximately
3%; and employees of Mitel Networks and its subsidiaries and other non-employee
minority shareholders owned approximately 6% of Mitel Networks' outstanding
common shares.

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


                                      -28-
<PAGE>

<TABLE>
<CAPTION>

  <S>                      <C>                   <C>                   <C>                       <C>
  =====================    ================      ================      ================          =====================
                                                                            Power
                                Mitel                 Mitel               Technology                  Employees and
          Zarlink              Systems              Knowledge             Investment                        Other
                             Corporation           Corporation           Corporation
  =====================    ================      ================      ================          =====================
             9%                   78%                     4%                   3%                             6%
            ------------------------------------------------------------------------------------------------

                               =======================================================
                                             Mitel Networks Corporation
                                                      (Canada)
                               =======================================================
             50%                                                                                 100%
             ----------------------------------------------------------------------------------------
  ============================                                                         ===============================
         Tianchi-Mitel                                                                         Mitel Networks
      Telecommunications                                                                       International
         Corp. (China)                                                                        Limited (Barbados)
  ============================                                                         ===============================

            ---------------------------------------------------------------------------------------
            100%                                     100%                                            100%
  ============================            =================================                   ========================
        Mitel Networks                             Mitel Networks                                 Mitel Networks
     Asia Pacific Limited                         Holdings Limited                               Overseas Limited
          (Hong Kong)                                   (UK)                                        (Barbados)
  ============================            =================================                   ========================

          100%
  ============================            =================================            ===============================
    Mitel Networks Limited                      Mitel Networks, Inc.                      Mitel Networks Solutions
             (UK)                100%                   (US)                  100%               Inc. (US)
  ============================            ================================= ---------- ===============================

                ---------------------------------------------------------------------------------------------
           100%              100%                   100%                        75%                     80%
  ====================     =================      ==================      =====================     ==================
  Mitel Networks SARL      Mitel Italia SRL        Mitel Networks           Mitel Financial          Edict Training
       (France)                (Italy)                  GmbH                Services Limited             Limited
                                                      (Germany)                   (UK)                     (UK)
  ====================     =================      ==================      =====================     ==================
</TABLE>

D. Property, Plants and Equipment

Mitel Networks' activities are currently conducted in North America from leased
headquarters facilities of 512,390 square feet located in Ottawa, Ontario,
Canada, from leased facilities of 17,974 square feet located in Herndon,
Virginia, USA and from owned premises of 286,000 square feet located in
Caldicot, Wales, U.K. The headquarters facilities are leased from a company
controlled by Dr. Terence H. Matthews, under terms and conditions reflecting
prevailing market conditions for a period of 10 years, expiring on February 15,
2011. Mitel Networks also has a number of smaller leased premises located
elsewhere in North America, the U.K. and throughout the world.


                                      -29-
<PAGE>

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

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

Item 5.  Operating and Financial Review and Prospects

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

Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the accompanying audited
consolidated financial statements as of and for the ten week period ended April
27, 2001 and as of and for the fiscal years ended April 28, 2002 and April 27,
2003 and with the audited combined carve-out statement of operations of the
Predecessor Business for the forty-six week period ended February 16, 2001.
These reports are presented in Canadian dollars and have been prepared in
accordance with accounting principles generally accepted in the United States,
referred to in this annual report as US GAAP.

Overview

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

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


                                      -30-
<PAGE>

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

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

Business Segments:

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

Basis of Presentation:

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

Restructuring Actions:

During Fiscal 2003, Mitel Networks implemented a number of workforce reduction
programs and closed its U.K. research and development facility in order to
realign spending levels with the lower sales volumes experienced in the year.
These restructuring actions resulted in total special


                                      -31-
<PAGE>

charges recorded in Fiscal 2003 of $25 million (see additional details in the
section "Special Charges").

Related Party Transactions:

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

Outsourcing of Manufacturing Operations:

On August 31, 2001, Mitel Networks outsourced its worldwide manufacturing and
repair operations, including the sale of related net assets and the transfer of
employees, to BreconRidge for total net consideration of $7.8 million. The
transaction resulted in a loss of $2.4 million recorded in Fiscal 2002 operating
expenses. This divestiture has allowed Mitel Networks to focus on product
development and sales efforts and is expected to result in cost reduction
opportunities. Mitel Networks and certain subsidiaries entered into a supply
agreement dated August 31, 2001 under which BreconRidge manufactures the
majority of Mitel Networks' products and provides certain services to Mitel
Networks and its subsidiaries. Pursuant to an amendment executed February 27,
2003, the initial term of the supply agreement was extended to December 31,
2007, followed by automatic one year renewal terms thereafter, all subject to
the right of either party to terminate the agreement on at least one hundred
eighty days prior notice during any renewal term. Subject to certain exceptions,
the supply agreement is exclusive during the amended initial term with respect
to current products and new product introductions. Under the terms of the supply
agreement, BreconRidge is required to purchase Mitel Networks' raw material
inventory, before turning to third party suppliers for raw material procurement.
Mitel Networks is not obligated to purchase finished products from BreconRidge
in any specific quantity, except pursuant to firm purchase orders. Mitel
Networks may be obligated to purchase certain excess inventory levels from
BreconRidge that could result from Mitel Networks' actual sales varying from
forecast. Under the terms of the supply agreement, BreconRidge has committed to
certain cost reductions through August 1, 2004 on purchases of traditional
communications platform products.

The supply agreement with BreconRidge represents a concentration that, if
suddenly eliminated, could have an adverse effect on Mitel Networks' operations.
While Mitel Networks believes that alternative sources of manufacturing would be
available if this arrangement were to cease,


                                      -32-
<PAGE>

disruption of its primary source of manufacturing could create a temporary
adverse effect on product shipments. There can be no assurance that the supply
agreement with BreconRidge will achieve the business objectives and cost
reductions currently anticipated.

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

Research and Development Arrangements:

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

Pursuant to the terms of these agreements, Mitel Knowledge provided research and
development funding to Mitel Networks. During Fiscal 2003, Mitel Networks
received $6.4 million (Fiscal 2002 - $10 million; fiscal period ended April 27,
2001 - $1.5 million) in research and development funding, net of royalty
expenses of $0.5 million (Fiscal 2002 - $0.3 million; fiscal period ended April
27, 2001 - $0.6 million), that was recorded as a liability to related parties on
Mitel Networks' Consolidated Balance Sheet.

The research and development agreement provided for a call right pursuant to
which Mitel Networks had the right to require Mitel Knowledge to sell all of its
rights, title and interest in and to the intellectual property, including
improvements and new technology, to Mitel Networks. The purchase price for the
intellectual property was to be paid through the issuance of common shares from
Mitel Networks' treasury, with each such share having a value of $5.25.
Effective November 1, 2002, Mitel Networks exercised the call right and acquired
the intellectual property from Mitel Knowledge for a price of approximately
$12.5 million, satisfied through the issuance of 4,555,169 common shares from
treasury based upon an assigned value of $5.25 per share in accordance with the
formula in the research and development agreement. The shares issued had a fair
value of $2.75 per share on the date of issuance based upon an independent
valuation previously obtained. As a result, both the research and development
agreement and the research and development cost-sharing agreement have been
terminated. The transaction resulted in the settlement of the liability to issue
common shares of $22.9 million (April 28, 2002 - $15.6 million) classified in
the due to related parties balance in Mitel Networks' Consolidated Balance


                                      -33-
<PAGE>

Sheet, an increase of $0.1 million to the carrying value of intangible assets
and an increase of $23.0 million to the carrying value of common shares.

Critical Accounting Policies

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

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

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

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

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

LONG-LIVED ASSETS - Mitel Networks assesses the impairment of property,
equipment and intangible assets on a periodic basis or whenever events or
changes in circumstances indicate that the carrying value may not be
recoverable. The determination of useful lives and whether or not


                                      -34-
<PAGE>

these assets are impaired involves significant judgment. In response to changes
in industry and market conditions, Mitel Networks may strategically realign its
resources and consider restructuring, disposing of or exiting businesses, which
could result in an impairment charge.

SPECIAL CHARGES - Mitel Networks records restructuring costs when it makes a
commitment to a firm exit plan that specifically identifies all significant
actions to be taken in conjunction with Mitel Networks' response to a change in
its strategic plan, product demand, increased costs or other factors. Mitel
Networks reassesses the prior restructuring accruals on a regular basis to
reflect changes in the costs of the restructuring activities, and Mitel Networks
records new restructuring accruals as commitments are made. Estimates are based
on anticipated costs to exit such activities and are subject to change.

CONTINGENCIES - Mitel Networks is party to various claims and litigation arising
in the normal course of business. As a result, Mitel Networks considers the
likelihood of loss of an asset or the incidence of a liability, as well as its
ability to reasonably estimate the amount of loss, in determining loss
contingencies. Mitel Networks recognizes a provision for estimated loss
contingencies when it is probable that an asset has been impaired or a liability
has been incurred and the amount of loss can be reasonably estimated. Mitel
Networks regularly evaluates current information available to determine whether
such provisions should be adjusted.

DEFERRED TAXES - Mitel Networks recognizes deferred tax assets and liabilities
based on the differences between the financial statement carrying amounts and
the tax bases of assets and liabilities. Significant management judgement is
required in determining any valuation allowance recorded against Mitel Networks'
net deferred tax assets. Management makes an assessment of the likelihood that
Mitel Networks' deferred tax assets will be recovered from future taxable
income, and to the extent that recovery is not believed to be more likely than
not, a valuation allowance is recorded.

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


                                      -35-
<PAGE>

A. Operating Results

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

<TABLE>
<CAPTION>

                                                                                                   Predecessor
                                                      Mitel Networks                               Business (1)
                             ----------------------------------------------------------------- --------------------
                                                                                                    Forty-Six
                                  Year Ended            Year Ended         Ten Weeks Ended         Weeks Ended
                                April 27, 2003        April 28, 2002        April 27, 2001      February 16, 2001
                             --------------------- --------------------- --------------------- --------------------
                                           % of                 % of                  % of                  % of
(in millions)                  Amounts   Revenue      Amounts  Revenue      Amounts  Revenue      Amounts  Revenue
-------------------------------------------------------------------------------------------------------------------
<S>                             <C>       <C>         <C>       <C>         <C>       <C>          <C>       <C>
Revenue                         $543.1    100.0%      $560.2    100.0%      $ 121.4   100.0%       $515.0    100.0%
Cost of sales                    339.8    62.6         331.0    59.1           64.4   53.0         291.0     56.5
-------------------------------------------------------------------------------------------------------------------
Gross margin                     203.3    37.4         229.2    40.9           57.0   47.0         224.0     43.5

Research and development          63.5    11.7          92.2    16.5           20.1   16.6          74.2     14.4
Selling, general and
  administrative                 185.0    34.0         228.5    40.8           47.0   38.7         202.2     39.3
Purchased in-process
  research and development          --      --            --      --           20.7   17.1            --       --
Special charges                   21.5     4.0          11.7     2.1             --     --          14.8      2.9
Loss on disposal of
  business                          --      --           2.4     0.4             --     --            --       --
Amortization of acquired
  intangibles                     45.4     8.3          68.6    12.2           12.9   10.6           2.7      0.5
-------------------------------------------------------------------------------------------------------------------
Operating loss                $ (112.1)   (20.6)%   $ (174.2)   (31.1)%     $ (43.7)  (36.0)%     $ (69.9)   (13.6)%

Interest expense                   6.5     1.2           4.7     0.8            0.2    0.2           N/A      N/A
Other (income) expense, net       (5.1)   (0.9)          0.6     0.1            0.5    0.4           N/A      N/A
Income tax (recovery)
  expense                         (4.3)   (0.8)          0.2      --            0.9    0.7           N/A      N/A
-------------------------------------------------------------------------------------------------------------------
Net loss                      $ (109.2)   (20.1)%   $ (179.7)   (32.0)%     $ (45.3)  (37.3)%        N/A      N/A
===================================================================================================================
</TABLE>

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

Net Loss:

Net loss amounted to 20.1% of revenue for Fiscal 2003 compared to 32% of revenue
for Fiscal 2002, an improvement of 11.9 percentage points of which 10.5
percentage points related to the improvement in operating loss described below.
Other significant favorable variances included (i) a $4.5 million foreign
currency gain recorded as part of other (income) expense in Fiscal 2003 compared
to a foreign currency loss of $1.2 million recorded in Fiscal 2002 and (ii)
income tax recoveries of $4.3 million recorded in Fiscal 2003 compared to income
tax expenses of $0.2 million in Fiscal 2002.

The Fiscal 2002 net loss of 32% represented an improvement of 5.3 percentage
points compared to the Fiscal 2001 net loss of 37.3%. This was mainly
attributable to the $20.7 million write-off of purchased in-process research and
development recorded in the ten-week period ended April


                                      -36-
<PAGE>

27, 2001, which accounted for 17.1% of revenue, and an improvement in the
Services segment's gross margin as a percentage of revenue, which increased by
1.4 percentage points to 39% of the Services segment's revenue in Fiscal 2002.
These favorable variances were partially offset by (i) lower margins in the
Solutions segment which decreased by 11 percentage points to 36% of the
Solutions segment's revenue in Fiscal 2002, (ii) higher selling, general and
administrative (SG&A), expenses which increased by 2.1 percentage points to
40.8% of total revenue in Fiscal 2002 and (iii) higher interest expense which
increased by 0.6 percentage points in Fiscal 2002.

Operating Loss:

Operating loss amounted to 20.6% of revenue for Fiscal 2003 compared to 31.1% of
revenue for Fiscal 2002, an improvement of 10.5 percentage points. This
improvement was mainly attributable to an aggregate 11.5 percentage point
reduction in SG&A expenses across all business segments and research and
development (R&D) expenses resulting from various restructuring actions
implemented during the year, including the workforce reductions, the closing of
the United Kingdom R&D facility and the consolidation of various offices
throughout the United States, which affected both the Solutions and the Services
segments. The 3.8 percentage point reduction in amortization of acquired
intangibles, which reached the end of their estimated useful lives during Fiscal
2003, also contributed to the improvement over Fiscal 2002. These favorable
variances were partially offset by a 3.5 percentage point increase in cost of
goods sold mainly as a result of inventory provisions and a higher proportion of
sales that generated lower margins, and a negative variance of 1.9 percentage
points noted in special charges due to larger workforce reductions and other
restructuring costs incurred in Fiscal 2003 compared to Fiscal 2002.

Operating loss amounted to 31.1% and 36% of revenue for Fiscal 2002 and for the
ten-week period ended April 27, 2001, respectively, compared to 13.6% of revenue
for the forty-six week period ended February 16, 2001. The deterioration in
operating results between the forty-six week period ended February 16, 2001 and
Fiscal 2002 was mainly driven by the increase in the Solutions segment's
operating loss, the $65.9 million increase in the amortization of intangible
assets resulting from the acquisition transactions on February 16, 2001, and a
$2.4 million loss on disposal of the Network Access Solutions business recorded
in Fiscal 2002. These unfavorable variances were partially offset by an
improvement of the Services segment's operating income and lower special charges
of $11.7 million recorded in Fiscal 2002 compared to $14.8 million recorded in
the forty-six week period ended February 16, 2001. Other corporate unallocated
expenses remained consistent at 9% of total revenue for Fiscal 2002 and the
forty-six week period ended February 16, 2001.

Solutions segment

The Solutions segment's operating loss improved by 7.7 percentage points to
24.4% of the segment's revenue in Fiscal 2003 compared to 32.1% in Fiscal 2002.
This improvement was mainly attributable to a 31% reduction in Fiscal 2003 R&D
expenses over Fiscal 2002 R&D expenses following the significant investment
required in Fiscal 2002 to launch Mitel Networks' new Internet Protocol-enabled
solutions. The cost reduction initiatives taken in Fiscal 2002 and in the first
quarter of Fiscal 2003 also contributed to the reduction in the segment's SG&A
expenses and R&D expenses. These positive variances were partially offset by a
3.7 percentage


                                      -37-
<PAGE>

point reduction in the segment's gross margin as a percentage of the segment's
revenue, resulting from (i) increased inventory obsolescence provisions, (ii) a
higher than expected proportion of demonstration and field trial Internet
Protocol systems sold at lower prices and lower line sizes, and (iii) a higher
mix of third party application sales that generated lower margins. Although
Mitel Networks cannot guarantee future results, management anticipates that
improved margins as a result of increased sales of systems with larger line
sizes, increased software sales, and a reduction in sales of lower margin third
party hardware, together with lower spending as a result the cost reduction
initiatives taken in Fiscal 2003 and in the first quarter of Fiscal 2004, will
result in better performance of the Solutions segment in Fiscal 2004 when
compared to Fiscal 2003.

The Solutions segment's operating loss increased to 32.1% of the segment's
revenue for Fiscal 2002 compared to 10.8% of the segment's revenue for the
forty-six week period ended February 16, 2001. This increase was mainly driven
by the significant investment in R&D expenses discussed above, a deterioration
of the segment's gross margin, and an increase in SG&A expenses resulting from
the investment towards geographic and channel expansion.

Services segment

The Services segment's operating income increased by 5 percentage points to 22%
of the segment's revenue in Fiscal 2003 due to a 7 percentage point decrease in
SG&A as a percentage of the segment's revenue resulting from the workforce
reductions implemented in the year. This improvement was partially offset by a
reduction of 2 percentage points in the segment's gross margin as a percentage
of the segment's revenue due to a shift in mix towards lower margin services,
accounting for half of the reduction, and significant inventory provisions,
accounting for the second half of the reduction.

The Fiscal 2002 Services segment's operating income increased by 8 percentage
points to 17.4% of the segment's revenue when compared to the forty-six week
period ended February 16, 2001. This increase was mainly due to a 5.5 percentage
point increase in gross margin resulting from an increased mix of maintenance
revenue generating higher margins and a 2.5 percentage point decrease in SG&A
due to infrastructure investment, both as a percentage of the segment's revenue.


                                      -38-
<PAGE>

Revenue:

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

<TABLE>
<CAPTION>
                                                                                                 Combined Mitel
                                                                                                  Networks and
                                                                              Predecessor          Predecessor
                                     Mitel Networks                             Business           Business (1)
                ------------------------------------------------------     -------------------------------------
                                                         Ten Weeks         Forty-six Weeks            Year
                           Year Ended                      Ended                Ended                Ended
                April 27, 2003    April 28, 2002       April 27, 2001       Feb. 16, 2001        April 27, 2001
                ---------------- -----------------    -----------------    -----------------    -----------------
                          % of             % of                 % of                 % of                 % of
(in millions)   Revenue   Sales  Revenue   Sales      Revenue   Sales      Revenue   Sales      Revenue   Sales
-----------------------------------------------------------------------------------------------------------------
                            (Actual)                        (Actual)           (Actual)            (Pro Forma)

<S>               <C>     <C>      <C>     <C>          <C>     <C>          <C>     <C>          <C>     <C>
Solutions         $254.1  47%      $248.7  44%          $ 47.9  39%          $244.7  48%          $271.3  48%
Services           289.0  53%       311.5  56%            73.5  61%           270.3  52%           320.3  52%
-----------------------------------------------------------------------------------------------------------------
                  $543.1  100%     $560.2  100%         $121.4  100%         $515.0  100%         $591.6  100%
=================================================================================================================
</TABLE>

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

Fiscal 2003 revenue decreased by 3% compared to Fiscal 2002 as a result of the
discontinuation, in Fiscal 2002, of the Network Access Solutions business which
generated $3.9 million of revenue in Fiscal 2003 compared to $20 million in
Fiscal 2002. Excluding the impact of the Network Access Solutions revenue, and
despite the lower sales of communications systems generated in Fiscal 2003
resulting from the reduced demand due to the general economic slowdown, Mitel
Networks was able to generate the same level of total revenue in Fiscal 2003
compared to last year because of higher revenues from maintenance and support
service contracts. Mitel Networks' migration path to Internet Protocol-based
products contributed to a 260% increase in Internet Protocol sales, in Fiscal
2003 compared to Fiscal 2002. However, there can be no assurance that the
adoption rate by Mitel Networks' customers of new Internet Protocol-based
products will continue to increase at this rate or generate expected revenues.

For purposes of the comparative discussion on Fiscal 2002 revenue compared to
Fiscal 2001, annualized revenue for Fiscal 2001 was extrapolated from revenue
for the forty-six week period ended February 16, 2001 and revenue for the
ten-week period ended April 27, 2001. Fiscal 2002 revenue decreased by 5% from
Fiscal 2001 revenue, on an annualized basis, as a result of (i) reduced customer
demand for communications products due to the continued economic slowdown in the
technology sector which explained most of the revenue decrease, and (ii) the
discontinuation of the Network Access Solutions business which accounted for 2%
of the reduction. These reductions were partially offset by the introduction of
Internet Protocol-enabled solutions, which resulted in a 2% increase in total
revenue from Fiscal 2001, on an annualized basis.

Solutions segment

Excluding Network Access Solutions sales, the Fiscal 2003 Solutions segment's
sales increased by 9% compared to Fiscal 2002 mainly as a result of a
significant increase in Internet Protocol sales across all regions and expansion
into new geographic markets and distribution channels,


                                      -39-
<PAGE>

partially offset by the expected decline in sales of traditional communications
platform products and the continued global economic downturn.

The Fiscal 2002 Solutions segment's sales decreased by 8% compared to Fiscal
2001, on an annualized basis, mainly as a result of the discontinuation of the
Network Access Solutions business which accounted for 5% of the total decrease
(see also Special Charges). The balance of the decrease resulted from lower
sales volumes due to a general decrease in customer demand.

Services segment

The Fiscal 2003 Services segment's sales decreased by 7% compared to Fiscal 2002
mainly as a result of the continued global economic downturn and associated
political issues. The majority of this decline has been in the United States
market.

The Fiscal 2002 Services segment's sales decreased by 3% from Fiscal 2001, on an
annualized basis, as a result of lower demand for equipment additions, moves and
changes, as well as by the general economic downturn in the telecommunications
industry. The Services segment was less affected by the general reduction in
demand explained above as it has traditionally been more stable due to its
recurring service revenue.

The following table sets forth external revenue for groups of similar products
and services, both in dollars and in percentage terms, for the fiscal periods
indicated:

<TABLE>
<CAPTION>

                                                                                                             Combined Mitel
                                                                                                              Networks and
                                                                                          Predecessor          Predecessor
                                                 Mitel Networks                             Business           Business (1)
                            ------------------------------------------------------     -------------------------------------
                                       Year Ended                      Ended
                            April 27, 2003    April 28, 2002       April 27, 2001       Feb. 16, 2001        April 27, 2001
                            ---------------- -----------------    ----------------     -----------------    ----------------
                                      % of             % of                 % of                 % of                  % of
(in millions)               Revenue   Sales  Revenue   Sales      Revenue   Sales      Revenue   Sales      Revenue    Sales
----------------------------------------------------------------------------------------------------------------------------
                                (Actual)        (Actual)              (Actual)             (Actual)            (Pro Forma)
                                (Audited)      (Audited)           (Unaudited) (2)       (Unaudited) (2)     (Unaudited) (2)
<S>                           <C>     <C>      <C>     <C>          <C>     <C>          <C>     <C>          <C>     <C>
Products:
 Communications platforms
  and desktop appliances      $294.7  54%      $298.9  53%          $ 46.0  37%          $198.0  38%          $226.8  38%
 Software applications          45.7  8%         52.2  9%             11.7  10%            51.8  10%            59.0  10%
 OEM products                   41.2  8%         42.3  8%             17.0  14%            75.6  15%            86.0  15%
 Other                          14.4  3%         30.5  6%              8.4  7%             41.0  8%             45.8  8%
----------------------------------------------------------------------------------------------------------------------------
                               396.0  73%       423.9  76%            83.1  68%           366.4  71%           417.6  71%
----------------------------------------------------------------------------------------------------------------------------

Services:
 Maintenance and support       128.6  23%       114.0  20%            32.0  27%           139.5  27%           159.3  27%
 Managed services               14.9  3%         10.8  2%              1.1  1%              3.6  1%              4.5  1%
 Professional services           3.6  1%         11.5  2%              5.2  4%              5.5  1%             10.2  1%
----------------------------------------------------------------------------------------------------------------------------
                               147.1  27%       136.3  24%            38.3  32%           148.6  29%           174.0  29%
----------------------------------------------------------------------------------------------------------------------------

                              $543.1  100%     $560.2  100%         $121.4  100%         $515.0  100%         $591.6  100%
============================================================================================================================
</TABLE>

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

(2) Certain comparative figures have been reclassified to conform with the
Fiscal 2003 and the Fiscal 2002 presentation. These reclassifications are
unaudited.


                                      -40-
<PAGE>

Product sales

Fiscal 2003 revenue from product sales amounted to $396 million (or 73% of total
revenue) compared to $423.9 million (or 76% of total revenue) in Fiscal 2002.
The decrease was mainly attributable to the discontinuation, in Fiscal 2002, of
the Network Access Solutions business, which amounted to $20 million in Fiscal
2002 compared to only $3.9 million in Fiscal 2003. The platforms and appliances
product category was characterized by a significant increase in Internet
Protocol product sales across all regions, offset by the expected decline in
sales of traditional communications platform products. Although Mitel Networks
cannot guarantee future results, management expects this trend will continue
into Fiscal 2004.

Fiscal 2002 revenue from product sales amounted to 76% of total revenue compared
to 71% in Fiscal 2001, on an annualized basis, primarily due to the introduction
of Internet Protocol integrated communication platforms and associated Internet
Protocol-based desktop appliances, a strong Voice over Internet Protocol
migration program, improvements in Time Division Multiplexing-based products and
systems and a strengthened dealer network. These gains were partially offset by
a reduction in original equipment manufacturer equipment sales as a result of
reduced post Year 2000 spending and the reduction in network access product
sales described above.

Services sales

Fiscal 2003 revenue from services sales increased to 27% of total revenue
compared to 24% in Fiscal 2002, mainly as a result of significant sales from
fixed maintenance contracts. These revenues have not been impacted by the
continued general economic slowdown, given their fixed term, and management
expects sales from fixed maintenance contracts will remain strong going into
Fiscal 2004.

Fiscal 2002 revenue from services sales decreased to 24% of total revenue
compared to 29% in Fiscal 2001, on an annualized basis, mainly as a result of
reduced post Year 2000 spending as enterprises increased their demand for
maintenance and related support services to mitigate the risk of Year 2000
non-compliance in the years leading up to 2000 and in the period immediately
following January 1, 2000.

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

<TABLE>
<CAPTION>

                                                                                                     Combined Mitel
                                                                                                      Networks and
                                                                                  Predecessor          Predecessor
                                         Mitel Networks                             Business           Business (1)
                    ------------------------------------------------------     -------------------------------------
                                                             Ten Weeks         Forty-six Weeks            Year
                               Year Ended                      Ended                Ended                Ended
                    April 27, 2003    April 28, 2002       April 27, 2001       Feb. 16, 2001        April 27, 2001
                   ----------------- ----------------    ------------------    -----------------    -----------------
                              % of             % of                 % of                  % of                 % of
(in millions)       Revenue  Sales    Revenue Sales       Revenue   Sales       Revenue  Sales       Revenue  Sales
---------------------------------------------------------------------------------------------------------------------
                               (Actual)                        (Actual)             (Actual)           (Pro Forma)
<S>                  <C>     <C>      <C>     <C>          <C>     <C>           <C>     <C>          <C>     <C>
Canada               $ 38.7  7%       $ 35.8  6%           $  8.4  7%            $ 33.5  7%           $ 39.0  7%
United States         267.3  49%       289.6  52%            59.7  49%            248.5  48%           286.6  48%
United Kingdom        194.3  36%       196.5  35%            44.1  36%            186.2  36%           214.1  36%
</TABLE>


                                      -41-
<PAGE>

<TABLE>
<CAPTION>

                                                                                                     Combined Mitel
                                                                                                      Networks and
                                                                                  Predecessor          Predecessor
                                         Mitel Networks                             Business           Business (1)
                    ------------------------------------------------------     -------------------------------------
                                                             Ten Weeks         Forty-six Weeks            Year
                               Year Ended                      Ended                Ended                Ended
                    April 27, 2003    April 28, 2002       April 27, 2001       Feb. 16, 2001        April 27, 2001
                   ----------------- ----------------    ------------------    -----------------    -----------------
                              % of             % of                 % of                  % of                 % of
(in millions)       Revenue  Sales    Revenue Sales       Revenue   Sales       Revenue  Sales       Revenue  Sales
---------------------------------------------------------------------------------------------------------------------
                               (Actual)                        (Actual)             (Actual)           (Pro Forma)
<S>                    <C>   <C>        <C>   <C>             <C>  <C>             <C>   <C>            <C>   <C>
Other foreign
 countries             42.8  8%         38.3  7%              9.2  8%              46.8  9%             51.9  9%
---------------------------------------------------------------------------------------------------------------------
                     $543.1  100%     $560.2  100%         $121.4  100%          $515.0  100%         $591.6  100%
=====================================================================================================================
</TABLE>
----------
(1) Pro forma annualized revenue for Fiscal 2001 represents the sum of (a)
revenue of the Predecessor Business for the forty-six weeks ended February 16,
2001, extrapolated to forty-two weeks, and (b) Mitel Networks' revenue for the
ten weeks ended April 27, 2001.

Compared to Fiscal 2002, Fiscal 2003 revenue by geographic region increased or
generally remained consistent in all regions except in the United States. This
improvement was due to the penetration of new markets and channels, especially
in continental Europe and a significant increase in Internet Protocol product
sales partially offset by the expected decline in sales of traditional
communications platform products. The decline in the United States revenue was
largely attributable to continued global economic and political issues,
partially offset by a significant increase in Internet Protocol product
revenues. Although Mitel Networks cannot guarantee future results, management
expects that Fiscal 2004 will be characterized by a continued penetration of new
markets which Mitel Networks has begun to address over the past two years,
particularly continental Europe and Asia Pacific, and a continued shift towards
Internet Protocol product sales.

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

Backlog:

Mitel Networks defines backlog as unconditional purchase orders or other
contractual agreements for products or services for which customers have
requested delivery within the next twelve months. Backlog was $38.9 million at
April 27, 2003, compared with $43.6 million at April 28, 2002. Mitel Networks
has historically operated with a relatively small backlog as orders are
frequently booked and shipped within the same fiscal month. In addition, orders
are subject to cancellation, rescheduling by customers or product specification
changes by the customers. As a result, Mitel Networks does not believe that its
backlog, at any given date, is a reliable indicator of future revenues.


                                      -42-
<PAGE>

Gross Margin:

Gross margins as a percentage of revenue declined from 40.9% of revenue in
Fiscal 2002 to 37.4% of revenue in Fiscal 2003. This decline primarily resulted
from decreases in both the Solutions and the Services segments' margins, as a
percentage of revenue.

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

Solutions segment

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

Despite the cost reductions pursuant to the terms of the BreconRidge supply
agreement explained above, the Solutions segment's gross margins as a percentage
of the segment's revenue decreased from 35.7% of revenue in Fiscal 2002 to 32%
in Fiscal 2003. This decline was mainly attributable to increased inventory
obsolescence provisions associated with the realignment towards an Internet
Protocol-centric product portfolio. Factors that also contributed to the overall
decrease of the Solutions segment's margins as a percentage of revenue included:
(i) the continued lower margins generated from Internet Protocol demonstration
and field trial systems sold at lower prices and in lower line sizes experienced
in the first half of Fiscal 2003, (ii) the increased costs associated with the
introduction of Internet Protocol products, and (iii) the higher proportion of
third party software application sales at lower margins . However, as a result
of sales of Internet Protocol products with larger line sizes, cost reductions
resulting from Internet Protocol communications platform re-design efforts and
improved manufacturing costs of Internet Protocol desktop appliances, improved
Internet Protocol product margins were generated in the second half of Fiscal
2003. Although Mitel Networks cannot guarantee future results, management
expects this improvement to continue into Fiscal 2004. Although margins on
traditional communications platform products remained strong throughout Fiscal
2003, they are expected to gradually trend down into Fiscal 2004 as a result of
continued pricing pressures.

The Solutions segment's gross margins as a percentage of the segment's revenue
decreased from 44.4% of revenue in the forty-six week period ended February 16,
2001 to 35.7% of revenue in Fiscal 2002. This decline was mainly attributable to
increases in inventory obsolescence provisions associated with a slowdown in the
Network Access Solutions business and a shift from the traditional product
portfolio to the Internet Protocol-enabled solutions resulting in


                                      -43-
<PAGE>

increased inventory provisions for traditional communications platform products.
Also contributing to the overall decrease of the Solutions segment's margins as
a percentage of revenue, but to a lesser degree, were the pricing pressures on
certain traditional communications platform products and lower Fiscal 2002
margins resulting from Internet Protocol product sales generated from
demonstration and field trial systems sold at lower prices and in lower line
sizes to encourage channel adoption. Internet Protocol sales also resulted in
higher product costs as volume had not yet reached targeted production levels
during the market introduction phase of these solutions.

Services segment

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

The Services segment's gross margins as a percentage of the segment's revenue
decreased from 39% of revenue in Fiscal 2002 to 37.1% in Fiscal 2003. This
decrease was mainly attributable to significant inventory obsolescence
provisions associated with the realignment towards an Internet Protocol-centric
product portfolio, partially offset by a shift in revenue mix towards higher
margin fixed term maintenance contracts. Management believes that the
significant competitive pricing pressures on product and installation services
sales experienced by the Services segment, particularly in the hospitality,
education and retail markets, may impact the future performance of the Services
segment.

The Services segment's gross margins as a percentage of the segment's revenue
increased from 33.5% of revenue in the forty-six week period ended February 16,
2001 to 39% of revenue in Fiscal 2002. This increase was mainly attributed to a
reduction in average labor costs resulting from the overall volume increase and
a shift in revenue towards higher margin maintenance contract revenues.

Research and Development (R&D):

Mitel Networks allocates all its R&D expenses to the Solutions segment. R&D
expenses decreased from 16.5% in Fiscal 2002 to 11.7% in Fiscal 2003. This
decrease resulted from workforce reductions implemented in Fiscal 2002 and
Fiscal 2003, the closing of the United Kingdom R&D facility in Fiscal 2003 and
the completion of the significant investment required in Fiscal 2002 to launch
Mitel Networks' new Internet Protocol-enabled solutions. Although Mitel Networks
cannot guarantee future results, it is expected that the workforce reductions
implemented in Fiscal 2003 and in the first quarter of Fiscal 2004 will
contribute to reduced Fiscal 2004 R&D expenses in absolute dollars compared to
Fiscal 2003. The expenses may vary, however, as a percentage of revenue as Mitel
Networks has been taking actions to reduce its R&D expenses as a percentage of
revenue.

R&D expenses increased from 14.4% of revenue during the fiscal period ended
February 16, 2001 to 16.6% and 16.5% of revenue in the fiscal period ended April
27, 2001 and the fiscal year


                                      -44-
<PAGE>

ended April 28, 2002, respectively. This increase resulted from the significant
development efforts directed towards Mitel Networks' new Internet Protocol voice
communications products prior to their launch in November 2001.

Selling, General and Administrative (SG&A):

SG&A expenses decreased to 34.0% of revenue in Fiscal 2003 compared to 40.8% of
revenue in Fiscal 2002. This improvement was primarily attributable to the
workforce reductions implemented in Fiscal 2002 and Fiscal 2003 described in the
section "Special Charges." The significant investment made during Fiscal 2002 in
geographic expansion, new strategic alliances and channel expansion, not
repeated in Fiscal 2003, also contributed to the improvement in Fiscal 2003 SG&A
expenses. Although Mitel Networks cannot guarantee future results, it expects
that the Fiscal 2003 restructuring actions, coupled with additional
restructuring actions taken in the first quarter of Fiscal 2004, will result in
decreased SG&A expenses, both in absolute dollars and as a percentage of revenue
from the Fiscal 2003 level.

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

Solutions segment

The Solutions segment's SG&A expenses decreased to 35.3% of the segment's
revenue for Fiscal 2003 compared to 37.1% of the segment's revenue for Fiscal
2002. This decrease was mainly attributable to the workforce reductions
implemented in Fiscal 2002 and Fiscal 2003 as described in the section "Special
Charges", as well as the reduction in costs associated with the investment in
Fiscal 2002 towards geographic and channel expansion described below.

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


                                      -45-
<PAGE>

Services segment

The Services segment's SG&A expenses decreased to 14.9% of the segment's revenue
for Fiscal 2003 compared to 21.6% of the segment's revenue for Fiscal 2002. This
improvement was mainly due to the workforce reductions implemented in Fiscal
2002 and in Fiscal 2003 described in Special Charges.

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

Purchased In-Process Research and Development:

There was no charge in Fiscal 2002 and Fiscal 2003 for purchased in-process
research and development. On February 16, 2001, in connection with the
acquisition transactions, Mitel Networks allocated the purchase price of the
Predecessor Business to identifiable intangible assets based on their then fair
market value, including $20.7 million to in-process technology. This allocation,
supported by an independent valuation, corresponded to the development of the
Internet Protocol technology that had not yet reached technological feasibility
and had no alternative use at the time of the acquisition transactions.
Accordingly, this amount was charged to expenses in the fiscal period ended
April 27, 2001. The fair market value of acquired in-process research and
development was determined using the income approach, which discounts expected
future cash flows to present value. A discount rate of 21% was used in the
present value calculations which was derived from a weighted-average cost of
capital analysis adjusted upward to reflect additional risks inherent in the
development life cycle. The following table summarizes other key assumptions
underlying the valuation of the significant in-process research and development
projects acquired on February 16, 2001 and the allocated purchase price based on
the projects' estimated fair market values:

<TABLE>
<CAPTION>

                                      Allocated Purchase      Estimated Cost to        Anticipated
                                     Price Based on Fair    Complete Technology at     Completion            %
(in millions)                           Market Values        Time of Acquisition          Date           Completion
-------------------------------------------------------------------------------------------------------------------
<S>                                           <C>                    <C>            <C>                     <C>
MN3300 system                                 $8.1                   $ 14.0         November 2001           52%
Speak@Ease voice recognition
  software                                     4.9                      0.4         July 2001               69%
MN3100 small business system                   3.1                      9.8         August 2001             59%
DSL Network Access Solutions                   2.7                      1.6         September 2001          71%
Internet Protocol desktop products             1.6                      5.0         November 2001           37%
SX-2000 system enhancements                    0.3                      1.5         September 2001          15%
-------------------------------------------------------------------------------------------------------------------
                                            $ 20.7                   $ 32.3
-------------------------------------------------------------------------------------------------------------------
</TABLE>

Actual results have been consistent, in all material respects, with Mitel
Networks' assumptions at the time of the acquisition transactions. The
assumptions primarily consisted of an expected completion date for the
in-process projects, estimated costs to complete the projects, and revenue and
expense projections assuming the products have entered the market. The costs
incurred for


                                      -46-
<PAGE>

the projects in process were primarily labor costs for design, prototype
development and testing. At the end of Fiscal 2002, all purchased in-process
research and development projects were completed.

Amortization of Acquired Intangibles:

As part of the acquisition transactions, Mitel Networks recorded acquired
intangible assets of $141.7 million consisting of developed technology,
workforce, customer base and patents. The value of the developed technology
relates to Mitel Networks' right to exploit the intellectual property then owned
by Mitel Knowledge, pursuant to the terms of a license agreement (see Item 4.B
under "Intellectual Property" for details). Resulting amortization expense
amounted to $12.9 million, $68.6 million and $45.4 million for the fiscal period
ended April 27, 2001 and for Fiscal 2002 and Fiscal 2003, respectively. Acquired
intangible assets have been fully amortized in Fiscal 2003.

In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") 142, "Goodwill and Other Intangible
Assets." SFAS 142 requires goodwill and intangible assets with indefinite useful
lives to be tested for impairment and written down when impaired, rather than
being amortized as previous standards required. Intangible assets with finite
lives will continue to be amortized over their estimated useful lives. On
adoption of the new rules, Mitel Networks reclassified to goodwill the acquired
workforce totaling $7.6 million at April 28, 2002 previously classified as
purchased intangible assets, and ceased its amortization. As a result of the
reassessment of the useful life of identifiable intangibles completed in the
first quarter of Fiscal 2003, Mitel Networks will continue to amortize
intangible assets with finite lives over a two-year period. SFAS 142 also
requires the company to establish reporting units and apply a two-step approach
to assessing goodwill impairment. Mitel Networks completed the transitional and
annual goodwill impairment tests and determined that no impairment existed as of
the date of adoption and as of April 27, 2003.

Amortization of acquired intangibles recorded by the Predecessor Business in the
fiscal period ended February 16, 2001 amounted to $2.7 million and related to
the acquisition by Zarlink of the Customer Premises Equipment Business Unit of
Centigram Communications Corporation in May 1998 and the acquisition by Zarlink
of the products, technology, research and development facilities and sales and
marketing organization of Glasgow-based Telecom Sciences Limited, also completed
in May 1998.

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

Special Charges:

During Fiscal 2003, Mitel Networks recorded special restructuring charges of
$21.5 million related to additional cost reduction measures taken to minimize
the impact of the economic slowdown, net of reversals of current year's charges
of $2.5 million and prior year's charges of $1 million resulting primarily from
adjustments to original estimated severance costs and fewer than originally
anticipated employee terminations. The net restructuring charges included
workforce reduction costs of $19.9 million relating to 265 terminated employees
across most


                                      -47-
<PAGE>

geographic regions, of which $17.5 million and $3 million related to the
Solutions segment and the Services segment, respectively, and $1 million related
to support functions classified in the "Corporate and Other" category of Mitel
Networks' segmented information. Non-cancelable lease costs of $4.7 million and
a loss on disposal of capital assets of $0.4 million, both related to the
closure of the United Kingdom R&D facility, were also included in the Fiscal
2003 restructuring charges. These restructuring actions are expected to result
in a total reduction of Mitel Networks' operating costs of approximately $34
million in Fiscal 2004, of which $24 million, $8 million and $2 million relate
to the Solutions segment, the Services segment and the Corporate and Other
category, respectively. These restructuring programs were completed by April 27,
2003.

Subsequent to April 27, 2003, Mitel Networks recorded additional special
restructuring charges of $2.4 million related to the termination of 50
employees, primarily in North America, of which $1.5 million, $0.2 million and
$0.7 million related to the Solutions segment, the Services segment and the
Corporate and Other category, respectively. This workforce reduction is expected
to result in a total reduction of Mitel Networks' operating costs of
approximately $5 million in Fiscal 2004, of which $4.1 million, $0.6 million and
$0.2 million relate to the Solutions segment, the Services segment and the
Corporate and Other segment, respectively. In addition, subsequent to April 27,
2003, Mitel Networks implemented other actions including the deferral of certain
research and development programs and the deferral of channel, marketing and
other expenditures. These cost deferral actions are expected to result in total
savings of Mitel Networks' operating costs of approximately $7 million in Fiscal
2004, of which $6 million, $0.3 million and $0.7 million relate to the Solutions
segment, the Services segment and the Corporate and Other category,
respectively.

During Fiscal 2002, Mitel Networks recorded special restructuring charges of
$11.7 million in operating expenses related to the implementation of a series of
cost reduction actions taken to realign Mitel Networks' organization and reduce
overhead, including the termination of research and development efforts related
to the Network Access Solutions products. The restructuring charges included
workforce reduction costs of $10.5 million related to 278 terminated employees
across most geographic regions, of which $7.3 million and $1.8 million related
to the Solutions segment and the Services segment, respectively, and $1.4
million related to support functions classified in the "Corporate and Other"
category of Mitel Networks' segmented information. Legal costs of $0.6 million
and a loss on disposal of capital assets of $0.6 million related to the
restructuring actions taken in the Solutions segment were also included in the
Fiscal 2002 restructuring charges. Mitel Networks expects that these
restructuring measures will result in a total reduction of its operating costs
of approximately $16 million in Fiscal 2004 (Solutions segment - $11 million;
Services segment - $3 million; Corporate and Other - $2 million). Mitel Networks
completed these cost reduction actions in the first quarter of Fiscal 2003.

During the fiscal period ended February 16, 2001, the Predecessor Business
executed restructuring programs to reduce its sales, marketing, administrative
and research and development workforce in preparation for the acquisition
transactions. Actions were also taken to downsize and consolidate the operations
of the advanced messaging business unit and to discontinue the GX5000 product
line based on the decision to exit non-core operations. Accordingly, special
charges of $14.8 million were recorded in the fiscal period ended February 16,
2001. These charges were composed of workforce reduction costs of $10.1 million


                                      -48-
<PAGE>

related to severance and benefits associated with 238 terminated employees
across all business functions, predominantly in North America and the United
Kingdom. As a result of the downsizing and consolidation of the advanced
messaging business unit and the exit of the GX5000 product line, the Predecessor
Business recorded office closure and related moving costs of $2.0 million, a
fixed asset write-down of $2.2 million related to impaired research and
development and office equipment and professional fees of $0.5 million. These
restructuring programs were completed in the first six months of Fiscal 2002.

Loss on Disposal of Manufacturing Assets:

On August 31, 2001, Mitel Networks outsourced its manufacturing operations,
including the sale of related net assets and the transfer of employees and
certain liabilities to BreconRidge, for total net consideration of $7.8 million
in the form of long-term promissory notes receivable of $8.4 million and
promissory notes payable of $0.6 million. The transaction resulted in a loss on
disposal of $2.4 million recorded in Fiscal 2002 operating expenses. The loss
represented the excess of the carrying value of the plant, equipment and
manufacturing workforce over the total net consideration.

The long-term promissory notes receivable, net of the long-term promissory notes
payable, were paid in full in February 2003, prior to the original maturity date
of August 31, 2003.

Interest Expense:

Interest expense was $6.5 million, $4.7 million and $0.2 million in Fiscal 2003,
Fiscal 2002 and the ten weeks ended April 27, 2001, respectively, representing
an increase of $1.8 million in Fiscal 2003 compared to Fiscal 2002 and an
increase of $4.5 million in Fiscal 2002 compared to the 2001 fiscal period.
These increases were largely attributed to a higher amount of weighted average
credit facilities and long-term debt outstanding in each of the past two years
(see Item 4.B Liquidity and Capital Resources).

Other (Income) Expense, Net:

Other (income) expense, on a net basis, consists primarily of foreign exchange
rate gains and losses and interest income. Other income, on a net basis,
amounted to $5.1 million in Fiscal 2003 compared to other expense, on a net
basis, of $0.6 million in Fiscal 2002 and $0.5 million for the fiscal period
ended April 27, 2001. The income recorded in Fiscal 2003 principally resulted
from significant transactional foreign currency gains realized in the year.
Mitel Networks uses foreign currency forward contracts and foreign currency
swaps to minimize the short-term impact of currency fluctuations on foreign
currency receivables, payables and intercompany balances.

Provision for Income Taxes:

Mitel Networks recorded an income tax recovery of $4.3 million in Fiscal 2003
and income tax expenses of $0.2 million and $0.9 million for Fiscal 2002 and for
the fiscal period ended April 27, 2001, respectively. The Fiscal 2003 recovery
resulted primarily from tax assessments and tax refunds received in respect of
prior periods. The Fiscal 2002 expense resulted primarily from minimum tax
liabilities in certain jurisdictions. Based on the statutory tax rates in
Canada, Mitel


                                      -49-
<PAGE>

Networks would have been expected to record income tax recoveries for each of
these three fiscal periods. However, a significant portion of the tax losses was
derived from foreign subsidiaries operating in jurisdictions with lower
statutory tax rates than those that apply in Canada. Furthermore, tax benefits
of tax losses and deductible temporary differences incurred during each of the
last three fiscal years have not been recognized for accounting purposes to date
due to the lack of historical profitability.

B. Liquidity and Capital Resources

During Fiscal 2003, Mitel Networks implemented actions to strengthen its
liquidity and cash positions. As a result, cash and cash equivalents totaled
$32.4 million at April 27, 2003, which represented an increase of $26.7 million
from $5.7 million at April 28, 2002. This improvement was mainly attributable to
$47 million in cash generated from financing activities, which was partially
offset by $18.9 million in cash used in operations.

Operating Activities:

Net cash used in operating activities of $18.9 million for Fiscal 2003
represented an improvement of $77.9 million (or 80.5%) over Fiscal 2002. This
significant improvement resulted primarily from (i) a significant reduction in
operating expenses resulting from the cost reduction actions taken in Fiscal
2002 and Fiscal 2003, and (ii) a further reduction of R&D expenses as a result
of the completion, in Fiscal 2002, of the significant research and development
investment strategy that lead to the launch of the new Voice over Internet
Protocol product portfolio in November 2001. Cash generated from the change in
non-cash operating assets and liabilities was $8.2 million compared to cash
usage of $14.1 million in Fiscal 2002, due principally to improvements in
accounts receivable.

Investing Activities:

Net cash used in investing activities totaled $0.5 million in Fiscal 2003
compared to $19.2 million in Fiscal 2002 . The improvement noted in Fiscal 2003
was largely due to the significant reduction of $11.7 million in capital
expenditures which amounted to $6.6 million in Fiscal 2003 compared to $18.3
million in Fiscal 2002. This reduction resulted primarily from the cost
reduction efforts undertaken during Fiscal 2003 to improve liquidity. Capital
expenditures generally related to computer equipment and equipment used in
research and development.

Also contributing to the Fiscal 2003 improvement in investing activities was the
$8.2 million early repayment on February 27, 2003 of promissory notes receivable
from BreconRidge, which had an original maturity date of August 31, 2003.

Financing Activities:

Net cash provided by financing activities totaled $47 million in Fiscal 2003
compared to $113.5 million in Fiscal 2002. Cash flows from financing activities
in Fiscal 2003 were mainly attributable to (i) net proceeds of $30.9 million
from related party loans payable to Wesley Clover, a company controlled by Dr.
Terence H. Matthews, (ii) proceeds of $24.8 million from the issuance of
warrants, and (iii) proceeds of $10.1 million from the issuance of convertible


                                      -50-
<PAGE>

debentures, partially offset by repayments of bank indebtedness, related party
loans and long-term debt totaling $27.3 million.

Related party loans payable to Wesley Clover, amounting to $42.3 million at
April 27, 2003, were used mainly to support operating activities. These related
party loans are subordinated to Mitel Networks' 364-day credit facilities, bear
interest at the prime rate and are payable on demand.

On August 16, 2002, Mitel Networks closed a private offering of debentures,
which are convertible into shares of the corporation, that resulted in total
cash proceeds of $10.1 million. The initial term of the convertible debentures
was to have expired on April 25, 2003, but was extended by resolution of the
board of directors, in accordance with the terms of the debentures, until July
27, 2003. Mitel Networks is currently seeking a further extension of the
maturity date of the debentures. The debentures provide for interest to accrue
at the rate of 6.5% per annum payable on the maturity date or upon conversion of
the debentures and accrued interest into shares of Mitel Networks. The principal
amount of the debentures, together with accrued interest outstanding under the
debentures is subject to mandatory conversion, and will automatically convert
into shares of Mitel Networks (i) if an equity financing occurs during the term
pursuant to which equity securities which are, or which are convertible into,
common shares of Mitel Networks are issued, at an equivalent price per share, or
(ii) if no such financing occurs during the term, at the end of the term, into
fully-paid and non-assessable common shares of Mitel Networks, at a price per
common share equal to the lesser of $3.00 per share and the price per share
determined through external valuation by Mitel Networks' board of directors. At
April 27, 2003, the aggregate principal amount and accrued interest on the
convertible debentures amounted to $10.5 million.

Mitel Networks, in conjunction with March Networks and Mitel Knowledge, has
signed an agreement for financing from the Canadian Government for up to $60
million of March Networks' and Mitel Networks' research and development
activities over a three year period. The financing is provided pursuant to an
initiative of the Government of Canada that is designed to promote economic
growth in Canada through strategic investment in technological research,
development and innovation. Mitel Networks expects to benefit from approximately
90% of any funds received under the program. Pursuant to the terms of the
agreement, in exchange for financing received from the Government of Canada,
Mitel Networks has committed to issue warrants to Her Majesty the Queen in Right
of Canada for the zero dollar purchase of common shares, with the warrants to be
issued as of September 30 in each of 2002, 2003 and 2004, and valued in
accordance with fair market value. During Fiscal 2003, Mitel Networks received
total cash of $24.8 million. Warrants are issued annually on the basis of funds
received in the twelve months immediately preceding the warrant calculation
date. To date, Mitel Networks has issued warrants for the acquisition of a total
of 6,182,588 common shares in consideration for $17 million of the total $24.8
million cash received. The number of warrants issued was determined based on a
per share fair value of $2.75, which was determined by an independent valuation,
and the cash received as of the warrant calculation date (September 30, 2002).


                                      -51-
<PAGE>

Borrowings:

Mitel Networks has a 364-day revolving credit facility of up to a maximum of $30
million (or the equivalent amount in U.S. dollars) that expires in February 2004
and that is subject to a borrowing base. The facility bears interest at the
Prime rate or U.S. base rate plus 2.5% or LIBOR or Banker's Acceptance rate plus
3.5% and is secured by a general assignment of substantially all Mitel Networks'
accounts receivable and a general security interest in the remaining assets of
Mitel Networks and its two wholly-owned U.S. subsidiaries, each of which is a
guarantor. Upon receipt of net proceeds of at least $20 million from an equity
offering, interest rates on the facility will decrease to prime rate or U.S.
base rate plus 1.5% or LIBOR or Bankers' Acceptance rate plus 2.5%. The credit
facility contains certain restrictions and a financial covenant requiring Mitel
Networks to achieve quarterly minimum levels of earnings before interest, income
taxes, depreciation and amortization ("EBITDA"), also adjusted for other
non-cash income and non-cash expenses. At April 27, 2003, Mitel Networks was not
in compliance with the EBITDA covenant; however the lenders under both credit
facilities have agreed to waive Mitel Networks' non-compliance for the quarter
ended April 27, 2003, subject to certain conditions, including the transfer of
$6.6 million to a cash collateral account until the maturity of the two credit
facilities. Mitel Networks does not expect to be in compliance with the
quarterly minimum levels of EBITDA during Fiscal 2004, and Mitel Networks will
request the two financial institutions to waive any future non-compliance with
the EBITDA covenant, as it arises on a quarterly basis, throughout Fiscal 2004.
Mitel Networks is exposed to the risk that its ability to renew this credit
facility on favorable terms may be adversely affected by its non-compliance with
the EBITDA covenant as a result of a deterioration of its financial performance
if the actual demand for its products does not reach expected levels. At April
27, 2003, Mitel Networks had borrowed cash of $17.9 million under this facility
and $1.2 million was committed under letters of credit, leaving approximately
$10.9 million available under this credit facility.

Mitel Networks' U.K. subsidiary, Mitel Networks Limited, has a $9.5 million
((pound)4.1 million) loan facility with Export Development Canada (EDC) that is
subject to a borrowing base. The facility bears interest at LIBOR plus 3.5%,
which will decrease to LIBOR plus 2.5% upon receipt of net proceeds of at least
$20 million from an equity offering. The principal amount of the loan is payable
in March 2004 and interest is payable quarterly commencing in June 2003. The
facility is secured by a general assignment of Mitel Networks' accounts
receivable, a general security interest in the remaining assets of Mitel
Networks and its two wholly-owned U.S. subsidiaries and a guarantee from Mitel
Networks and its U.S. subsidiaries. The Mitel Networks' guarantee contains
certain restrictions and a financial covenant requiring Mitel Networks to
achieve quarterly minimum levels of earnings before interest, income taxes,
depreciation and amortization (EBITDA), also adjusted for other non-cash income
and non-cash expenses. At April 27, 2003, Mitel Networks was not in compliance
with the EBITDA covenant; however EDC has agreed to waive Mitel Networks'
non-compliance for the quarter ended April 27, 2003, subject to certain
conditions, including the transfer of $1.6 ((pound)0.7) to a cash collateral
account until the maturity of the loan facility. At April 27, 2003, Mitel
Networks Limited had borrowed the total amount available under this facility.
Mitel Networks does not expect to be in compliance with the quarterly minimum
levels of EBITDA during Fiscal 2004, and Mitel Networks will request EDC to
waive any future non-compliance with the EBITDA covenant, as it arises on a
quarterly basis, throughout Fiscal 2004.


                                      -52-
<PAGE>

Mitel Networks Limited has a $2.3 million ((pound)1.0 million) overdraft
facility and indemnity facilities totaling $5.3 million ((pound)2.3 million)
available for letters of credit and other guarantees. The overdraft facility
bears interest at U.K. base rate plus 1.5%. The overdraft facility and the
indemnity facilities are secured by a parent company guarantee. At April 27,
2003, the overdraft facility was unused and $2.4 million was committed under
letters of credit and other indemnities.

Mitel Networks Limited is liable under mortgages totaling $24 million
((pound)10.3 million). The remaining principal of the first mortgage loan
amounted to $6.1 million ((pound)2.6 million) at April 27, 2003, bears interest
at 7.7%, is payable in monthly installments until October 2004 and is secured by
certain equipment of the subsidiary. The remaining principal of the second
mortgage loan amounted to $15.9 million ((pound)6.9 million) at April 27, 2003,
bears interest at 7.4% until December 2006, with an option to continue using the
fixed rate or select a variable rate at LIBOR plus 1.75% thereafter, is payable
in quarterly installments of $0.7 million ((pound)0.3 million) with the balance
due in December 2011 and is secured by the real estate properties of the
subsidiary. During Fiscal 2003, Mitel Networks Limited obtained a third mortgage
loan amounting to $2 million ((pound)0.8 million), bearing interest at 6.3%,
payable in monthly installments until April 2006 and secured by certain
equipment of the subsidiary. Pursuant to the terms of these mortgages, Mitel
Networks Limited must comply with a financial covenant. Mitel Networks Limited
was in compliance with such financial covenant at April 27, 2003 and expects to
remain compliant for the respective terms of the loan agreements.

Mitel Networks' primary future cash needs on a recurring basis will include the
funding of operations, working capital, capital expenditures, debt service and
other contractual obligations. Since April 27, 2003, Mitel Networks has
completed restructuring actions, including the termination of 50 North American
employees in May 2003 and the deferral of certain research and development
programs. Mitel Networks expects these actions will result in estimated annual
savings of approximately $12 million. Severance and other personnel costs of
approximately $2.4 million were recorded as part of special charges in the first
quarter of Fiscal 2004 related to the May 2003 workforce reduction. The
temporary reduction in Mitel Networks' contributions to the Canadian pension
plan to the minimum contribution level required by the Financial Services
Commission of Ontario, which was initiated in December 2001, continued
throughout Fiscal 2003 and will be maintained until Mitel Networks' financial
situation is improved. Mitel Networks also implemented a temporary hour
reduction program effective July 2002 to the end of September 2002 and,
subsequently, implemented a temporary unpaid days off program which remained in
effect until the end of January 2003 at which point the 10% hour reduction
program, first instituted in July 2002, was resumed. The hour reduction program
is reviewed on a quarterly basis, but it is expected that it will continue for
an indefinite period until Mitel Networks' financial situation has improved.

Management believes that Mitel Networks' cash flow will improve in Fiscal 2004
as a result of the restructuring initiatives completed in Fiscal 2003 and in May
2003. Mitel Networks continues to closely monitor its cash position and cash
requirements and is actively seeking additional sources of financing.

In June, 2002, Mitel Networks retained the services of an investment banker in
connection with a proposed offering of Series A convertible preferred shares to
accredited investors. The Series A convertible preferred shares are not expected
to be registered under the Securities Act of 1933, as


                                      -53-
<PAGE>

amended, and may not be offered or sold in the United States absent registration
or an applicable exemption from the registration requirements. As of the time of
filing of this annual report, neither the terms and conditions of the offering,
nor the rights attaching to any securities to be offered pursuant thereto, had
been determined. There can be no assurance that Mitel Networks will be able to
complete an offering on satisfactory terms, or at all.

As Mitel Networks does not expect to meet the Fiscal 2004 quarterly EBITDA
covenants imposed under the terms of its two credit facility agreements, in the
event Mitel Networks does not obtain waivers of its non-compliance with such
quarterly EBITDA covenants and the two financial institutions demand repayment
of the credit facilities, or in the event Mitel Networks does not obtain other
debt or equity financing, Mitel Networks expects to sustain its operations by
further adjusting its cost structure and seeking other sources of financing.

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


                                      -54-
<PAGE>

Contractual Obligations and Commercial Commitments

The following table sets forth Mitel Networks' contractual obligations as at
April 27, 2003.

<TABLE>
<CAPTION>

                                                                      Payments Due by Period
                                                  ------------------------------------------------------------
Contractual Obligations                                       Less than       1-3          4-5        After 5
(in millions)                                     Total        1 Year        Years        Years        Years
--------------------------------------------------------------------------------------------------------------
<S>                                                <C>           <C>            <C>          <C>          <C>
Credit Facilities                                  $ 27.4        $ 27.4         $ --         $ --         $ --
Loans from companies controlled by
  Dr. Terence H. Matthews                            42.3          42.3           --           --           --
Long-term debt                                       24.0           6.0          6.4          4.0          7.6
Capital lease obligations                             2.6           1.2          1.2          0.2           --
Unconditional purchase obligations                    0.7           0.7           --           --           --
--------------------------------------------------------------------------------------------------------------
                                                     97.0          77.6          7.6          4.2          7.6
Operating leases                                    119.1          20.8         32.3         23.5         42.5
--------------------------------------------------------------------------------------------------------------
Total contractual cash obligations                $ 216.1        $ 98.4        $39.9        $27.7        $50.1
--------------------------------------------------------------------------------------------------------------
</TABLE>

Included in the contractual obligations above is $27.4 million in cash borrowed
under both the 364-day $30 million revolving line of credit and the $9.5 million
((pound)4.1 million) loan facility. In addition, $1.2 million of the credit
facility was committed under letters of credit at April 27, 2003. Other
commercial commitments consisted of a $2.3 million ((pound)1 million) overdraft
facility, and indemnity facilities totaling $5.3 million ((pound)2.3 million)
available for letters of credit and other guarantees, of which $2.4 million was
committed as at April 27, 2003.

Capital expenditures are expected to reach approximately $6.5 million in Fiscal
2004 and are expected to be funded by cash flows from operations which are
dependent upon the ability of Mitel Networks to continue to attract orders and
develop products that have a competitive advantage. Failure to generate the
expected level of cash flow from operations could result in the delay or
abandonment of some capital expenditures.

Mitel Networks Limited maintains a defined benefit pension plan. At April 27,
2003, the pension benefit obligation of $125.8 million exceeded the fair value
of the plan assets of $68 million, resulting in an unfunded status of $57.8
million (April 28, 2002 - $16.1 million), of which $35.8 million was recorded on
Mitel Networks' Consolidated Balance Sheet in accordance with US GAAP. In Fiscal
2003, the decline in global capital markets and interest rates had a negative
impact on Mitel Networks Limited's defined benefit pension plan assets and
obligations. As a result, Mitel Networks was required to adjust the minimum
pension liability, representing the amount by which the accumulated benefit
obligation less the fair value of the plan assets was greater than the liability
previously recognized in the consolidated balance sheet. The after-tax effect of
this adjustment was to increase both the pension liability and the accumulated
comprehensive loss by $25.4 million. Mitel Networks' future contributions to the
pension plan, as determined by an independent actuarial valuation, will be in
compliance with U.K. pension regulations with respect to contributions to, and
funding levels of the pension plan.


                                      -55-
<PAGE>

Obligations under special charges consist of (i) remaining cash payments of $0.9
million relating to workforce reduction initiatives which are expected to be
substantially completed by the second quarter of Fiscal 2004, and (ii) remaining
cash payments of $3.8 million related to non-cancelable lease costs for excess
facilities, which are expected to continue until the year 2014 according to the
terms of the lease agreement.

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

Commitments and Guarantees

Mitel Networks enters into bid and performance related bonds in connection with
various customer contracts. Performance related bonds usually have a term of
twelve months and bid bonds generally have a much shorter term. Potential
payments due under these arrangements may be related to Mitel Networks'
performance and/or its resellers' performance under the applicable contract. At
April 27, 2003, the total maximum potential amount of future payments Mitel
Networks could be required to make under bid and performance related bonds was
$5.5 million. Historically, Mitel Networks has not had to make material payments
and does not anticipate that it will be required to make material payments under
these types of bonds. Due to the decline in the economic environment and its
current credit condition, Mitel Networks' cash collateral requirements in
connection with obtaining new customer performance bonds amounted to $1.2
million at April 27, 2003.

Recent Accounting Pronouncements

In June 2002, the Financial Accounting Standards Board issued SFAS 146,
"Accounting for Costs Associated with Exit of Disposal Activities." The standard
will require Mitel Networks to recognize costs associated with exit or disposal
activities when they are incurred rather than when Mitel Networks commits to an
exit or disposal plan. The provisions of this standard are effective for exit of
disposal activities that are initiated after December 31, 2002. Mitel Networks'
adoption of this statement had no material impact on its results of operations
or financial position.

In December 2002, the Financial Accounting Standards Board issued SFAS 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure." This
standard amends SFAS 123, to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, SFAS 148 amends the


                                      -56-
<PAGE>

disclosure requirements of SFAS 123 to require prominent disclosure in financial
statements about the method of accounting for stock-based employee compensation
and the effect of the method used on reported results. Mitel Networks has
adopted the disclosure provisions of SFAS 148 (see note 2(o) to the Consolidated
Financial Statements included elsewhere in this Annual Report). If Mitel
Networks elects to adopt the transitional provisions of SFAS 123 as amended by
SFAS 148 in Fiscal 2004, the change in accounting principle may be reported
either (i) prospectively to awards granted or modified after the beginning of
the year of adoption, (ii) retroactively with restatement for awards granted or
modified since February 16, 2001, or (iii) prospectively to awards granted or
modified since February 16, 2001. As Mitel Networks is still assessing its
option to elect the amended transitional provisions of SFAS 123, the adoption of
SFAS 148 did not have any impact on Mitel Networks' financial position and
results of operations.

In November 2002, Financial Accounting Standards Board issued Interpretation No.
45, "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"), which
requires certain disclosures of obligations under guarantees. The disclosure
requirements of FIN 45 are effective for Mitel Networks' year ended April 27,
2003. FIN 45 also requires the recognition of a liability by a guarantor at the
inception of certain guarantees entered into or modified after December 31,
2002, based on the fair value of the guarantee. Mitel Networks has adopted the
disclosure and recognition provision of FIN 45 in its Fiscal 2003 financial
statements (see note 14 to the Consolidated Financial Statements included
elsewhere in this Annual Report). The adoption of the recognition provision of
FIN 45 had no material impact on Mitel Networks' financial position, results of
operations or cash flows.

In January 2003, the Financial Accounting Standards Board issued Interpretation
No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"). FIN 46
clarified the application of Accounting Research Bulletin No. 51 - Consolidated
Financial Statements to those entities defined as "Variable Interest Entities"
(more commonly referred to as special purpose entities) in which equity
investors do not have the characteristics of a "controlling financial interest"
or do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support from other parties.
FIN 46 applies immediately to all Variable Interest Entities created after
January 31, 2003, and by the beginning of the first annual reporting period
commencing after June 15, 2003 for Variable Interest Entities created prior to
February 1, 2003. The adoption of this standard had no impact on Mitel Networks'
financial position, results of operations or cash flows.

In April 2003, the Financial Accounting Standards Board issued SFAS 149,
"Amendments of Statement 133 on Derivative Instruments and Hedging Activities",
which clarifies accounting for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
SFAS 149 is generally effective for derivative instruments entered into or
modified after June 30, 2003 and for hedging relationships designated after June
30, 2003. It is expected that the adoption of this standard will have no
material impact on Mitel Networks' financial position, results of operations or
cash flows.

In May 2003, the Financial Accounting Standards Board issued SFAS 150,
"Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity." For non-


                                      -57-
<PAGE>

public entities, SFAS 150 is effective for fiscal years beginning after December
15, 2003. SFAS 150 establishes standards for Mitel Networks' classification of
liabilities in the financial statements that have characteristics of both
liabilities and equity. On adoption of this standard, the redeemable common
shares currently classified between the liabilities section and the equity
section of the Consolidated Balance Sheet will be reclassified within
liabilities as "Shares Subject to Mandatory Redemption" and related accrued
interest will be recorded as interest expense in the Consolidated Statement of
Operations prospectively and a charge to accumulated deficit will be recorded
for the cumulative effect of the change in accounting policy.

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

See Item 5.A.  Operating Results.

D. Trend Information

The global marketplace for telephony customer premise equipment consists of the
systems, software, telephone sets and other peripherals and applications used by
organizations to interface with the public telephone system. Mitel Networks and
the Predecessor Business have competed in this market for over 30 years, during
which time the predominant technology has been Private Branch Exchange systems
based on Time Division Multiplexing technology. Using this technology,
communications are delivered across both the public and private telephone
networks through actual switched circuits that maintain a hard-wired connection
across the entire communication path. For smaller businesses (up to 50 lines),
the market has been serviced by key telephone systems, which traditionally have
a less sophisticated feature set and fewer integrated applications and devices.

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

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

The telecom sector is currently in the midst of an enormous market disruption.
The market for customer premises equipment is currently at a crossroads with
Internet Protocol communications emerging and traditional Time Division
Multiplexing communications on a slow and steady


                                      -58-
<PAGE>

decline. This is compounded by an economic downturn following significant
capital spending by businesses upgrading communications systems prior to the
year 2000. Due to these converging elements, the industry is seeing capital
expenditures decline and organizations are trying to leverage existing
investments to their fullest extent. Many of the large customer premise
equipment vendors have diversified and are now particularly vulnerable due to a
lack of focus on their core businesses.

The current downturn in general economic conditions, exacerbated by the events
of September 11, 2001 and continuing uncertainty in the Middle East, resulted in
a decreased demand for communications equipment. In response to these events,
Mitel Networks initiated a series of restructuring actions during Fiscal 2002
and Fiscal 2003 to focus on new market opportunities and to realign its spending
level with the lower sales volumes. The Fiscal 2003 restructuring actions, which
consisted primarily of workforce reductions, executed through 265 voluntary and
involuntary terminations and the closure of the United Kingdom R&D facility, are
expected to result in savings of $34 million in Fiscal 2004. Any savings
realized by Mitel Networks will be reinvested in core business activities.

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

Enterprise Communication Systems Market

Within the enterprise communication systems market there have been significant
fluctuations over the past five years. The market reached a peak in 1999 as the
Year 2000 issue forced customers to invest in and update their equipment. In
2000, Private Branch Exchange systems that incorporate Internet Protocol
functionality began shipping in volume to early adopting customers and began to
displace traditional systems. Management believes that this trend of declining
shipments in traditional PBX systems will continue to be offset by increasing
shipments of Internet Protocol-based shipments in Fiscal 2004.

The adoption of Internet Protocol technology is being driven primarily by cost
savings and remote networking capabilities. The cost savings for the customers
include reduced network administration costs, move/add/change costs, interoffice
calling costs, and wiring expenses. In 2002, Internet Protocol-based systems
made up approximately 10% of all sales. Management believes that shipments of
Internet Protocol-based Private Branch Exchange products will surpass
traditional Private Branch Exchange and key telephone systems equipment by 2006.
As a result of management's belief in Internet Protocol-based products, Mitel
Networks, through strategic repositioning activities such as restructuring and
the outsourcing of manufacturing, is continuing to make investments in new
product research and development.


                                      -59-
<PAGE>

Industry Disruption

The rapid growth and subsequent unprecedented downturn in the global
communications market has led to considerable disruption among equipment
suppliers. In particular, suppliers focused on core network infrastructure and
other infrastructure for service providers have experienced dramatic reductions
in demand relative to suppliers serving primarily enterprise customers. Several
major diversified communications equipment suppliers have either decided to exit
the voice systems business or have reduced their level of investment in new
voice technology platforms. Management believes that this has led to
opportunities for the remaining vendors to gain market share. In addition,
start-up companies are having difficulty developing distribution channels for
their new products, a significant barrier to entry in this market.

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

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

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

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

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

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


                                      -60-
<PAGE>

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

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

Distribution models among vendors of customer premise equipment have also
undergone large-scale changes. Vendors appear to be moving away from the direct
sales force and embracing the indirect sales model through relationships with
resellers, systems integrators and service providers. While this is the emerging
trend among vendors, Mitel Networks already has a strong indirect sales model.
Restructuring actions and a renewed focus on its core business activities have
allowed Mitel Networks to redirect resources to broadening its distribution
channels within its core markets, North America and the United Kingdom, by
increasing the number of value added resellers and establishing strategic
partnerships with service providers, systems integrators and technology
partners. To expand its geographic penetration outside of its core markets,
Mitel Networks has opened a number of sales offices and invested significant
resources to develop and deliver regionally compliant products. Since the
acquisition transactions in February 2001, Mitel Networks has opened sales
offices in Italy, Spain, Germany, France, the Netherlands, the United Arab
Emirates, South Africa, Mexico, Hong Kong, China, Australia and Korea.
Management believes that Mitel Networks' financial condition will be
strengthened as a result of these strategic investments in channel augmentation
and geographic expansion.

Item 6.  Directors, Senior Management and Employees

A. Directors and Senior Management

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

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

Donald W. Smith           Director                                 April 2001
                          Chief Executive Officer

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

Peter D. Charbonneau      Director and Vice-Chairman               February 2001

Kirk Mandy                Director                                 July 2002

Sir David Rowe-Beddoe     Director                                 July 2002


                                      -61-
<PAGE>

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

Steven Spooner            Vice-President Finance and Chief         June 2003
                          Financial Officer

James Davies              Chief Technology Officer                 June 2003

Raymond Brown             Vice-President, Enterprise Solutions     June 2001

Carl Carruthers           Vice-President, Operations               May 2002

Simon Gwatkin             Vice-President, Strategic Marketing      February 2001

Graham Bevington          Vice-President and Managing Director,    February 2001
                          Europe, Middle-East and Africa Region

George Cuesta             Vice-President, Enterprise Sales         February 2002
                          Channels USA

Stephen Grassie           Vice-President, Americas Sales           June 2002

Jerry Sparling            Vice-President, Customer Support and     June 2002
                          Engineering Services

Sharron McIntyre          Treasurer                                March 2001

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

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

Dr. Terence H. Matthews, Chairman

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


                                      -62-
<PAGE>

Donald W. Smith, Director and Chief Executive Officer

Donald W. Smith has been Chief Executive Officer of Mitel Networks since April
2001. From January 2000 until March 2001, Mr. Smith was President, Optical
Internet, Nortel Networks Corporation ("Nortel") and from December 1998 until
January 2000, he was the Vice-President and General Manager of Optera Solutions
at Nortel. From 1996 until December 1998, Mr. Smith was President and Chief
Executive Officer of Cambrian Systems Corporation.

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

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

Peter D. Charbonneau, Director and Vice-Chairman

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

Kirk Mandy, Director

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

Sir David Rowe-Beddoe, Director

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

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

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


                                      -63-
<PAGE>

Steven Spooner, Vice-President, Finance and Chief Financial Officer

Steven Spooner has been Vice-President, Finance and Chief Financial Officer of
Mitel Networks since June 2003. From 1984 to 2003, Mr. Spooner held
progressively senior positions, in both publicly traded and privately held high
technology companies. From January 2003 to June 2003, Mr. Spooner was CFO of
Wysdom Inc. From March 2002 to December 2002, Mr. Spooner was a management
consultant for technology companies. From March 2000 to February 2002, Mr.
Spooner was President & CEO of Stream Intelligent Networks Corporation. From
February 1995 to February 2000, Mr. Spooner held the position of CFO of
CrossKeys Systems Corporation, a publicly traded company since 1998. Prior to
that, Mr. Spooner was Vice President Finance and Corporate Controller of SHL
Systemhouse Inc., a publicly traded company.

James Davies, Chief Technology Officer

James Davies has been Chief Technology Officer of Mitel Networks since June
2003. From June 2002 to June 2003, Mr. Davies was Vice-President, SME Solutions
of Mitel Networks. From September 2001 until June 2002, Mr. Davies was
Vice-President, Solutions Management of Mitel Networks. From February 16, 2001,
Mr. Davies was Mitel Networks' Head of Research and Development. Prior to that,
Mr. Davies held the same position with the Predecessor Business since 1998. From
1988 until 1998, Mr. Davies held various positions with Nortel Networks
Corporation.

Raymond Brown, Vice-President, Enterprise Solutions

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

Carl Carruthers, Vice-President, Operations

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

Simon Gwatkin, Vice-President, Strategic Marketing

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


                                      -64-
<PAGE>

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

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

George Cuesta, Vice-President, Enterprise Sales Channels USA

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

Stephen Grassie, Vice-President, Americas Sales

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

Jerry Sparling, Vice-President, Customer Support and Engineering Services

Jerry Sparling has been Vice-President, Customer Support and Engineering
Services since June 2002. From 1999 to 2002, Mr. Sparling led the Predecessor
Business' and Mitel Networks' Design Quality Team. Prior to that time, Mr.
Sparling held various positions within the Predecessor Business' Research and
Development department.

Sharron McIntyre, Treasurer

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

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

B. Compensation

As at July 18, 2003, senior management of Mitel Networks includes: Donald Smith,
Paul Butcher, Steven Spooner, Sharron McIntyre, Jenifer Chilcott, James Davies,
Raymond Brown, Graham Bevington, Carl Carruthers, Simon Gwatkin, George Cuesta,
Stephen Grassie and Jerry Sparling. As Chairman, Dr. Terence H. Matthews has
also been actively involved in establishing the strategic direction of Mitel
Networks. The aggregate annualized salary paid during the fiscal


                                      -65-
<PAGE>

year ended April 27, 2003 to senior management of Mitel Networks (including Mr.
Carl Drodge and Mr. Geoff Smith, who were employed by Mitel Networks until
November 2002, and Mr. Stephane Godin, who was employed by Mitel Networks until
June 2003) was $4,246,717.

Pursuant to Mitel Networks' employee stock option plan (see Item 6.E), a total
of 25,000 options to acquire common shares at an exercise price of $2.75 per
share were granted to senior officers of Mitel Networks during the fiscal year
ended April 27, 2003. These stock options vest over four years and expire on the
fifth anniversary of the date of grant.

Directors who are not also officers of Mitel Networks do not receive cash
compensation, however they are reimbursed for any out-of-pocket expenses
incurred in connection with attending directors' meetings. In addition, as
previously approved by the shareholders of Mitel Networks, directors of Mitel
Networks are eligible to participate in Mitel Networks' stock option plan.
Options to acquire 114,000 common shares at an exercise price of $2.75 per share
were granted to non-employee directors during Fiscal 2003. These stock options
vest over four years and expire on the fifth anniversary of the date of grant.

Under certain circumstances, section 124 of the Canada Business Corporations Act
permits or requires a corporation to indemnify its directors and officers from
claims, costs, charges and expenses incurred in connection with civil, criminal
or administrative actions to which he or she has been made a party by reason of
being, or having been, a director or officer of such corporation. Mitel
Networks, pursuant to section 124(4) of the Canada Business Corporations Act, is
insured under a policy of insurance that covers up to U.S.$15,000,000. This
policy provides for an annual premium of U.S.$125,750 and contains a deductible
of U.S.$50,000 for claims both in and outside Canada. For claims prior to
December 1, 2002, Mitel Networks also shares a policy with a company controlled
by Dr. Terence H. Matthews for the benefit of the directors and officers of the
group of companies named in the policy in the amount of $10,000,000. Mitel
Networks' portion of the current annual premium related to this policy and
reimbursed to the related company was $69,000. Mitel Networks has received an
endorsement to the policy that contains various deductibles applicable to each
loss for which reimbursement is sought by Mitel Networks and contains a number
of exclusions and limitations to the coverage provided, as a result of which
Mitel Networks may, under certain circumstances, be obligated to indemnify its
directors or officers for certain claims which do not fall within the coverage
provided under the policy.

Employment Contracts

Mitel Networks has written employment contracts with Donald Smith and Paul
Butcher (see Item 10.C for a summary of these employment contracts). In
addition, each employee of Mitel Networks (including members of management)
executes a letter setting forth the employee's position, salary, bonus,
benefits, and customary confidentiality and non-disclosure obligations, as well
as termination and non-compete arrangements, if any.


                                      -66-
<PAGE>

Indebtedness of Directors, Officers and Members of Senior Management

None of the directors or officers of Mitel Networks, and no associate or
affiliate of any of them, is or has been indebted to Mitel Networks at any time
since the beginning of Mitel Networks' last completed fiscal year.

Pension and Retirement Plans

Mitel Networks and its subsidiaries maintain defined contribution pension plans
that cover substantially all employees. Mitel Networks matches the contributions
of participating employees to the defined contribution pension plans on the
basis of the percentages specified in each plan. Mitel Networks also maintains a
defined contribution Supplemental Executive Retirement Plan to provide
supplementary retirement benefits to selected members of Mitel Networks'
executive management team. Amounts contributed by Mitel Networks pursuant to the
foregoing are included as part of the aggregate compensation disclosed above.
There were no material accrued obligations at April 27, 2003 pursuant to these
defined contribution pension plans. As part of a series of cost reduction
initiatives, Mitel Networks has reduced, on a temporary basis, its contributions
to the Canadian pension plan to the 1% minimum contribution level required by
Canadian pension regulations and has reduced its contributions to the U.S.
non-unionized 401(k) retirement plan, until its financial situation is improved.

Mitel Networks' United Kingdom subsidiary also maintains a defined benefit
pension plan. The defined benefit plan provides pension benefits based on length
of service and final average earnings. The defined benefit pension costs accrued
by Mitel Networks are actuarially determined using the projected benefits method
pro-rated on services and management's best estimate of the effect of future
events. The most recent actuarial valuation of the plan was performed as at
August 1, 2000 and has been updated to March 31, 2003. As at April 27, 2003, the
actuarial present value of the accrued pension benefits of $125.8 million
exceeded the fair market value of the net assets available to provide for these
benefits of $68 million, resulting in an unfunded status of the defined benefit
pension plan of $57.8 million, of which $35.8 million was recorded in Mitel
Networks' consolidated balance sheet in accordance with US GAAP. In Fiscal 2003,
the decline in global capital markets and interest rates had a negative impact
on Mitel Networks' defined benefit pension plan assets and obligations. As a
result, Mitel Networks was required to adjust the minimum pension liability,
representing the amount by which the accumulated benefit obligation less the
fair value of the plan assets was greater than the liability previously
recognized in the consolidated balance sheet. The after-tax effect of this
adjustment was to increase the pension liability and increase accumulated
comprehensive loss by $25.4, respectively. Mitel Networks' future contributions
to the pension plan, as determined by an independent actuarial valuation, will
be in compliance with U.K. pension regulations with respect to contributions to,
and funding level of, the pension plan.

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


                                      -67-
<PAGE>

C. Board Practices

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

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

The Audit Committee consists of two directors. The committee members are Peter
Charbonneau and Kirk Mandy. This committee reviews, acts and reports to the
board of directors on various auditing and accounting matters, including the
appointment of Mitel Networks' independent accountants, the performance of the
independent accountants, the sufficiency of Mitel Networks' internal controls
and Mitel Networks' accounting and financial management practices. This
committee is also responsible for developing Mitel Networks' approach to
governance issues and Mitel Networks' response to corporate governance
guidelines of regulatory authorities.

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

Mitel Networks has established a Disclosure Committee in accordance with the
recently enacted Sarbanes-Oxley legislation and with SEC regulations. The
Disclosure Committee has been given a mandate in accordance with law to oversee
Mitel Networks' disclosure controls and procedures and to report its findings
and activities to the CEO and CFO for their periodic evaluation of the
effectiveness of such. The Disclosure Committee is a standing committee of
senior management appointed by the CEO to ensure compliance with all relevant
disclosure obligations. Individual members serve at the pleasure of the CEO. The
Disclosure Committee also has a subcommittee charged with the responsibility of
determining the applicability of filing a Form 6-K with the SEC upon the
occurrence of certain events.


                                      -68-
<PAGE>

D. Employees

Mitel Networks had 2,936, 2,363 and 2,015 employees at April 27, 2001, April 28,
2002 and April 27, 2003, respectively. As at July 18, 2003, there were
approximately 1,966 employees of whom 976 were in Canada, 339 were in the U.S.
and 651 were in the U.K. and other countries.

Since the beginning of the fiscal year ended April 27, 2003, Mitel Networks
implemented a restructuring program which resulted in total workforce reductions
of 50 employees in North America.

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

Mitel Networks' compensation programs include opportunities for regular annual
salary reviews, bonus plans and stock options. For Fiscal 2004, in step with
local markets, compensation programs are on hold. An hours reduction program was
implemented in June 2002 on a temporary basis to bridge market and economic
shortfalls. In October 2002, Mitel Networks extended its cost containment
measures by implementing a program of mandatory unpaid days off through the end
of January 2003, at which point the temporary ten percent hour reduction
program, first instituted in June 2002, was resumed. The extension of the hours
reduction program is reviewed on a quarterly basis, and is expected to continue
until Mitel Networks' financial situation has improved

Mitel Networks has a long-standing positive working relationship with the
International Brotherhood of Electrical Workers with respect to approximately
125 U.S. field technicians who perform installation, maintenance and systems
changes for Mitel Networks. The current contract has been extended for an
additional year and now expires in the Fall of 2004. In consideration of the
extension, which the parties agreed upon instead of renegotiating a new
three-year contract, the represented employees will receive a continuation bonus
payable in three installments over the next year. The purpose of the bonus is to
reward the represented employees for their continued cooperation pertaining to
Mitel Networks' hours reduction program. The represented employees will return
to a normal forty hour work week as soon as Mitel Networks determines it is
justified in its reasonable discretion. The bonus, in the aggregate, amounts to
approximately 1.5% of the average annual base wage for Mitel Networks'
represented employees.

E. Share Ownership

Donald Smith, Mitel Networks' Chief Executive Officer, currently holds options
to purchase 5,000,000 common shares of Mitel Networks. Of this amount, options
to purchase 2,000,000 common shares were granted by Mitel Networks at an
exercise price of $3.50 per share in accordance with Mitel Networks' stock
option plan. The remaining 3,000,000 options, which also have an exercise price
of $3.50 per share, are options to purchase outstanding shares of Mitel Networks
owned by Mitel Systems, a company indirectly wholly-owned by Dr. Terence H.
Matthews, which were granted to Mr. Smith by Dr. Matthews on March 1, 2002. Upon
the exercise of these latter options, the proceeds of the exercise would be paid
directly to Mitel


                                      -69-
<PAGE>

Systems. The 3,000,000 options granted by Dr. Matthews on the outstanding shares
of Mitel Networks owned by Mitel Systems were intended to provide an additional
incentive to Mr. Smith in connection with his employment by Mitel Networks. Had
such options been issued by Mitel Networks, the aggregate option grant to Mr.
Smith would have been an excessive drain on the limited pool of shares set aside
by Mitel Networks under its stock option plan. The options granted to Mr. Smith
on the common shares currently held by Mitel Systems vest in 25% increments on
the first, second, third and fourth anniversaries of Mr. Smith's employment
start date, April 2, 2001, and expire on the fifth anniversary of the employment
start date. As of July 18, 2003, 2,500,000 of the aggregate options held by Mr.
Smith had vested, but none had been exercised. Except for Dr. Matthews, whose
share ownership information is disclosed in Subsection 7.A, there are no other
directors or officers of Mitel Networks who beneficially own 1% or more of Mitel
Networks' common shares.

Stock Option Plan

The shareholders of Mitel Networks approved the Mitel Networks Corporation
Employee Stock Option Plan, dated March 6, 2001, amended as of May 8, 2001, and
further amended as of August 3, 2001, June 18, 2002, September 6, 2002 and June
13, 2003. All (i) non-employee directors of Mitel Networks, who are referred to
in this annual report as Director Participants, and (ii) employees or officers
of Mitel Networks, any subsidiary and any affiliate, directors (other than
Director Participants) of any subsidiary and any affiliate and consultants or
any consultant company on a worldwide basis, who are referred to in this annual
report as Participants, are eligible to participate in the stock option plan.
There are no other service requirements or prerequisites to participation in the
stock option plan. The stock option plan defines a "subsidiary" as any
corporation in which Mitel Networks, directly or through one or more
corporations which are themselves subsidiaries of Mitel Networks, owns 50% or
more of the shares eligible to vote at meetings of the company's shareholders.
For the purposes of the stock option plan, a company is an "affiliate" of
another company if one of them is a subsidiary of the other or if both are
subsidiaries of the same company, or if each of them is controlled by the same
person or company. Accordingly, provided that Dr. Terence Matthews continues to
control Mitel Networks, employees, officers and directors of other companies
controlled by Dr. Matthews will be eligible to participate in the Mitel Networks
stock option plan.

Mitel Networks has reserved 25 million common shares for issuance under the
stock option plan. As of July 18, 2003, there were outstanding options to
purchase 15,596,976 common shares. Therefore, under the terms of the stock
option plan, Mitel Networks is permitted to grant options to purchase an
additional 9,403,024 common shares. The following table sets forth aggregate
options held by senior management and directors at July 18, 2003.


                                      -70-
<PAGE>

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

March 6, 2001                $ 3.50              4,795,800           2,416,650
June 15, 2001                $ 4.00                 15,000               7,500
December 13, 2001            $ 4.00                 75,000              18,750
February 25, 2002            $ 4.00                150,000              37,500
April 26, 2002               $ 4.00                 25,000               6,250
June 18, 2002                $ 2.75                 25,000               6,250
July 12, 2002                $ 2.75                114,000              28,500
June 13, 2003                $ 2.75                225,000                  --
July 18, 2003                $ 2.75                118,000                  --
--------------------------------------------------------------------------------
Total                                            5,542,800           2,521,400
--------------------------------------------------------------------------------

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

The Compensation Committee administers the stock option plan. The Compensation
Committee has the sole and absolute discretion to determine which Participants
are granted options pursuant to the stock option plan. Director Participants are
granted a specified number of options by Mitel Networks' board of directors upon
the occurrence of certain specified events. Director Participants are granted
options to purchase (i) 10,000 common shares on the date of each annual meeting
of the shareholders of Mitel Networks at which the Director Participant is
elected to serve as a member of Mitel Networks' board of directors, (ii) 15,000
common shares on the date of each annual meeting of the shareholders of Mitel
Networks at which the Director Participant is elected to serve as the chair of
Mitel Networks' board of directors, (iii) 2,000 common shares on the date of
each annual meeting of the shareholders of Mitel Networks following which the
Director Participant is appointed as a member of a Standing Committee (as
defined below) by Mitel Networks' board of directors and (iv) 4,000 common
shares on the date of each annual meeting of the shareholders of Mitel Networks
following which the Director Participant is appointed as chair of a Standing
Committee by Mitel Networks' board of directors. For purposes of the stock
option plan, "Standing Committee" means any sub-committee of Mitel Networks'
board of directors established by Mitel Networks' board of directors from time
to time, and includes the Audit Committee and the Compensation Committee.

The number of options to be granted to the Director Participants, as well as the
number of common shares subject to each outstanding option and the exercise
price for such common shares, shall be adjusted for any subdivision, redivision,
consolidation or any similar change affecting the common shares. No
consideration is paid or payable by a grantee in connection


                                      -71-
<PAGE>

with the initial grant of any option under the stock option plan, although, as
described below, payment of the exercise price will be required to exercise any
such option and acquire the related common shares.

Prior to an initial public offering (as defined in the stock option plan) by
Mitel Networks, if the common shares of the company are not listed on a
securities exchange, the exercise price per common share purchasable under an
option shall be determined by the board of directors of the company (but in no
event less than the fair market value of a common share on the Date of Grant).
Since there has not been an initial public offering and the common shares are
not listed on a securities exchange, the exercise price of options granted at
the present time may not be less than the fair market value of a common share on
the Date of Grant as determined by the board of directors of the company.

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

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

The stock option plan and each option granted thereunder is subject to the
requirement that, if at any time the Compensation Committee determines that the
listing, registration or qualification of the common shares subject to such
option upon any securities exchange or under any provincial, state, federal or
other applicable law, or the consent or approval of any governmental body,
securities exchange, or the holders of the common shares generally, is necessary
or desirable, as a condition of, or in connection with, the granting of such
option or the issuance or purchase of common shares thereunder, no such option
may be granted or exercised in whole or in part unless such listing,
registration, qualification, consent or approval shall have been effected or
obtained free of any conditions not acceptable to the Compensation Committee.

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


                                      -72-
<PAGE>

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

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

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

Unless otherwise determined by the Compensation Committee or Mitel Networks'
board of directors, any options outstanding immediately prior to the occurrence
of a change in control (defined as (a) the acquisition by any person other than
Mitel Networks or any of its affiliates of beneficial ownership of securities of
Mitel Networks representing 20% or more of the combined voting power of Mitel
Networks' then outstanding securities; or (b) the occurrence of a transaction
requiring approval of Mitel Networks' shareholders involving the acquisition of
Mitel Networks by an entity through purchase of assets, by amalgamation or
otherwise), but which are not then exercisable, shall become fully exercisable
upon the occurrence of a change in control. Unless otherwise determined by the
Compensation Committee or Mitel Networks' board of directors at or after the
Date of Grant, all such outstanding options shall be cashed out at the change in
control price (defined as the highest price per common share paid in any
transaction reported on a securities exchange or paid or offered in any bona
fide transaction related to a potential or actual change in control of Mitel
Networks at any time during the five trading days (or if the common shares are
not listed on any securities exchange and are not quoted for trading on a United
States automated quotation system, during the three-month period) preceding the
change in control, as determined by the Compensation Committee or Mitel
Networks' board of directors), less the applicable exercise price for such
options, as of the date such change in control is determined to have occurred,
or as of such other date as the Compensation Committee or Mitel Networks' board
of directors may determine prior to the change in control. Outstanding options
may only be cashed out, as described above, if the change in control price is
higher than the exercise price for such outstanding options. Further, the
Compensation Committee or Mitel Networks' board of directors shall have the
right to provide for the conversion or exchange of any outstanding options into
or for options, rights or other securities in any entity participating in or
resulting from the change in control. The Compensation Committee or Mitel
Networks' board of directors shall also have the right to determine, in its
discretion, that options outstanding, but which are not then exercisable, shall
not become exercisable and shall be canceled in the event of a change in
control.

An option holder will not have any rights as a shareholder with respect to
common shares to be received upon exercise of an option until full payment of
the exercise price for such options has been made to Mitel Networks and the
common shares have been issued to the option holder (as


                                      -73-
<PAGE>

evidenced by the appropriate entry on the books of Mitel Networks or of a duly
authorized transfer agent of Mitel Networks).

Employee Stock Purchase Plan

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

Item 7.  Major Shareholders and Related Party Transactions

A. Major Shareholders

Mitel Networks is indirectly controlled by Dr. Terence H. Matthews who owns 82%
of the outstanding common shares, through Mitel Systems (90 million common
shares or approximately 78%) and Mitel Knowledge (4,555,169 common shares or
approximately 4%).

The following table sets forth certain information as of July 18, 2003
concerning the beneficial ownership of common shares of Mitel Networks as to
each person known to the management of Mitel Networks to be the beneficial owner
of more than 5% of the outstanding shares of Mitel Networks:


                                                Beneficial         Percentage of
Title of Class  Identity of Person or Group    Amount Owned          Class (3)
--------------  ---------------------------    ------------          ---------
Common Shares   Mitel Systems Corporation      90,000,000 (2)           78%
Common Shares   Dr. Terence H. Matthews        94,555,169 (1) (2)       82%
Common Shares   Zarlink Semiconductor Inc.     10,000,000               9%
----------
(1)  Based on indirect ownership of, or control or direction over, the shares of
     Mitel Systems and includes 4,555,169 common shares issued by Mitel Networks
     to Mitel Knowledge on November 1, 2002 on the exercise of the right to
     purchase the intellectual property owned by Mitel Knowledge pursuant to the
     research and development agreement dated March 27, 2001 (see Item 4.B under
     "Intellectual Property" for details).

(2)  Excludes the impact of vested options granted by Dr. Terence H. Matthews to
     Donald Smith, Paul Butcher and Peter Charbonneau to acquire up to 2,450,000
     common shares in the aggregate from the holdings of Mitel Systems.

(3)  Calculated based on 115,411,586 common shares outstanding at July 18, 2003.


                                      -74-
<PAGE>

At July 18, 2003, Dr. Terence H. Matthews also held 60,000 options to purchase
common shares of Mitel Networks, of which 7,500 had vested. The first 30,000 of
such options have an exercise price of $4.00 per share and expire in July 2007
and the remaining 30,000 options have an exercise price of $2.75 per share and
expire in July 2008.

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

United States Shareholders

On July 18, 2003, Mitel Networks had 446 registered shareholders with addresses
in the United States holding approximately 1,570,078 common shares or
approximately 1.4% of the total number of issued and outstanding shares. United
States residents also hold options to purchase 1,566,037 common shares.
Residents of the United States may beneficially own common shares registered in
the names of non-residents of the United States.

B. Related Party Transactions

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

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

Research and Development Agreements

With effect from February 16, 2001 until November 1, 2002, Mitel Networks was
party to a research and development agreement with Mitel Knowledge, under which
Mitel Networks received funding to perform research and development services.
Mitel Knowledge owned the


                                      -75-
<PAGE>

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

From February 16, 2001 through November 1, 2002, Mitel Networks received $17.9
million in research and development funding, net of royalty expenses of $1.4
million. As at April 27, 2003, there was no balance outstanding pursuant to this
agreement (April 27, 2001 - balance receivable of $2.5 million; April 28, 2002 -
$15.5 million).

Effective November 1, 2002, Mitel Networks exercised the call right provided for
in the research and development agreement and acquired the intellectual property
from Mitel Knowledge at a price of approximately $12.5 million, which was
satisfied by the issuance of 4,555,169 common shares from treasury based upon an
assigned value of $5.25 per share in accordance with the formula stated in the
research and development agreement. The shares issued had a fair value of $2.75
per share on the date of issuance based on an independent valuation previously
obtained. As a result, the research and development agreement dated February 16,
2001 and the research and development cost-sharing agreement dated March 27,
2001 have been terminated. This transaction resulted in the settlement of the
liability to issue common shares amounting to $22.9 million on November 1, 2002
(April 28, 2002 - $15.6 million) and classified in the due to related parties
balance on Mitel Networks' Consolidated Balance Sheet , an increase of $0.1
million to the carrying value of intangible assets and an increase of $23
million to the carrying value of common shares.

Outsourcing of Manufacturing and Repair Operations

On August 31, 2001, in an effort to rationalize its operations and focus on core
competencies, Mitel Networks sold its manufacturing and repair operations,
comprising plant, equipment, workforce and certain liabilities to BreconRidge, a
company in which Dr. Terence H. Matthews holds a 31.5% interest (fully diluted),
for total net consideration of $7.8 million in the form of long-term promissory
notes receivable of $8.4 million and promissory notes payable of $0.6 million.
At the time of the transaction, BreconRidge was controlled by Dr. Terence H.
Matthews. The total net consideration approximated the fair value of the
disposed manufacturing tangible net assets. The long-term promissory notes
receivable were secured by a first charge on the manufacturing assets
transferred and bore interest at LIBOR rate plus 1.5 percent. The promissory
notes payable were unsecured, bore interest at LIBOR rate plus 1.5 percent and
were partially set off against the promissory notes receivable on August 31,
2002


                                      -76-
<PAGE>

pursuant to an agreement with BreconRidge. The transaction resulted in a loss on
disposal of $2.4 million that was recorded in operating expenses. The promissory
notes receivable, net of the promissory notes payable, were paid in full on
February 27, 2003.

In connection with the disposal of the manufacturing operations, Mitel Networks
entered into a supply agreement dated August 31, 2001 whereby BreconRidge agreed
to provide certain products and services under terms and conditions reflecting
prevailing market conditions at the time the agreement was entered into.
Pursuant to an amendment dated February 27, 2003, the initial term of the
agreement was extended to December 31, 2007, and will be automatically renewed
thereafter for additional consecutive one-year periods. Under the terms of the
supply agreement, BreconRidge is required to purchase Mitel Networks' raw
material inventory, before turning to third party suppliers for raw material
procurement. During Fiscal 2003, Mitel Networks purchased $178.4 million (2002 -
$127.4 million; 2001 - $nil) of products and services and sold $10.8 million
(2002 - $31.2 million; 2001 - $nil) of raw material inventory under this
agreement. As at April 27, 2003, balances payable pursuant to this agreement
amounted to $12.3 million and balances receivable pursuant to this agreement
amounted to $2 million.

Pursuant to the terms of the supply agreement, Mitel Networks is required to
purchase from BreconRidge certain tools used in the manufacturing process. These
manufacturing tools are capitalized by Mitel Networks as part of fixed assets
and are depreciated over their estimated useful lives. During Fiscal 2003,
manufacturing tools purchased from BreconRidge amounted to $2.0 million (2002 -
$0.2 million; 2001 - $nil).

On August 31, 2001, Mitel Networks also entered into service agreements with
BreconRidge to provide facilities management services for the period covering
the term of the premise lease agreements (described below), as well as human
resource and information systems support services. Amounts charged to
BreconRidge were equal to, and recorded as a reduction of, the costs incurred to
provide the related services in the consolidated statement of operations. During
Fiscal 2003, Mitel Networks provided services valued at $7.3 million (2002 -
$9.3 million; 2001 - $nil) under these agreements. As at April 27, 2003,
balances receivable pursuant to these agreements were not material.

Leased Properties

In March 2001, Mitel Networks entered into a lease agreement for its
Ottawa-based headquarters facilities of 512,390 square feet with Mitel Research
Park Corporation, a company controlled by Dr. Terence H. Matthews and the
acquirer of the real estate previously owned by Zarlink, under terms and
conditions reflecting prevailing market conditions at the time the lease was
entered into. The lease agreement is for 10 years expiring in March 2011.

On August 31, 2001 and in connection with the outsourcing of its manufacturing
and repair operations, Mitel Networks entered into sublease agreements with
BreconRidge whereby BreconRidge leases certain office and manufacturing
facilities in Ottawa and in the United Kingdom totaling 256,967 square feet
under terms and conditions reflecting prevailing market conditions at the time
the leases were entered into. The Ottawa sublease agreement is for a term of
five years expiring in August 31, 2006 and the United Kingdom lease agreement is
for a term


                                      -77-
<PAGE>

of fifteen years expiring in August 2016 with cancellation options on the fifth
and tenth years available to Mitel Networks and BreconRidge.

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

During Fiscal 2003, Mitel Networks incurred $9.2 million (2002 - $9.6 million;
2001 - $1 million) of rent expense in connection with the leased Ottawa
headquarters facilities and has earned rental income of $5.7 million (2002 -
$4.1 million) in connection with the BreconRidge sublease agreement and earned
rental income of $1.8 million (2002 - $1.7 million; 2001 - $0.2 million) in
connection with the Zarlink sublease agreement.

Strategic Alliance Agreement with March Networks

In September 2001, Mitel Networks entered into a strategic alliance agreement
and a global distribution agreement with March Networks, a company controlled by
Dr. Terence H. Matthews, to broaden its product portfolio and its distribution
channel. Under the terms of the agreement, the parties have agreed to cooperate
in the performance of joint development activities and each party bears its own
costs arising in connection with the performance of its obligations. Both
parties share common costs incurred in the performance of joint activities.
During Fiscal 2003, Mitel Networks purchased $3.8 million (2002 - $2.3 million;
2001 - $nil) in products and services from March Networks and had a balance
payable of $0.2 million (April 28,


                                      -78-
<PAGE>

2002 - $0.4 million) recorded in the due to related parties pursuant to this
agreement at April 27, 2003.

Financing of Operations

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

On December 21, 2001, Mitel Networks borrowed $5 million from Mitel Knowledge, a
company controlled by Dr. Terence H. Matthews, in the form of an unsecured
demand promissory note bearing interest at prime plus 0.5%. Mitel Networks
repaid the entire original amount plus interest during Fiscal 2003.

Mitel Networks also borrowed an aggregate of $31 million and U.S.$7.5 million
from Wesley Clover Corporation, a company controlled by Dr. Terence H. Matthews,
in a series of transactions set forth below. These unsecured demand promissory
notes were still outstanding at July 18, 2003 and subordinated to bank debt.

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

     $6 million             CAD           April 22, 2002             Prime
     $4 million             CAD            May 10, 2002              Prime
     $5 million             CAD            June 7, 2002              Prime
     $5 million             CAD            June 21, 2002             Prime
     $1 million             CAD            July 25, 2002             Prime
     $10 million            CAD          February 26, 2003           Prime
   ---------------
     $31 million            CAD
   ===============

    $7.5 million            USD          February 27, 2003           Prime
   ===============

In connection with the U.S.$7.5 million loan borrowed on February 27, 2003 and a
portion of the $10 million loan borrowed on February 26, 2003, Mitel Networks
entered into an agreement with Wesley Clover and an unrelated third party (the
"Investor") that owns an equity interest in another company in which Dr. Terence
H. Matthews has a significant equity interest. Pursuant to the agreement, the
Investor has the option to (i) exchange all or a portion of its equity interest
in the other company for a corresponding portion of Mitel Networks' demand loans
payable to Wesley Clover, and (ii) convert the amount of the demand loans
payable into securities of Mitel Networks offered in the first offering
subsequent to February 27, 2003, other than an offering to employees or existing
shareholders, at a conversion price per share no greater than $1.50, which was
the fair value of Mitel Networks' common shares on the date of the agreement.
Unless terminated upon the consent of the parties, the agreement will terminate
upon the earlier of (i) the completion of the exchange, and (ii) the closing of
the offering.


                                      -79-
<PAGE>

Other Transactions

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

In the normal course of business, Mitel Networks enters into purchase and sale
transactions with companies related to Dr. Terence H. Matthews under terms
reflecting prevailing market conditions. Mitel Networks also purchases
semiconductor components from Zarlink, the holder of approximately 9% of its
common shares issued and outstanding (see Item 4.D). These transactions were
immaterial during the period from February 16, 2001 to April 27, 2003.

In August 2002, certain of Mitel Networks' directors and members of senior
management purchased convertible debentures in an aggregate amount of $0.4
million.

By way of private letter agreements between Mr. Paul Butcher, Chief Operating
Officer of Mitel Networks, Mr. Donald Smith, Chief Executive Officer of Mitel
Networks, and Dr. Terence H. Matthews dated March 1, 2002, Dr. Matthews granted
to Mr. Butcher and Mr. Smith options to purchase common shares of Mitel Networks
owned by Mitel Systems, a company indirectly wholly owned by Dr. Matthews.
Proceeds of the exercise of any such options will be payable by Mr. Smith and
Mr. Butcher to Mitel Systems. Such options vest in 25% increments on the first,
second, third and fourth anniversaries of Mr. Smith's start date (April 2, 2001)
and Mr. Butcher's start date (February 16, 2001). A similar, oral agreement was
entered into between Mr. Peter Charbonneau and Dr. Matthews on February 16,
2001. As of July 18, 2003, none of these options has been exercised.

C. Interests of Experts and Counsel

Not applicable.

Item 8.  Financial Information

A. Consolidated Statements and Other Financial Information

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

Legal Proceedings

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


                                      -80-
<PAGE>

Dividend Policy

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

B. Significant Changes

No significant change has occurred since the date of the audited consolidated
financial statements included in Item 18.

Item 9. The Offer and Listing

A. Offer and Listing Details

Since the formation of Mitel Networks on January 12, 2001, all common shares
that have been offered or sold have been priced at $4.00 per share, other than
5,362 common shares acquired upon the exercise of options having an exercise
price of $3.50 per share and 4,555,169 common shares issued to Mitel Knowledge
on November 1, 2002 at a price of $2.75 per share in consideration for the
purchase of intellectual property.

B. Plan of distribution.

Not applicable.

C. Markets.

The common shares of Mitel Networks are not listed for trading on any United
States, Canadian or other stock exchange, there are currently no plans to list
the common shares on any stock exchange, and there is no guarantee that any such
listing will be completed in the future. There is no market through which Mitel
Networks' common shares may be sold or resold. The common shares have not been
registered under the United States Securities Act of 1933, as amended, or any
state securities laws, the securities laws of Canada or any province thereof, or
the securities laws of any other country or governmental subdivision thereof.
Therefore, there are significant restrictions on the resale of Mitel Networks'
common shares.

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

D. Selling shareholders.

Not applicable.


                                      -81-
<PAGE>

E. Dilution.

Not applicable.

F. Expenses of the issue.

Not applicable.

Item 10. Additional Information

A. Share Capital

Not applicable.

B. Memorandum and Articles of Incorporation

The information required by this Item is incorporated by reference to Mitel
Networks' Registrations Statement on Form 20-F (Registration No.: 0-49984).

C. Material Contracts

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

Shareholders Agreements:

a)  Amended and Restated Shareholders' Agreement

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


                                      -82-
<PAGE>

b)  Power Technology Investment Corporation Subscription Agreement

Under a Subscription Agreement between Mitel Networks and Power Technology
Investment Corporation, dated August 31, 2001, Power Technology Investment
Corporation subscribed to and purchased 4 million common shares of Mitel
Networks for total cash consideration of $16 million. Under the terms of the
subscription agreement, within thirty days following the occurrence of certain
triggering events, including (i) Mitel Networks' failure to complete an initial
public offering on or before the fifth anniversary of the subscription
agreement; (ii) a change in the status of Dr. Terence H. Matthews as an officer
or director of Mitel Networks prior to an initial public offering; (iii) the
disposal by Dr. Terence H. Matthews of more than 25% of his investment in Mitel
Networks to an unrelated party prior to an initial public offering, other than
pursuant to an exchange of securities in connection with a merger or other
arrangement pursuant to which he continues to be an officer or director; or (iv)
the disposal by Dr. Terence H. Matthews of any of his common shares held in
Mitel Networks at a price below $4.00 per share prior to an initial public
offering, other than to an affiliate or pursuant to an exchange of securities in
connection with a merger or other arrangement pursuant to which he continues to
be an officer or director, Power Technology Investment Corporation has the right
to require Mitel Networks to redeem all or part of its common shares at a price
of $4.00 per share plus interest accrued at an annual rate of 7% commencing on
August 31, 2001 and compounded semi-annually.

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

Banking Agreements:

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

Mitel Networks entered into a Credit Agreement dated May 11, 2001 with the Bank
of Montreal under which Mitel Networks obtained a revolving credit facility in
an aggregate maximum principal amount of $30 million. The parties agreed to
increase the credit facility to $60 million under the terms of an Amended and
Restated Loan Agreement dated January 21, 2002, and in a subsequent Amended and
Restated Loan Agreement dated February 27, 2003, to reduce the credit facility
to $30 million. The Restated Loan Agreement currently provides Mitel Networks
with a 364-day revolving credit facility of $30 million (or the equivalent
amount in U.S. dollars)


                                      -83-
<PAGE>

that is subject to a borrowing base. The facility bears interest at the prime
rate or U.S. base rate plus 2.5% or LIBOR or Bankers' Acceptance rate plus 3.5%
and is secured by a general assignment of substantially all Mitel Networks'
accounts receivable and a general security interest in the remaining assets of
Mitel Networks and its two U.S. wholly-owned subsidiaries, which are guarantors
thereunder. Upon receipt of net proceeds of at least $20 million from an equity
offering, interest rates on the facility will decrease to prime rate or U.S.
base rate plus 1.5% or LIBOR or Bankers' Acceptance rate plus 2.5%. The credit
facility matures on February 26, 2004 and contains certain restrictions and
financial covenants.

b) Loan Agreement with Export Development Canada ("EDC")

Mitel Networks Limited, a wholly-owned subsidiary of Mitel Networks, entered
into a loan agreement dated March 4, 2003 with EDC in the amount of (pound)4.1
million that is subject to a borrowing base. The facility bears interest at
LIBOR plus 3.5%, which will decrease to LIBOR plus 2.5% upon receipt of net
proceeds of at least $20 million from an equity offering. The principal amount
of the loan is payable on March 4, 2004 and interest is payable quarterly
starting in June 2003. The facility is secured by a general assignment of Mitel
Networks' accounts receivable and a general security interest in the remaining
assets of Mitel Networks and its two U.S. wholly-owned subsidiaries, each of
which is a guarantor. The loan facility contains certain restrictions and
financial covenants.

c) Chattel Mortgage Loan Facility with Barclays Bank PLC

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

d) Chattel Mortgage Loan Facility with Barclays Bank PLC

On April 25, 2003, Mitel Networks Limited entered into a loan with Barclays Bank
PLC in the amount of (pound)0.8 million, secured by certain United Kingdom
equipment. The mortgage bears interest at 6.3%, is payable in monthly
installments and is due in April 2006.

e) Real Property Loan Facility with Barclays Bank PLC
Pursuant to a facility letter dated December 13, 2001 and a legal charge dated
January 24, 2002, Mitel Networks Limited entered into a real property loan
facility with Barclays Bank PLC in the amount of (pound)7.5 million, which is
secured by the real property located in the Mitel Business Park, Portskewett,
Monmouthshire. The loan bears interest at 7.36% until December 2006, at which
time the borrower has an option to continue using the fixed rate or select a
variable rate at LIBOR plus 1.75% thereafter, and is payable in quarterly
installments of (pound)0.3 million with the balance due in December 2011.

f) Business Overdraft and Ancillary Facilities with Barclays Bank PLC

On June 24, 2002, Mitel Networks Limited and Barclays Bank PLC entered into an
overdraft facility of (pound)1 million and ancillary facilities totaling
(pound)2.3 million, comprised of a bonds, guarantees and indemnities facility of
(pound)2 million and a documentary credit facility of (pound)0.3


                                      -84-
<PAGE>

million. The overdraft facility bears interest at the Bank's base rate plus
1.5%. These facilities are guaranteed by Mitel Networks. In a facility letter
dated August 30, 2002, Barclays Bank PLC reconfirmed the above amounts and terms
of the facilities. These facilities are to support the working capital
requirements of Mitel Networks Limited, are repayable on demand and are
scheduled for review on August 31, 2003.

Agreements with BreconRidge:

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

The following table sets forth promissory notes payable to and promissory notes
receivable from BreconRidge in connection with the sale of the manufacturing net
assets on August 31, 2001. All of these notes were paid in full as of February
27, 2003:

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

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

The promissory notes payable and the promissory notes receivable originally bore
interest at the Bank of Canada prime rate plus 0.5%. On May 10, 2002, the
interest rate of the promissory notes was changed to LIBOR as set on August 31,
2001 plus 1.5%, compounded semi-annually.

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

b) Supply Agreement with BreconRidge

On August 31, 2001 Mitel Networks and Mitel Networks, Inc. and Mitel Networks
Limited, two of its wholly-owned subsidiaries, entered into a supply agreement
with BreconRidge under which BreconRidge supplies certain products and services
to Mitel Networks. Pursuant to an amendment dated February 27, 2003, the initial
term of the agreement was extended to December 31, 2007, and will be
automatically renewed thereafter for additional one-year periods unless
terminated. Either party has the right to terminate the agreement by giving
prior written notice of one hundred and eighty (180) days at any time during a
renewal term, or to give notice of its intent not to renew no less than one
hundred and eighty (180) days prior to the expiration of a renewal term. Subject
to certain exceptions, the supply agreement is exclusive during the initial term
with respect to current products and new product introductions. Under the terms
of


                                      -85-
<PAGE>

the supply agreement, BreconRidge manufactures the majority of Mitel Networks'
products and provides repair and other related services.

The supply agreement with BreconRidge does not contain any minimum purchase
requirements. Under the terms of the supply agreement, Mitel Networks is not
obligated to purchase products from BreconRidge in any specific quantity, unless
and until a binding purchase order has been issued. Mitel Networks may be
obligated to purchase certain excess inventory levels from BreconRidge that
could result from Mitel Networks' actual sales varying from forecast.
Furthermore, BreconRidge is required to purchase Mitel Networks' raw material
inventory, before turning to third party suppliers for raw material procurement.
BreconRidge has committed to certain cost reductions through August 1, 2004 on
purchases of traditional communications platform products.

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

c)  Sublease Agreement between Mitel Networks and BreconRidge

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

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

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

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

e) Asset Sale Agreement between Mitel Networks and BreconRidge

Mitel Networks entered into an Asset Sale Agreement with BreconRidge dated
August 31, 2001 under which Mitel Networks sold its Canadian manufacturing
assets located in Ottawa, Canada, comprising office, testing and manufacturing
equipment, for total consideration of U.S.$2,628,449 in the form of a promissory
note receivable. The promissory note was paid in full on February 27, 2003.


                                      -86-
<PAGE>

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

Mitel Networks Limited, a wholly-owned subsidiary of Mitel Networks, entered
into an Asset Sale Agreement with the U.K. subsidiary of BreconRidge dated
August 31, 2001 under which Mitel Networks Limited sold its manufacturing assets
located in Portskewett, Monmouthshire, U.K., comprising office, testing and
manufacturing equipment, for total consideration of U.S.$2,312,853 in the form
of a promissory note receivable. The promissory note was paid in full on
February 27, 2003.

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

Mitel Networks, Inc., a wholly-owned subsidiary of Mitel Networks, entered into
an Asset Sale Agreement with the U.S. subsidiary of BreconRidge dated August 31,
2001 under which MNI sold to its manufacturing assets located in Ogdensburg, New
York, for total consideration of U.S. $511,637 in the form of a promissory note
receivable. The promissory note was paid in full on February 27, 2003.

Agreements with Mitel Knowledge:

a)  Demand Promissory Note with Mitel Knowledge

On December 21, 2002, Mitel Networks borrowed $5 million from Mitel Knowledge in
the form of a demand promissory note bearing interest at prime plus 0.5% to
finance its operations and working capital requirements. Mitel Networks repaid
the entire original principal amount plus interest during Fiscal 2003.

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

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

The research and development agreement provided for a call right pursuant to
which Mitel Networks had the right to require Mitel Knowledge to sell all of its
rights, title, interest in, and benefits from, the intellectual property,
including improvements and new technology, to Mitel Networks upon the occurrence
of the earliest of the following events: (a) the third anniversary of the
agreement, (b) Mitel Networks passing a resolution to proceed with an initial
public offering of its shares in Ontario or any other jurisdiction which results
in the listing of its shares on a


                                      -87-
<PAGE>

recognized stock exchange, or (c) the termination of the agreement on its terms.
The agreement provided that the purchase price for the intellectual property
would be paid by the issuance of common shares from Mitel Networks' treasury
with the number of shares to be determined in accordance with a formula
described in the research and development agreement.

The parties terminated the research and development agreement as of November 1,
2002, and Mitel Networks exercised its right to purchase the intellectual
property from Mitel Knowledge.

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

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

In conjunction with the termination of the research and development agreement
between Mitel Networks and Mitel Knowledge on November 1, 2002, the research and
development cost-sharing agreement between Mitel Knowledge and Mitel Networks
Overseas Limited was terminated.

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

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

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

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

Prior to February 16, 2001, Zarlink and Mitel Networks, Inc. (at the time a
wholly-owned subsidiary of Zarlink and now a wholly-owned subsidiary of Mitel
Networks) entered into the Cost Sharing Restructuring Agreement pursuant to
which Mitel Networks, Inc. granted to Zarlink an exclusive license to the U.S.
intellectual property that existed at April 1, 2000. On February 16, 2001, as
part of the acquisition transactions, the Cost Sharing Restructuring


                                      -88-
<PAGE>

Agreement was assigned to Mitel Networks. Effective March 27, 2001, and in
connection with the Intellectual Property License Agreement described above,
Mitel Networks, Mitel Knowledge and Mitel Networks Overseas Limited entered into
the Assignment and Assumption Agreement pursuant to which Mitel Networks
transferred to Mitel Knowledge and Mitel Knowledge transferred to Mitel Networks
Overseas Limited all of Mitel Networks' rights, obligations and interest in the
Cost Sharing Restructuring Agreement.

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

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

g) Termination Agreement between Mitel Knowledge and Mitel Networks

Effective November 1, 2002, Mitel Knowledge and Mitel Networks entered into a
Termination Agreement pursuant to which the parties agreed to terminate the
research and development agreement described above.

h) Purchase and Sale Agreement between Mitel Knowledge Corporation and Mitel
Networks Corporation

Effective November 1, 2002, Mitel Knowledge and Mitel Networks entered into the
Purchase and Sale Agreement, which provided for the allocation of the $12.5
million purchase price for the intellectual property acquired by Mitel Networks
from Mitel Knowledge.

i) Termination Agreement between Mitel Knowledge and Mitel Networks Overseas
Limited

Effective November 1, 2002, in conjunction with the termination of the research
and development agreement between Mitel Knowledge and Mitel Networks, Mitel
Knowledge and Mitel Networks Overseas Limited agreed to terminate the research
and development cost-sharing agreement.

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

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

The following table sets forth demand promissory notes outstanding at July 18,
2003, issued to finance Mitel Networks' operations and working capital
requirements. These notes are subordinated to bank debt.


                                      -89-
<PAGE>

<TABLE>
<CAPTION>

                               Principal     Currency    Date of issuance    Interest rate
------------------------------------------------------------------------------------------
<S>                            <C>             <C>        <C>                    <C>
Wesley Clover Corporation      $6 million      CAD        April 22, 2002         Prime
Wesley Clover Corporation      $4 million      CAD         May 10, 2002          Prime
Wesley Clover Corporation      $5 million      CAD         June 7, 2002          Prime
Wesley Clover Corporation      $5 million      CAD        June 21, 2002          Prime
Wesley Clover Corporation      $1 million      CAD        July 25, 2002          Prime
Wesley Clover Corporation     $10 million      CAD      February 26, 2003        Prime
Wesley Clover Corporation     $7.5 million     USD      February 27, 2003        Prime
</TABLE>

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

On March 27, 2001, Mitel Networks and Mitel Research Park Corporation entered
into a lease agreement pursuant to which Mitel Networks leases its headquarters
facilities located in Ottawa, Ontario totaling 512,390 square feet. The initial
term of the lease is ten years expiring on February 15, 2011. The terms of the
lease reflect current market conditions. Annual base rent is $13.00 per square
foot for office space and $9.00 per square foot for non-office space. Mitel
Networks is responsible for the payment of operating costs in addition to the
base rent.

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

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

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

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

Mitel Networks and March Networks will jointly brand, promote, market and
distribute each other's Internet Protocol-based products and services. The terms
and conditions under which


                                      -90-
<PAGE>

each party will distribute the other party's products are set out in a separate
Global Marketing and Distribution Agreement.

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

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

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

Agreements with Zarlink:

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

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

b) Amended Supply Agreement between Mitel Networks and Zarlink

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

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

Under the terms of the agreement, Zarlink granted to Mitel Networks a license in
the Zarlink intellectual property, Zarlink improvements, and Zarlink developed
new technology relating to the components. Mitel Networks has the right to grant
sublicenses only to semiconductor second source suppliers for hybrid and
semiconductor components to be used in specified Mitel Networks products and
Voice over Internet Protocol products, to the extent that Zarlink


                                      -91-
<PAGE>

intellectual property has been incorporated into the components and used by
Mitel Networks. The supply agreement was amended by letter agreement dated
October 24, 2001. The amending agreement provides for an expansion of the
foregoing license grant in that it allows Mitel Networks, in the case of
licensed intellectual property existing as of February 16, 2001 or created
thereafter, to complete the development of the MT92102 Voice over Internet
Protocol device, to allow Mitel Networks to sublicense such intellectual
property to a third party foundry to permit the manufacture of the MT92102 Voice
over Internet Protocol device for sale by such foundry to Mitel Networks for its
business as well as to the foundry's other customers for their business
requirements but restricted to applications based on Mitel Networks' converged
access products.

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

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

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

d) Intellectual Property License Agreement between Zarlink and Mitel Networks

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

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


                                      -92-
<PAGE>

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

e) Patent Sublicense Agreement between Mitel Networks and Zarlink

On April 1, 1998, Zarlink and Lucent Technologies Inc. entered into a patent
license agreement that allows Zarlink to sublicense its rights to use certain
Lucent patents to any third party that acquires a part of its business.
Accordingly, as part of the acquisition transactions, Mitel Networks, Mitel
Systems and Zarlink entered into a Patent Sublicense Agreement dated February
16, 2001 pursuant to which Zarlink granted to Mitel Networks under the Lucent
patents a non exclusive and non transferable sublicense to make, have made, use,
sell, and lease Mitel Networks' products. The sublicense expired on September
30, 2002.

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

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

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

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


                                      -93-
<PAGE>

business provided such securities do not exceed 5% of the outstanding equity
securities of such company.

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

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

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

Agreements with Key Employees:

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

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

By way of a private letter agreement between Mr. Butcher and Dr. Terence H.
Matthews dated March 1, 2002, Dr. Matthews granted to Mr. Butcher options to
purchase common shares in Mitel Networks from the holdings of Mitel Systems.
Such options vest in 25% increments on the first, second, third and fourth
anniversaries of Mr. Butcher's February 16, 2001 start date.


                                      -94-
<PAGE>

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

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

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

Agreements With Others:

a) Union Agreement between Mitel Networks Solutions, Inc. and the International
Brotherhood of Electrical Workers

Mitel Networks' indirect wholly-owned U.S. subsidiary, Mitel Networks Solutions,
Inc., has negotiated a national union contract with the International
Brotherhood of Electrical Workers which assures Mitel Networks of obtaining the
services of its unionized field technician employees in the U.S. and includes a
provision which precludes the employees from going on strike. The terms and
conditions of the contract are typical in the industry. The current contract has
been extended for an additional year and now expires in the Fall of 2004. In
consideration of the extension, which the parties agreed upon instead of
renegotiating a new three-year contract, the represented employees will receive
a continuation bonus payable in three installments over the next year. The
purpose of the bonus is to reward the represented employees for their continued
cooperation pertaining to Mitel Networks' hours reduction program. The
represented employees will return to a normal forty hour work week as soon as
Mitel Networks determines it is justified in its reasonable discretion. The
bonus, in the aggregate, amounts to approximately 1.5% of the average annual
base wage for Mitel Networks' represented employees.

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

On October 10, 2002, Mitel Networks, in conjunction with March Networks and
Mitel Knowledge, signed an agreement for financing from the Canadian Government
for up to $60 million of March Networks' and Mitel Networks' research and
development activities over a three year period. Each party is severally liable
for its portion of the development work. The agreement contains certain
restrictions on the exploitation of the developed intellectual property


                                      -95-
<PAGE>

outside of Canada. In exchange for financing received from the Government of
Canada, Mitel Networks is required to issue warrants to Her Majesty the Queen in
Right of Canada for the zero dollar purchase of common shares, with the warrants
to be issued as of September 30 in each of 2002, 2003 and 2004, and valued in
accordance with fair market value.

c) Agreement between Mr. Peter Charbonneau and Dr. Terence H. Matthews

By way of an oral agreement between Mr. Peter Charbonneau and Dr. Terence H.
Matthews on February 16, 2001, Dr. Matthews granted to Mr. Charbonneau options
to purchase common shares in Mitel Networks from the holdings of Mitel Systems.
Such options vest in 25% increments on the first, second, third and fourth
anniversaries of the grant date.

D. Exchange Controls

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

There are currently no limitations of general application imposed by Canadian
federal or provincial laws on the rights of non-resident or foreign owners of
Canadian securities to hold or vote Mitel Networks' common shares. There are
also no such limitations imposed by the articles of incorporation with respect
to Mitel Networks' common shares. However, under the Investment Canada Act, the
acquisition of control (as defined) of a corporation carrying on a Canadian
business (as defined) in Canada by a non-Canadian (as defined) is subject to
notification to the Minister of the Government of Canada responsible for the
Investment Canada Act, and, depending on the value of the investment and/or the
industry sector, may also be subject to review by the Minister to determine
whether the investment is likely to be of net benefit to Canada.

Competition Act

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

A proposed transaction is subject to pre-notification if two thresholds are
exceeded. First, the parties and their affiliates must have total assets in
Canada or total revenues from sales in, from or into Canada that exceed $400
million in aggregate value. Having met this first threshold, the parties must
then provide pre-notification if any one of the following additional thresholds
is met: (1) for an acquisition of assets in Canada, where the aggregate value of
the assets or the gross revenues from sales in or from Canada generated from the
assets that are being acquired exceeds $50 million ("$50 million threshold");
(2) in the case of an acquisition of shares of a


                                      -96-
<PAGE>

company in Canada, where (i) the $50 million threshold is met in respect of the
assets or revenues of the company whose shares are being acquired and (ii) as a
result of the proposed acquisition, the person acquiring the shares, together
with its affiliates, would own more than 20% (or, if the person making the
acquisition already owns 20% or more of the voting shares of the target, then
50%) of the voting shares of a corporation that are publicly traded or, in the
case of a company of which the shares are not publicly traded, the threshold is
35% of the voting shares (and 50% if the acquirer owns 35% or more of the voting
shares of the subject company prior to making the acquisition) and the $50
million threshold is exceeded; or (3) in the case of a proposed amalgamation of
two or more corporations where one or more of the amalgamating corporations
carries on an operating business (either directly or indirectly), where the
aggregate value of the assets in Canada that would be owned by the continuing
corporation resulting from the amalgamation would exceed $70 million or the
gross revenues from sales in or from Canada generated from the assets of the
amalgamated entity would exceed $70 million.

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

E. Taxation

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

CANADIAN FEDERAL INCOME TAX CONSEQUENCES

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

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


                                      -97-
<PAGE>

Dividends

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

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

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

Disposition of Shares

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

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

UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

The following discussion is based on the U.S. Internal Revenue Code of 1986, as
amended, existing and proposed Treasury Regulations, published Internal Revenue
Service rulings, published administrative positions of the Internal Revenue
Service and court decisions that are currently applicable, any or all of which
could be materially and adversely changed, possibly on a retroactive basis, at
any time. In addition, this discussion does not consider the potential effects,
both adverse and beneficial, of any recently proposed legislation that, if
enacted, could be applied, possibly on a retroactive basis, at any time. In
addition, this discussion does not cover any state, local or foreign tax
consequences. The following is a discussion of United States federal income tax
consequences, under current law, generally applicable to a U.S. Holder (as
defined below) of


                                      -98-
<PAGE>

common shares of Mitel Networks who holds such shares as capital assets. This
discussion does not address all potentially relevant federal income tax matters
and it does not address consequences peculiar to persons subject to special
provisions of federal income tax law, such as those described below that are
excluded from the definition of a U.S. Holder.

U.S. Holder

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

Dividends

Except as otherwise discussed below under "Passive Foreign Investment Company
Considerations," U.S. Holders receiving dividend distributions (including
constructive dividends) with respect to common shares of Mitel Networks are
required to include in gross income for United States federal income tax
purposes the gross amount of such distributions to the extent that Mitel
Networks has current or accumulated earnings and profits, without reduction for
any Canadian income tax withheld from such distributions. Such Canadian tax
withheld may be credited, subject to certain limitations, against the U.S.
Holder's United States federal tax liability or, alternatively, may be deducted
in computing the U.S. Holder's federal taxable income by those who itemize
deductions. See "Foreign Tax Credit." To the extent that distributions exceed
current or accumulated earnings and profits of Mitel Networks, they will be
treated first as a return of capital up to the U.S. Holder's adjusted basis in
the common shares (which adjusted basis must therefore be reduced) and
thereafter as a gain from the sale or exchange of the common shares.
Preferential tax rates for long-term capital gains are applicable to a U.S.
Holder that is an individual, estate or trust. Moreover, "qualified dividends"
received by U.S. Holders who are individuals, during tax years beginning before
January 1, 2009, from any "qualified foreign corporation" are subject to a
preferential tax rate, provided such individual U.S. Holder meets a certain
holding period requirement. A "qualified foreign corporation" is generally any
corporation formed in a foreign jurisdiction which has a comprehensive income
tax treaty with the United States or, if not, the dividend is paid with respect
to stock that is readily tradable on an established United States market.
However, a "qualified foreign corporation" excludes a foreign corporation that
is a foreign personal holding company, a foreign investment company, or a
passive foreign investment company for the year the dividend is paid or the
previous year. Mitel Networks believes that it qualifies as a "qualified foreign
corporation". There are currently no preferential tax rates for a U.S. Holder
that is a corporation.

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


                                      -99-
<PAGE>

Foreign Tax Credit

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

Disposition of Shares

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

Foreign Personal Holding Company Considerations

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


                                     -100-
<PAGE>

Passive Foreign Investment Company Considerations

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

A U.S. Holder who elects in a timely manner to treat Mitel Networks as a
"qualified electing fund" or "QEF" (an "Electing U.S. Holder") will be subject
to current federal income tax under Section 1293 of the U.S. Internal Revenue
Code of 1986 for any taxable year in which Mitel Networks is a PFIC (or is
treated as such with respect to the Electing U.S. Holder) on his or its pro-rata
share of Mitel Networks' (i) "net capital gain" (the excess of net long-term
capital gain over net short-term capital loss), which will be taxed as long-term
capital gain to the Electing U.S. Holder; and (ii) "ordinary earnings" (the
excess of earnings and profits over net capital gain), which will be taxed as
ordinary income to the Electing U.S. Holder, in each case, for the shareholder's
taxable year in which (or with which) Mitel Networks' taxable year ends,
regardless of whether such amounts are actually distributed.

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

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

A Non-electing U.S. Shareholder generally will be required to pro-rate all gains
realized on the disposition of his or its common shares and all excess
distributions over the entire holding period of the common shares. All gains or
excess distributions allocated to prior years of the Non-electing U.S.
Shareholder (provided that such years are not prior to the first day of the
first taxable year of Mitel Networks during such Non-electing U.S. Shareholder's
holding period and beginning after January 1, 1987 for


                                     -101-
<PAGE>

which it was a PFIC) will be taxed at the highest tax rate applicable to
ordinary income for each such prior year. A Non-electing U.S. Shareholder also
will be liable for interest on the foregoing tax liability for each such prior
year calculated as if such liability had been due with respect to each such
prior year. The balance of the gain or the excess distribution will be treated
as ordinary income in the year of the disposition or distribution, and no
interest charge will be incurred with respect to such balance.

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

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

The implementation of certain aspects of the PFIC rules requires the issuance of
regulations which in many instances have not yet been promulgated and which may
have retroactive effect. There can be no assurances that any of these proposals
will be enacted or promulgated, and if so, the form they will take or the effect
that they may have on this discussion. Accordingly, and due to the complexity of
the PFIC rules, U.S. persons who are shareholders or prospective shareholders of
Mitel Networks are strongly urged to consult their own tax advisors.

F. Dividends and Paying Agents

Not applicable.

G. Statement by Experts

Not applicable.


                                     -102-
<PAGE>

H. Documents on Display

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

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

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

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

I. Subsidiary Information

Not applicable.

Item 11. Quantitative and Qualitative Disclosures About Market Risk

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

Foreign Currency Risk

To manage its foreign currency risk, Mitel Networks uses certain derivative
financial instruments including foreign exchange forward contracts and foreign
exchange swap contracts from time to time, that have been authorized pursuant to
policies and procedures approved by the board of directors. Mitel Networks does
not hold or issue financial instruments for trading or speculative purposes.
Mitel Networks currently uses foreign currency forward and swap contracts to
reduce the exposure to foreign currency risk. The most significant foreign
exchange exposures for Mitel Networks relate to the U.S. dollar and the U.K.
pound sterling. At April 27, 2003, Mitel Networks recorded unrealized gains of
$0.5 million (April 28, 2002 - $0.1 million) and unrealized losses of $nil
(April 28, 2002 - $0.1 million) on its forward contracts. The unrealized gains
and losses are calculated as the difference between the actual contract rates
and the


                                     -103-
<PAGE>

applicable current market rates that would be used to terminate the forward
contracts on April 27, 2003, if it became necessary to unwind these contracts.
Additional potential losses in the net fair value of these contracts, assuming a
5% appreciation in the Canadian dollar against all currencies, at April 27,
2003, would have been immaterial. Management believes that the established
hedges are effective against its foreign currency denominated assets and
liabilities, and that potential future losses from these hedges being marked to
market would be largely offset by gains on the underlying hedged positions.

Interest Rate Risk

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

Mitel Networks is exposed to interest rate risk on borrowings from its credit
and loan facilities and demand loans from companies controlled by Dr. Terence H.
Matthews. The credit and loan facilities bear interest based on LIBOR, U.S. base
rate, Canadian dollar prime rate, or Canadian dollar Bankers' Acceptances. The
related party loans bear interest based on prime rate. Based on projected
advances under the credit and loan facilities and related party loans, adverse
changes in interest rates of 100 basis points and 200 basis points would
increase interest expense by $0.7 million and $1.5 million, respectively, on an
annual basis. This risk is mitigated by Mitel Networks' ability, at its option,
to lock in the rate of interest on the credit facilities until their respective
maturity dates. The interest rates on Mitel Networks' obligations under capital
leases and mortgage loans are fixed and therefore not subject to interest rate
risk.

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

Item 12. Description of Securities Other than Equity Securities

Not applicable.

                                     PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies

Not applicable.

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

Not applicable.


                                     -104-
<PAGE>

Item 15. Controls and Procedures

Mitel Network's management carried out an evaluation, with the participation of
the Chief Executive Officer and Chief Financial Officer, of the effectiveness of
Mitel Networks' disclosure controls and procedures as of April 27, 2003. Based
upon that evaluation, Mitel Networks' Chief Executive Officer and Chief
Financial Officer concluded that Mitel Networks' disclosure controls and
procedures were effective to ensure that information required to be disclosed by
Mitel Networks in reports that it files or submits under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported, within the time
periods specified in the rules and forms of the Securities and Exchange
Commission.

There has not been any change in Mitel Networks' internal control over financial
reporting in connection with the evaluation required by Rule 13A-15(d) under the
Exchange Act that occurred during the fiscal year ended April 27, 2003 that has
materially affected, or is reasonably likely to materially affect, Mitel
Networks' internal control over financial reporting.

Item 16. [Reserved]

                                    PART III

Item 17. Financial Statements

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

Item 18. Financial Statements

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

Item 19. Exhibits

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

     1.1  Articles of Incorporation and related amendments*

     1.2  Bylaws*

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

2.1  See Articles of Incorporation described above in Exhibit 1.1

2.2  Specimen Common Share certificate*


                                     -105-
<PAGE>

4.   Material contracts:

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

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

     4.3  Amended and Restated Credit Agreement between Mitel Networks
          Corporation, the Lenders from time to time and Bank of Montreal as
          Administrative Agent dated February 27, 2003

     4.4  Loan Agreement between Mitel Networks Limited and Export Development
          Canada dated March 4, 2003

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

     4.6  Chattel Mortgage Loan Agreement between Mitel Networks Limited and
          Barclays Bank PLC dated April 25, 2003

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

     4.8  Business Overdraft and Ancillary Facility Agreement between Mitel
          Networks Limited and Barclays Bank PLC dated August 30, 2002

     4.9  Supply Agreement between Mitel Networks Corporation and its
          subsidiaries and Ridgeway Research Corporation and its subsidiaries
          dated August 30, 2001, and related amendment dated February 27, 2003.*
          +

     4.10 Amendment to the Supply Agreement between Mitel Networks Corporation
          and its subsidiaries and Ridgeway Research Corporation and its
          subsidiaries dated February 27, 2003

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

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


                                     -106-
<PAGE>

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

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

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

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

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

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

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

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

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

     4.22 Termination Agreement between Mitel Networks Corporation and Mitel
          Knowledge Corporation dated November 1, 2002 in connection with the
          Research and Development Agreement dated March 27, 2001

     4.23 Purchase and Sale Agreement between Mitel Networks Corporation and
          Mitel Knowledge Corporation dated November 1, 2002

     4.24 Termination Agreement between Mitel Networks Overseas Limited and
          Mitel Knowledge Corporation dated November 1, 2002 in connection with
          the Research and Development Cost Sharing Agreement dated March 27,
          2001

     4.25 Acquisition Agreement by and between Mitel Corporation (now known as
          Zarlink Semiconductor Inc.), 3755461 Canada Inc. (now known as Mitel
          Systems


                                     -107-
<PAGE>

          Corporation) and Dr. Terence H. Matthews ("Acquisition Agreement"),
          dated January 2, 2001.*

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

          Schedule 1.1(nn) Financial Statements Schedule
          Schedule 1.1(nnn) Permitted Encumbrances
          Schedule 2.2 Purchase Price Allocation Schedule
          Schedule 2.3 Audit Report Schedule
          Schedule 3.4 Authorized and Issued Capital - Vendor Group
          Schedule 3.6 Loan Agreement Particular
          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)
          Schedule 7.1(m) Supply Agreement
          Schedule 7.1(n) Shareholders Agreement
          Schedule 7.1(p) Form of Release


                                     -108-
<PAGE>

          Schedule 7.3(f) Form of Opinion of Purchaser's Counsel

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

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

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

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

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

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

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

     4.33 Promissory Notes between Mitel Networks Corporation and Wesley Clover
          Corporation, formerly 10750 Newfoundland Limited, dated February 26,
          2003 and February 27, 2003

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

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

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


                                     -109-
<PAGE>

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

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

     4.39 Union Agreement between Mitel Communications Solutions, Inc. (now
          known as Mitel Networks Solutions, Inc.) and International Brotherhood
          of Electrical Workers Union expiring on September 30, 2004* +

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

8.1  Subsidiaries of Mitel Networks Corporation*

12.1 Certification by CEO pursuant to Section 302 of the Sarbanes-Oxley Act of
     2002

12.2 Certification by CFO pursuant to Section 302 of the Sarbanes-Oxley Act of
     2002

13.1 Certification by CEO pursuant to Section 906 of the Sarbanes-Oxley Act of
     2002

13.2 Certification by CFO pursuant to Section 906 of the Sarbanes-Oxley Act of
     2002
----------
*    Filed as an exhibit to the Registration Statement on Form 20-F, as amended
     (File No. 0-49984) of Mitel Networks Corporation and incorporated herein by
     reference.
+    Portions of this document have been granted "Confidential Treatment" by the
     Secretary of the Securities and Exchange Commission.


                                     -110-
<PAGE>

Index to Financial Statements
-----------------------------

Mitel Networks Corporation Audited Consolidated Financial Statements for the
fiscal years ended April 27, 2003 and April 28, 2002 and for the ten-week period
ended April 27, 2001:

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

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

--       Independent Auditors' Report                                       F-37
--       Combined Statement of Operations                                   F-38
--       Notes to Combined Statement of Revenues and Direct Expenses        F-39

Financial Statement Schedules:

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

--       Schedule II - Valuation of Qualifying Accounts                     F-46


                                     -111-
<PAGE>

                                    SIGNATURE

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

                                                MITEL NETWORKS CORPORATION

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

Date:  July 31, 2003



                                     -112-
<PAGE>

Consolidated Financial Statements - US GAAP                         Confidential

                                 MITEL NETWORKS
                                   CORPORATION

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

FOR THE YEAR ENDED
APRIL 27, 2003

(Audited)


                                      F-1
<PAGE>

Consolidated Financial Statements - US GAAP                         Confidential

INDEPENDENT AUDITORS' REPORT

To the Directors of Mitel Networks Corporation:

We have audited the consolidated balance sheets of Mitel Networks Corporation (a
majority-owned  subsidiary of Mitel Systems  Corporation) and subsidiaries as of
April 27,  2003 and April 28, 2002 and the related  consolidated  statements  of
operations,  shareholders'  (deficiency)  equity  and cash flows for each of the
years in the two year period ended April 27, 2003.  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 auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform an audit to obtain reasonable assurance whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.  An
audit also includes  assessing the accounting  principles  used and  significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audits provide a reasonable  basis
for our opinion.

In our opinion,  these consolidated  financial statements present fairly, in all
material  respects,  the financial  position of Mitel Networks  Corporation  and
subsidiaries  as of April 27, 2003 and April 28, 2002,  and the results of their
operations  and cash  flows for each of the years in the two year  period  ended
April 27, 2003 in conformity with accounting  principles  generally  accepted in
the United States of America.

On June 6, 2003, we reported  separately to the  shareholders  of Mitel Networks
Corporation  on our audits,  conducted in  accordance  with  Canadian  generally
accepted  auditing  standards,  of financial  statements  for the same  periods,
prepared in accordance with Canadian generally accepted accounting principles.


                                                /s/ Deloitte & Touche LLP
                                                --------------------------------
                                                Deloitte & Touche LLP
Ottawa, Canada                                  Chartered Accountants
June 6, 2003


                                      F-2
<PAGE>

Consolidated Financial Statements - US GAAP                         Confidential

INDEPENDENT AUDITORS' REPORT

To the Directors of Mitel Networks Corporation:

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

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

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

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



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


                                      F-3
<PAGE>

Consolidated Financial Statements - US GAAP                         Confidential

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

--------------------------------------------------------------------------------
                                                                  As at
                                                          April 27,    April 28,
                                                            2003         2002
--------------------------------------------------------------------------------
ASSETS

Current assets:
  Cash and cash equivalents                               $   32.4     $    5.7
  Accounts receivable (net of provisions of $6.6 in
    2003 and $7.7 in 2002)                                   100.9        114.0
  Due from related parties                                     0.5           --
  Inventories                                                 51.2         69.3
  Other receivables                                           17.4         12.3
  Prepaid expenses                                             7.9         11.4
--------------------------------------------------------------------------------
                                                             210.3        212.7

Long-term receivables                                          1.0         10.9
Property and equipment                                        36.8         46.4
Goodwill                                                       7.6          7.6
Intangible and other assets                                    2.1         47.7
--------------------------------------------------------------------------------
                                                          $  257.8     $  325.3
--------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Bank indebtedness                                       $   34.7     $   51.1
  Accounts payable and accrued liabilities                    68.4         73.7
  Income and other taxes payable                               3.5          1.9
  Deferred revenue                                            35.9         46.6
  Due to related parties                                      54.1         38.0
  Current portion of long-term debt                            7.1          5.8
--------------------------------------------------------------------------------
                                                             203.7        217.1

Long-term debt                                                19.5         23.6
Convertible debentures                                        10.5           --
Pension liability                                             35.8         10.3
--------------------------------------------------------------------------------
                                                             269.5        251.0
--------------------------------------------------------------------------------

Redeemable common shares, without par value -
 14,000,000 shares authorized, issued and
 outstanding at April 27, 2003 and April 28, 2002             44.7         43.0
--------------------------------------------------------------------------------
Commitments and contingencies

Shareholders' (deficiency) equity:
 Common shares, without par value - Authorized:
  unlimited; Issued and outstanding: 101,400,213
  at April 27, 2003 and 96,924,924 at April 28, 2002         285.9        261.1
  Warrants                                                    27.1           --
  Deferred stock-based compensation                           (0.6)        (0.8)
  Accumulated deficit                                       (341.0)      (230.0)
  Accumulated other comprehensive income (loss)              (27.8)         1.0
--------------------------------------------------------------------------------
                                                             (56.4)        31.3
--------------------------------------------------------------------------------
                                                          $  257.8     $  325.3
--------------------------------------------------------------------------------

        (See accompanying notes to the consolidated financial statements)


                                      F-4
<PAGE>

Consolidated Financial Statements - US GAAP                         Confidential

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

<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------
                                                                                                Ten Weeks
                                                                      Year Ended                   Ended
                                                            April 27, 2003  April 28, 2002    April 27, 2001
------------------------------------------------------------------------------------------------------------
<S>                                                         <C>              <C>               <C>
Revenue
  Products                                                  $      396.0     $      423.9      $       91.9
  Services                                                         147.1            136.3              29.5
------------------------------------------------------------------------------------------------------------
                                                                   543.1            560.2             121.4
------------------------------------------------------------------------------------------------------------

Cost of sales
  Products                                                         257.7            261.1              53.2
  Services                                                          82.1             69.9              11.2
------------------------------------------------------------------------------------------------------------
                                                                   339.8            331.0              64.4
------------------------------------------------------------------------------------------------------------

Gross margin                                                       203.3            229.2              57.0
------------------------------------------------------------------------------------------------------------

Expenses:
  Selling, general and administrative                              185.0            228.5              47.0
  Research and development                                          63.5             92.2              20.1
  Special charges                                                   21.5             11.7                --
  Purchased in-process research and development                       --               --              20.7
  Loss on sale of manufacturing operations                            --              2.4                --
  Amortization of acquired intangibles                              45.4             68.6              12.9
------------------------------------------------------------------------------------------------------------
                                                                   315.4            403.4             100.7
------------------------------------------------------------------------------------------------------------

Operating loss                                                    (112.1)          (174.2)            (43.7)

Interest expense                                                    (6.5)            (4.7)             (0.2)
Other income (expense), net                                          5.1             (0.6)             (0.5)
------------------------------------------------------------------------------------------------------------

Loss before income taxes                                          (113.5)          (179.5)            (44.4)

Income tax recovery (expense)                                        4.3             (0.2)             (0.9)
------------------------------------------------------------------------------------------------------------

Net loss                                                    $     (109.2)    $     (179.7)     $      (45.3)
------------------------------------------------------------------------------------------------------------

Net loss per common share:
      Basic and diluted                                     $      (0.97)    $      (1.73)     $      (0.45)
------------------------------------------------------------------------------------------------------------

Weighted average number of common shares outstanding
      Basic and diluted                                      113,109,751      106,848,314       100,000,000
------------------------------------------------------------------------------------------------------------
</TABLE>

        (See accompanying notes to the consolidated financial statements)


                                      F-5
<PAGE>

Consolidated Financial Statements - US GAAP                         Confidential

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

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
                                                                                                   Accumulated       Total
                                        Common Shares                    Deferred                     Other
                                      ------------------               Stock-based   Accumulated  Comprehensive  Shareholders'
                                      Shares      Amount     Warrants  Compensation    Deficit    Income (Loss)     Equity
------------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>          <C>        <C>         <C>           <C>             <C>           <C>
Balance at April 27, 2001           100,000,000  $   251.3  $      --   $        --   $    (45.3)     $    (0.5)    $    205.5

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

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

Balance at April 28, 2002            96,924,924      261.1         --          (0.8)      (230.0)           1.0           31.3

Net loss                                     --         --         --            --       (109.2)            --         (109.2)
Gain on currency translation                 --         --         --            --           --           (3.4)          (3.4)
------------------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss)                  --         --         --            --       (109.2)          (3.4)        (112.6)
------------------------------------------------------------------------------------------------------------------------------

Common shares issued:
 Acquisition of intellectual
  property from related party         4,555,169       23.0         --            --           --             --           23.0
 Professional services received          10,487        0.1         --            --           --             --            0.1
 Exercise of stock options                3,966         --         --            --           --             --             --
 Common share issue costs                    --       (0.6)        --            --           --             --           (0.6)
 Share purchase loan repayments              --        2.6         --            --           --             --            2.6
Shares repurchased                      (94,333)      (0.4)        --            --           --             --           (0.4)
Redeemable common share accretion            --         --         --            --         (1.7)            --           (1.7)
Stock-based dividends                        --        0.1         --            --         (0.1)            --             --
Minimum pension liability
  adjustment                                 --         --         --            --                       (25.4)         (25.4)
Amortization of deferred
  stock-based compensation                   --         --         --           0.2           --             --            0.2
Warrants issued for cash                     --         --       27.1            --           --             --           27.1
------------------------------------------------------------------------------------------------------------------------------
Balance at April 27, 2003           101,400,213  $   285.9  $    27.1   $      (0.6)  $   (341.0)     $   (27.8)    $    (56.4)
------------------------------------------------------------------------------------------------------------------------------
</TABLE>

        (See accompanying notes to the consolidated financial statements)


                                      F-6
<PAGE>

Consolidated Financial Statements - US GAAP                         Confidential

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

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
                                                                                                          Ten Weeks
                                                                             Year Ended                     Ended
                                                                 April 27, 2003      April 28, 2002    April 27, 2001
---------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>                <C>               <C>
CASH PROVIDED BY (USED IN)

Operating activities:
  Net loss                                                          $ (109.2)          $  (179.7)        $  (45.3)
  Adjustments to reconcile net loss to net cash from
    operating activities:
    Amortization and depreciation                                       66.2                89.3             17.8
    Purchased in-process research and development                         --                  --             20.7
    Stock-based compensation                                             0.2                 0.2               --
    Special charges                                                      3.9                 0.6               --
    Loss on sale of manufacturing operations                              --                 1.9               --
    Loss on sale of property and equipment                               0.3                 0.2               --
    Unrealized foreign exchange (gain) loss                             (2.1)               (0.4)             0.3
    Non-cash movements in provisions                                    13.6                 5.2              1.3
    Change in non-cash operating assets and liabilities, net             8.2               (14.1)            (1.3)
---------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities                                  (18.9)              (96.8)            (6.5)
---------------------------------------------------------------------------------------------------------------------
Investing activities:
  Additions to property and equipment                                   (6.6)              (18.3)            (2.4)
  Acquisition                                                             --                (0.8)              --
  Proceeds from repayment of related party notes receivable              8.2                  --               --
  Realized foreign exchange loss on hedging activities                  (6.4)               (1.5)              --
  Realized foreign exchange gain on hedging activities                   4.3                 1.4               --
---------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities                                   (0.5)              (19.2)            (2.4)
---------------------------------------------------------------------------------------------------------------------
Financing activities:
  Proceeds from bank indebtedness                                      (16.3)               51.4               --
  Debt issue costs                                                      (0.5)               (0.3)              --
  Proceeds from related party loans                                     35.9                52.0             15.4
  Repayment of related party loans                                      (5.0)              (56.4)              --
  Proceeds from sale lease-back                                           --                 3.4               --
  Repayment of capital lease liabilities                                (0.9)               (0.4)              --
  Proceeds from long-term debt                                           2.0                28.1               --
  Repayment of long-term debt                                           (5.1)               (1.9)              --
  Proceeds from issue of warrants                                       24.8                  --               --
  Proceeds from issue of convertible debentures                         10.1                  --               --
  Proceeds from issue of redeemable common shares                         --                16.0               --
  Proceeds from issue of common shares                                    --                16.8               --
  Proceeds from repayments of employee share purchase loans              2.6                 5.6               --
  Share issue costs                                                     (0.6)               (0.8)              --
---------------------------------------------------------------------------------------------------------------------
Net cash from financing activities                                      47.0               113.5             15.4
---------------------------------------------------------------------------------------------------------------------
Effect of currency translation on cash and cash equivalents             (0.9)               (0.2)            (0.1)
---------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents                        26.7                (2.7)             6.4
---------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, beginning of period                           5.7                 8.4              2.0
---------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period                            $   32.4           $     5.7         $    8.4
---------------------------------------------------------------------------------------------------------------------
</TABLE>

        (See accompanying notes to the consolidated financial statements)


                                      F-7
<PAGE>

Consolidated Financial Statements - US GAAP                         Confidential

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

1.   NATURE OF OPERATIONS

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

2.   BACKGROUND AND BASIS OF PRESENTATION

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

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

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

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


                                      F-8
<PAGE>

Consolidated Financial Statements - US GAAP                         Confidential

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

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

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

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

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

3.   ACCOUNTING POLICIES

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

     a) Fiscal Year End

     The Company's  fiscal year end was the last Sunday in April for Fiscal 2003
     and Fiscal 2002.  Normally this results in a fifty-two  week year with four
     thirteen week quarters.  For the ten-week  period ended April 27, 2001, the
     fiscal year end was the last Friday in April.

     b) Basis of Consolidation

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

     c) Use of Estimates


     The  preparation  of the  Company's  consolidated  financial  statements in
     conformity  with  generally   accepted   accounting   principles   requires
     management  to make  estimates  and  assumptions  that affect the  reported
     amounts of assets and liabilities  and disclosure of contingent  assets and
     liabilities at the date of the  consolidated  financial  statements and the
     reported  amounts of revenues and  expenses  during the  reporting  period.
     Estimates  are used for,  but not  limited  to,  the  determination  of the
     allowance for doubtful  accounts,  inventory  allowances,  special charges,
     depreciation  and  amortization,  warranty  costs,  sales returns,  pension
     costs,  taxes and  contingencies.  Estimates and  assumptions  are reviewed
     periodically and the effects of revisions are reflected in the consolidated
     financial  statements  in the period they are  determined  to be necessary.
     Actual results could differ from these estimates.


     d) Foreign Currency Translation

     Assets and liabilities of the Company's  foreign  operations are translated
     from foreign  currencies  into  Canadian  dollars at the exchange  rates in
     effect at the  balance  sheet date while  revenue,  expenses  and cash flow
     amounts  are  translated  at average  exchange  rates for the  period.  The
     resulting  unrealized  gains or  losses  are  recorded  as a  component  of
     accumulated other comprehensive income (loss) in shareholders' equity until
     there is a reduction in the net investment in a foreign operation.

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


                                      F-9
<PAGE>

Consolidated Financial Statements - US GAAP                         Confidential

     e) Revenue Recognition

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

     Indirect channels

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

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

     Direct channels

     The Company sells products,  including installation and related maintenance
     and support  services,  directly to  customers.  For product  sold  through
     direct  channels,  revenue is recognized at the time of delivery and at the
     time risk of loss is transferred,  based on prior  experience of successful
     compliance  with  customer  specifications.  Revenue from  installation  is
     recognized  as services  are  rendered  and when  contractual  obligations,
     including customer acceptance, have been satisfied. Revenue is also derived
     from  professional  service contracts with terms that range from two to six
     weeks  for  standard  solutions  and  for  longer  periods  for  customized
     solutions.  Revenue  from  customer  support,   professional  services  and
     maintenance  contracts is recognized  ratably over the contractual  period,
     generally  one year.  Billings  in  advance of  services  are  included  in
     deferred revenue. Revenue from installation services provided in advance of
     billing is included in unbilled accounts receivable.

     Certain  arrangements  with  direct  customers  provide  for free  customer
     support and maintenance  services  extending twelve months from the date of
     installation.  Customer  support and  maintenance  contracts  are also sold
     separately. When customer support or maintenance services are provided free
     of charge,  such amounts are  unbundled  from the product and  installation
     revenue at their fair  market  value based on the prices  charged  when the
     element is sold separately and recognized ratably over the contract period.
     Consulting and training revenues are recognized upon performance.

     The  Company  provides  long-term  outsourcing  services  of  communication
     systems.  Under these  arrangements,  systems management services ("Managed
     Services") and communication  equipment are provided to customers for terms
     that typically range from one to ten years.  Revenue from Managed  Services
     is recognized  ratably over the contract period.  The Company retains title
     and risk of loss associated with the equipment utilized in the provision of
     the Managed Services.  Accordingly, the equipment is capitalized as part of
     property and  equipment and is amortized to cost of sales over the contract
     period.


                                      F-10
<PAGE>

Consolidated Financial Statements - US GAAP                         Confidential

     f) Cash and Cash Equivalents

     All highly liquid  investments with original  maturities of three months or
     less are  classified as cash and cash  equivalents.  The fair value of cash
     equivalents approximates the amounts shown in the financial statements.

     g) Inventories

     Inventories  are  valued at the lower of cost  (calculated  on a  first-in,
     first-out  basis) or net realizable  value for finished goods,  and current
     replacement  cost  for  raw  materials.   The  Company  provides  inventory
     allowances based on estimated excess and obsolete inventories.

     h) Property and Equipment

     Capital assets are initially recorded at cost.  Depreciation is provided on
     a  straight-line  basis over the  anticipated  useful  lives of the assets.
     Estimated lives range from three to ten years for equipment and twenty-five
     years for buildings.  Amortization  of leasehold  improvements  is computed
     using the shorter of the remaining  lease terms or five years.  The Company
     performs reviews for the impairment of property and equipment in accordance
     with  Statement of  Financial  Accounting  Standards  ("SFAS") 144 whenever
     events or changes in circumstances  indicate that the carrying amount of an
     asset  may not be  recoverable.  Recoverability  is  assessed  based on the
     carrying  value  of the  asset  and  its  fair  value  which  is  generally
     determined  based on the sum of the  undiscounted  cash flows  expected  to
     result from the use and the eventual  disposal of the asset.  An impairment
     loss is recognized  when the carrying amount is not recoverable and exceeds
     fair value.

     i) Goodwill and Intangible Assets

     Intangible   assets  include  patents,   trademarks,   acquired   developed
     technology and customer base.  Amortization  is provided on a straight-line
     basis over five years for patents  and over two years for other  intangible
     assets with finite  useful  lives.  The  carrying  value of these assets is
     periodically reviewed by management for potential permanent impairment. The
     Company evaluates  intangible assets for impairment in accordance with SFAS
     144 whenever events or changes in circumstances  indicate that the carrying
     amount of an asset may not be recoverable. Recoverability is assessed based
     on the  carrying  value of the asset and its fair value which is  generally
     determined  based on the sum of the  undiscounted  cash flows  expected  to
     result from the use and the eventual  disposal of the asset.  An impairment
     loss is recognized  when the carrying amount is not recoverable and exceeds
     fair value.

     In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
     141, "Business Combinations",  and SFAS 142, "Goodwill and Other Intangible
     Assets".  SFAS 141 requires that the purchase  method of accounting be used
     for all business combinations  initiated after June 30, 2001. SFAS 142 also
     includes  guidance on the initial  recognition  and measurement of goodwill
     and other intangible  assets arising from business  combinations  completed
     after June 30, 2001.  The Company has adopted SFAS 142 effective  April 29,
     2002.  SFAS 142 requires  goodwill and  intangible  assets with  indefinite
     useful lives to be tested for  impairment  and written down when  impaired,
     rather than being  amortized  as previous  standards  required.  Intangible
     assets with finite lives will continue to be amortized over their estimated
     useful lives. On adoption of the new rules, the Company evaluated  existing
     intangible  assets,   including  estimates  of  remaining  lives,  and  has
     reclassified to goodwill the acquired  workforce totaling $7.6 at April 28,
     2002 previously  classified as purchased  intangible assets, and ceased its
     amortization.  Prior to April 29, 2002, acquired workforce was amortized on
     a  straight-line   basis  over  two  years.   The  Company   completed  the
     transitional and annual goodwill  impairment  tests, and determined that no
     impairment  existed as of the date of adoption and as of the balance  sheet
     date.


                                      F-11
<PAGE>

Consolidated Financial Statements - US GAAP                         Confidential

     This  change in  accounting  policy was not applied  retroactively  and the
     amounts  presented  for the  prior  year  have not been  restated  for this
     change.  The following table presents the impact of this change on net loss
     and on basic and  diluted  loss per common  share as if the policy had been
     applied retroactively to the beginning of Fiscal 2001:

<TABLE>
<CAPTION>
                                                                 Year Ended        Ten Week Ended
                                                               April 28, 2002      April 27, 2001
     --------------------------------------------------------------------------------------------
     <S>                                                         <C>                 <C>
     Net loss, as reported                                       $  (179.7)          $  (45.3)
     Add: Amortization of goodwill from continuing operations          9.9                2.6
     --------------------------------------------------------------------------------------------
     Adjusted net loss                                           $  (169.8)          $  (42.7)
     --------------------------------------------------------------------------------------------
     Reported basic and diluted loss per common share            $   (1.73)          $  (0.45)
     --------------------------------------------------------------------------------------------
     Adjusted basic and diluted loss per common share            $   (1.64)          $  (0.43)
     --------------------------------------------------------------------------------------------
</TABLE>

     j) Derivative Financial Instruments

     The Company uses  derivatives,  including foreign currency forward and swap
     contracts,  to minimize the short-term  impact of currency  fluctuations on
     foreign currency receivables and payables.  These financial instruments are
     recorded at fair market value with the related  foreign  currency gains and
     losses recorded in other expense,  net, in the  consolidated  statements of
     operations.  The  Company  does  not  hold or  issue  derivative  financial
     instruments for speculative or trading purposes.

     The Company also utilizes  non-derivative  financial  instruments including
     letters of credit and commitments to extend credit.

     k) Income Taxes

     Income taxes are accounted for using the asset and liability method.  Under
     this approach,  deferred tax assets and liabilities are determined based on
     differences  between the  carrying  amounts and the tax basis of assets and
     liabilities,  and are measured  using enacted tax rates and laws.  Deferred
     tax assets are  recognized  only to the extent  that it is more likely than
     not,  in the  opinion of  management,  that the  future tax assets  will be
     realized in the future.

     l) Research and Development

     Research  costs are  charged to  expense  in the  periods in which they are
     incurred.  Software  development  costs are  deferred  and  amortized  when
     technological feasibility has been established,  or otherwise, are expensed
     as incurred. The Company has not deferred any software development costs to
     date.

     m) Defined Benefit Pension Plan

     Pension  expense is  actuarially  determined  using the  projected  benefit
     method  prorated on service and  management's  best  estimate  assumptions.
     Pension plan assets are valued at fair value.  The excess of any cumulative
     net  actuarial  gain  (loss) over ten percent of the greater of the benefit
     obligation  and the fair value of plan assets is amortized over the average
     remaining  service  period of active  employees.  The Company  periodically
     assesses, and adjusts as necessary,  the minimum pension liability recorded
     on the  consolidated  balance  sheet  to equal  the  amount  by  which  the
     accumulated benefit obligation exceeds the fair value of the plan assets.

     n) Stock-Based Compensation Plan

     The Company has a stock-based  compensation  plan described in note 19. The
     Company  generally  grants  stock  options for a fixed  number of shares to
     employees and non-employees with an exercise price equal to the fair market
     value of the shares at the date of grant. The Company accounts for employee
     stock option grants in accordance with Accounting  Principles Board Opinion
     No. 25 ("APB 25"),  "Accounting for Stock Issued to Employees," and related
     interpretations.  Under APB 25, options  granted to employees and directors
     will result in the recognition of compensation expense only if the exercise
     price is lower than the market price of common shares on the date of grant.
     Under SFAS No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation",
     the Company  recognizes  compensation  expense in connection with grants to
     non-employees  and former employees by applying the fair value


                                      F-12
<PAGE>

Consolidated Financial Statements - US GAAP                         Confidential

     based method of accounting  and also applies  variable  plan  accounting to
     such unvested grants.  Had compensation cost for the Company's stock option
     plan been  determined as prescribed by SFAS 123, pro forma net loss and pro
     forma net loss per share  would have been as follows,  using the  following
     assumptions:

<TABLE>
<CAPTION>

                                                                                                  Ten Weeks
                                                                               Year Ended           Ended
                                                                         April 27,   April 28,     April 27,
                                                                           2003        2002          2001
     -------------------------------------------------------------------------------------------------------
     <S>                                                                <C>         <C>           <C>
     Net loss as reported                                               $  (109.2)  $  (179.7)    $   (45.3)
     Estimated additional stock-based compensation                           (3.3)       (2.9)         (0.4)
     -------------------------------------------------------------------------------------------------------
     Pro forma net loss                                                    (112.5)     (182.6)        (45.7)
     Stock-based dividend                                                    (0.1)       (3.9)            -
     Accreted interest on redeemable common shares (see note 16)             (1.7)       (1.1)            -
     -------------------------------------------------------------------------------------------------------
     Pro forma net loss available to common shareholders                   (114.3)  $  (187.6)        (45.7)
     -------------------------------------------------------------------------------------------------------

     Pro forma net loss per share - basic and diluted                   $   (1.01)  $   (1.76)    $   (0.46)
     -------------------------------------------------------------------------------------------------------

     Risk-free interest rate                                                 4.1%       5.00%         5.33%
     Dividends                                                                 0%          0%            0%
     Expected life of the options                                         5 years     5 years       5 years
</TABLE>

     Pro forma results disclosed are based on the provisions of SFAS 123 using a
     minimum  value  option  pricing  model,  which  assumes no  volatility,  to
     calculate  the  fair  value  of  employee  stock  options.  Changes  in the
     subjective input assumptions can materially affect the fair value estimate,
     and therefore the model used above does not  necessarily  provide  reliable
     pro forma results.

     o) Earnings (Loss) per Common Share

     Basic  earnings  (loss) per common  share is  computed  using the  weighted
     average  number of common  shares  outstanding  during the period.  Diluted
     earnings  (loss) per common  share is  computed  using the  treasury  stock
     method and assumes  that,  if a dilutive  effect is produced,  all dilutive
     securities  had been  exercised at the later of the beginning of the fiscal
     period and the security issue date.

     p) Other Comprehensive Income (Loss)

     Other  comprehensive  income  (loss) is  recorded  directly  to a  separate
     section of shareholders' equity in accumulated other comprehensive loss and
     includes  unrealized  gains  and  losses  excluded  from  the  Consolidated
     Statements of  Operations.  These  unrealized  gains and losses  consist of
     foreign currency translation adjustments, which are not adjusted for income
     taxes since they primarily relate to indefinite investments in non-Canadian
     subsidiaries, and minimum pension liability adjustments.

     q) Advertising Costs

     The cost of  advertising  is expensed as incurred,  except for  cooperative
     advertising  obligations  which are expensed at the time the related  sales
     are recognized.  Advertising costs are recorded as part of selling, general
     and administrative  expenses. The Company incurred $11.5, $13.2 and $3.1 in
     advertising costs during the years ended April 27, 2003, April 28, 2002 and
     the  ten-week  period  ended  April 27,  2001,  respectively,  recorded  in
     selling, general and administrative expenses.

     r) Product Warranties

     The Company's products  warranties  generally range from one to five years.
     At the time revenue is recognized, a provision for estimated warranty costs
     is  recorded  as a  component  of  cost  of  sales.  The  warranty  accrual
     represents  management's  best  estimate of the costs  necessary  to settle
     future and existing  claims on products  sold as of the balance  sheet date
     based on the terms of the  warranty,  which vary by customer  and  product,
     historical  product return rates and estimated  average  repair costs.  The
     Company  periodically  assesses  the  adequacy  of  its  recorded  warranty
     provisions and adjusts the amounts as necessary.


                                      F-13
<PAGE>

Consolidated Financial Statements - US GAAP                         Confidential

     s) Comparative Figures

     Certain of the 2002 and 2001 comparative  figures have been reclassified to
     conform to the Fiscal 2003 presentation.

     t) Recent Accounting Pronouncements

     In June 2002, the FASB issued SFAS 146,  "Accounting  for Costs  Associated
     with Exit or Disposal Activities". The standard will require Mitel Networks
     to recognize costs  associated  with exit or disposal  activities when they
     are  incurred  rather than when the Company  commits to an exit or disposal
     plan.  The  provisions  of this standard are effective for exit or disposal
     activities  that are  initiated  after  December  31, 2002.  The  Company's
     adoption  of this  statement  had no  material  impact  on its  results  of
     operations or financial position.

     In December 2002,  the FASB issued SFAS 148,  "Accounting  for  Stock-Based
     Compensation  - Transition  and  Disclosure"  ("SFAS  148").  This standard
     amends  SFAS 123,  to  provide  alternative  methods  of  transition  for a
     voluntary  change  to  the  fair  value  based  method  of  accounting  for
     stock-based  employee  compensation.  In  addition,  SFAS  148  amends  the
     disclosure  requirements  of SFAS 123 to require  prominent  disclosure  in
     financial  statements  about  the  method  of  accounting  for  stock-based
     employee  compensation  and the  effect  of the  method  used  on  reported
     results. The Company has adopted the disclosure provisions of SFAS 148 (see
     note 2(n)). If the Company elects to adopt the  transitional  provisions of
     SFAS 123 as amended by SFAS 148 in Fiscal  2004,  the change in  accounting
     principle may be reported  either (i)  prospectively  to awards  granted or
     modified  after the beginning of the year of adoption,  (ii)  retroactively
     with restatement for awards granted or modified since February 16, 2001, or
     (iii)  prospectively to awards granted or modified since February 16, 2001.
     The Company is still assessing its option to elect the amended transitional
     provisions of SFAS 123 and the adoption of SFAS 148 did not have any impact
     on the Company's financial position and results of operations.


     In  November  2002,  FASB  issued   Interpretation  No.  45,   "Guarantor's
     Accounting and Disclosure  Requirements for Guarantees,  Including Indirect
     Guarantees of  Indebtedness of Others" ("FIN 45"),  which requires  certain
     disclosures of obligations under guarantees. The disclosure requirements of
     FIN 45 are effective for the  Company's  year ended April 27, 2003.  FIN 45
     also  requires  the  recognition  of a  liability  by a  guarantor  at  the
     inception of certain guarantees entered into or modified after December 31,
     2002, based on the fair value of the guarantee. The Company has adopted the
     disclosure and recognition provision of FIN 45 in its Fiscal 2003 financial
     statements (see note 14). The adoption of the recognition  provision of FIN
     45 had no impact on the Company's financial position, results of operations
     or cash flows.

     In January 2003, the FASB issued  Interpretation No. 46,  "Consolidation of
     Variable Interest Entities" ("FIN 46"). FIN 46 clarified the application of
     Accounting Research Bulletin No. 51 - Consolidated  Financial Statements to
     those  entities  defined as "Variable  Interest  Entities"  (more  commonly
     referred to as special purpose  entities) in which equity  investors do not
     have the  characteristics of a "controlling  financial  interest" or do not
     have  sufficient  equity at risk for the entity to finance  its  activities
     without additional  subordinated  financial support from other parties. FIN
     46 applies  immediately  to all Variable  Interest  Entities  created after
     January 31, 2003, and by the beginning of the first annual reporting period
     commencing after June 15, 2003 for Variable Interest Entities created prior
     to February 1, 2003.  The  adoption of this  standard  had no impact on the
     Company's financial position, results of operations or cash flows.

     In April 2003,  the FASB issued SFAS 149,  "Amendments  of Statement 133 on
     Derivative Instruments and Hedging Activities",  which clarifies accounting
     for  derivative  instruments,   including  certain  derivative  instruments
     embedded  in  other  contracts  and for  hedging  activities.  SFAS  149 is
     generally  effective for  derivative  instruments  entered into or modified
     after June 30, 2003 and for hedging relationships designated after June 30,
     2003.  It is expected the adoption of this  standard  will have no material
     impact on the Company's financial  position,  results of operations or cash
     flows.

     In May 2003, the FASB issued SFAS 150,  "Accounting  for Certain  Financial
     Instruments  with  Characteristics  of both  Liabilities  and Equity".  For
     non-public entities, SFAS 150 is effective for fiscal years beginning after
     December  15,  2003.  SFAS  150  establishes  standards  for the  Company's
     classification  of  liabilities  in  the  financial  statements  that  have
     characteristics  of  both  liabilities  and  equity.  On  adoption  of this
     standard,  the redeemable  common shares currently  classified  between the
     liabilities  section  and the equity  section of the  Consolidated  Balance
     Sheet  will be  reclassified  within  liabilities  as  "Shares  Subject  to
     Mandatory  Redemption"  and related  accreted


                                      F-14
<PAGE>

Consolidated Financial Statements - US GAAP                         Confidential

     interest will be recorded as interest expense in the Consolidated Statement
     of Operations on a prospective  basis with no  restatement of prior periods
     presented.

4.   RELATED PARTY TRANSACTIONS

     Significant  related party  transactions  with  companies  controlled by or
     related  to the  Principal  Shareholder,  not  otherwise  disclosed  in the
     financial statements, include the following:

     Research and development

     Effective  February  16,  2001,  the Company  entered  into a research  and
     development   agreement   with  a  company   controlled  by  the  Principal
     Shareholder  (the  "Funding  Company"),  under which the  Company  received
     funding to perform  research and  development  until  November 1, 2002, the
     date on which the two parties  mutually  agreed to terminate the agreement.
     During  the  term  of  the  agreement,   the  Funding   Company  owned  the
     intellectual  property for the products  developed and licensed  certain of
     the  intellectual  property rights to the Company in exchange for royalties
     based on a percentage  of sales of products  developed  under the programs.
     From March 27, 2001 until  November 1, 2002, a  wholly-owned  subsidiary of
     the  Company  and the  Funding  Company  were  parties  to a  research  and
     development  cost-sharing  agreement pursuant to which they agreed to share
     the costs of research and development and in exchange the Company  obtained
     a license to additional  intellectual  property  rights.  In addition,  the
     Company  transferred to the Funding Company investment tax credits ("ITCs")
     earned on the research and development activity performed during the period
     of the research and development agreement.

     On November 1, 2002, the Company  acquired the  intellectual  property from
     the Funding  Company at a price of $12.5 that was satisfied by the issuance
     of 4,555,169  common  shares from  treasury  with a fair value of $2.75 per
     share,  which was based upon an  independent  valuation.  As a result,  the
     research  and  development  agreement  and  the  research  and  development
     cost-sharing  agreement have been terminated.  This transaction resulted in
     the  settlement of the liability to issue common shares of $22.9 (April 28,
     2002 - $15.6) classified in the due to related parties, an increase of $0.1
     to the carrying value of intangible  assets and an increase of $23.0 to the
     carrying value of common shares.

     During Fiscal 2003, the Company  received $6.9 (2002 - $10.3;  2001 - $2.1)
     of research and  development  funding from the Funding  Company  related to
     these agreements, which was recorded as part of due to related parties, and
     incurred royalty expenses of $0.5 (2002 - $0.3; 2001 - $0.6) payable to the
     Funding Company.

     Disposal of manufacturing operations

     On  August  31,  2001,  the  Company  sold  its  manufacturing  operations,
     comprising plant, equipment, workforce and certain liabilities to a company
     in which  the  Principal  Shareholder  holds a  significant  interest  (the
     "Supplier")  for total net  consideration  of $7.8 in the form of long-term
     promissory  notes  receivable of $8.4 and promissory notes payable of $0.6.
     The total net  consideration  approximated  the fair value of the  disposed
     manufacturing   tangible  net  assets.   The  long-term   promissory  notes
     receivable  were  secured  by a first  charge on the  manufacturing  assets
     transferred,  bore  interest at LIBOR rate plus 1.5 percent and were repaid
     in  February  2003.   Interest  income  related  to  the  promissory  notes
     receivable  amounted to $0.2 in Fiscal 2003 (2002 - $0.3; 2001 - $nil). The
     promissory  notes  payable bore interest at LIBOR rate plus 1.5 percent and
     were set off against the  promissory  notes  receivable  on August 31, 2002
     pursuant to an agreement with the Supplier.  Interest  expense  recorded in
     the current year in  connection  with these  promissory  notes  payable was
     immaterial. The transaction resulted in a loss on disposal of $2.4 that was
     recorded in operating expenses of Fiscal 2002.

     In  connection  with the  disposal  of the  manufacturing  operations,  the
     Company  entered into a supply  agreement dated August 31, 2001 whereby the
     Supplier  will  provide  certain  products  and  services  under  terms and
     conditions   reflecting  prevailing  market  conditions  at  the  time  the
     agreement was entered into.  The initial term of the agreement is six years
     (2002  -  three   years)  and  will  be,   unless   otherwise   terminated,
     automatically  renewed  on the same  terms and  conditions  for  additional
     consecutive one-year periods. Under the terms of the supply agreement,  the
     Supplier is required to purchase  the  Company's  raw  material  inventory,
     before  turning to third  party  suppliers  for raw  material  procurement.
     During Fiscal 2003,  the Company  purchased  $178.4 (2002 - $127.4;  2001 -
     $nil) of products and services and sold $9.8 (2002 - $34.6; 2001 - $nil) of
     raw material inventory under this agreement. As at April 27, 2003, balances
     payable  pursuant to this  agreement  amounted  to $12.3  (April 28, 2002 -
     $18.3) and balances  receivable pursuant to this agreement amounted to $2.0
     (April 28, 2002 - $7.1).


                                      F-15
<PAGE>

Consolidated Financial Statements - US GAAP                         Confidential

     Under the  terms of the  supply  agreement,  the  Company  is  required  to
     purchase from the Supplier certain tools used in the manufacturing process.
     These  manufacturing  tools are capitalized as part of fixed assets and are
     depreciated  over  their  estimated  useful  lives.   During  Fiscal  2003,
     manufacturing  tools  purchased from the Supplier  amounted to $1.9 (2002 -
     $0.2; 2001 - $nil).

     On August 31, 2001, the Company also entered into service  agreements  with
     the  Supplier  to provide  facilities  management  services  for the period
     covering  the  term of the  premise  lease  agreements,  as  well as  human
     resource and information  systems support services.  Amounts charged to the
     Supplier were equal to, and recorded as a reduction of, the costs  incurred
     to  provide  the  related  services  in  the   consolidated   statement  of
     operations.  During Fiscal 2003, the Company  provided  services  valued at
     $7.3 under these  agreements (2002 - $9.3; 2001 - $nil) for which there was
     no receivable balance outstanding at April 27, 2003.

     Leased properties

     In  March  2001,  the  Company  entered  into a  lease  agreement  for  its
     Ottawa-based  headquarter  facilities of 512,391 square feet with a company
     controlled  by  the  Principal  Shareholder,  under  terms  and  conditions
     reflecting  prevailing  market conditions at the time the lease was entered
     into. The lease agreement is for 10 years expiring in March 2011.

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

     See note 14 for  disclosure  of  related  party  rental  expense,  sublease
     income, committed future minimum lease payments and future sublease income.
     As at  April  27,  2003,  balances  due to the  company  controlled  by the
     Principal  Shareholder and related to the lease agreement  amounted to $0.8
     (April 28, 2002 - $0.8).

     Financing

     During  the fiscal  years  ended  April 27,  2003 and April 28,  2002,  the
     Company borrowed funds, from time to time, from a company controlled by the
     Principal   Shareholder   (the   "Financing   Affiliate")  to  finance  its
     operations.  At April 27,  2003,  demand  loans  payable  amounted to $42.3
     (April 28, 2002 - $11.0) and bore interest at prime rate  (currently at 5.0
     percent).  Interest  expense incurred on these related party loans amounted
     to $1.0 in Fiscal  2003  (2002 - $1.9;  2001 - $nil).  In  connection  with
     certain loans payable to the Financing Affiliate,  the Company entered into
     an agreement with an unrelated third party (the  "Investor")  which owns an
     equity  interest in the Supplier.  Pursuant to the agreement,  the Investor
     has the option to (i) exchange  all or a portion of its equity  interest in
     the  Supplier  for a  corresponding  portion of the  Company's  demand loan
     payable held by the Financing Affiliate, and (ii) convert the amount of the
     demand loan payable  into  securities  of the Company  offered in the first
     offering  subsequent  to  February  27,  2003,  other than an  offering  to
     employees  or existing  shareholders,  at a price per share no greater than
     $1.50,  the fair value of the  Company's  common  shares on the date of the
     agreement. Unless terminated upon the consent of the parties, the agreement
     will terminate upon the earlier of (i) the completion of the exchange,  and
     (ii) the closing of the  offering.  According  to EITF 00-27,  a contingent
     beneficial conversion feature may be triggered at the time of conversion if
     the  conversion  price  per  share  is lower  than  the  fair  value of the
     Company's  common  shares of $1.50 on the  commitment  date  (February  27,
     2003).

     Other
     In September 2001, the Company entered into a strategic  alliance agreement
     and a global distribution  agreement with a company (the "Partner Company")
     controlled by the Principal  Shareholder  to broaden its product  portfolio
     and its distribution channel. Under the terms of the agreement, the parties
     agree to cooperate in the performance of joint  development  activities and
     each  party  will  bear  its own  costs  arising  in  connection  with  the
     performance  of its


                                      F-16
<PAGE>

Consolidated Financial Statements - US GAAP                         Confidential

     obligations.   Both  parties  will  share  common  costs  incurred  in  the
     performance of joint activities. The Partner Company develops, manufactures
     and  distributes   broadband   integrated   technology  solutions  enabling
     businesses   and  service   providers   to  deliver   enhanced   multimedia
     communication  services.  During Fiscal 2003,  the Company  purchased  $3.7
     (2002 - $2.3;  2001 - $nil) in  products  and  services  from  the  Partner
     Company  and had a balance  payable of $0.2  recorded in the due to related
     parties  pursuant  to this  agreement  at April 27,  2003 (April 28, 2002 -
     $0.4).

     Other sales to,  purchases from and net balances  receivable from companies
     related to the  Principal  Shareholder  and arising in the normal course of
     the Company's  business  amounted to $1.4, $0.7 and $0.4,  respectively for
     the year ended  April 27, 2003 (2002 - $0.3,  $0.4 and $0.8,  respectively;
     2001 -  $nil,  $nil,  $0.1,  respectively).  In  addition,  certain  of the
     Company's directors and members of senior management purchased  convertible
     debentures, described in note 17, in an aggregate amount of $0.4.

5.   SPECIAL CHARGES

     During Fiscal 2003, the Company executed  restructuring  programs to reduce
     its workforce across all functions. Accordingly, pre-tax special charges of
     $21.5,  net of reversals of prior year's charges of $3.5,  were recorded in
     Fiscal 2003.  The  components of the Fiscal 2003 charges  included $21.0 of
     employee  severance and benefits  associated with 265 terminated  employees
     throughout the world, $4.7 of non-cancelable  lease costs related to excess
     facilities and $0.4 of loss on disposal of capital  assets.  Although these
     restructuring  programs were  completed at April 27, 2003,  payments of the
     workforce reduction  liabilities are expected to be completed in the second
     quarter of Fiscal 2003. The lease  termination  obligation  will be reduced
     over the remaining term of the lease.

     During Fiscal 2002, the Company executed  restructuring  programs to reduce
     its sales, marketing, administrative and R&D workforce. In August 2001, the
     Network Access Solutions R&D program was cancelled based on the decision to
     exit non-core  operations.  Accordingly,  pre-tax  special charges of $11.7
     related to these  actions  were  recorded  in Fiscal  2002.  The  workforce
     reduction  costs included in the special  charges  related to severance and
     benefits  associated  with 278 terminated  employees  throughout the world.
     These restructuring  programs were completed in the first quarter of Fiscal
     2003. As a result of the workforce  reduction,  the Company recorded a loss
     on disposal of capital assets of $0.6.

     The following table summarizes details of the Company's special charges and
     related reserve during Fiscal 2003 and Fiscal 2002:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
                                                                   Lease           Loss on
                                                  Workforce     Termination      Disposal of
     Description                                  Reduction      Obligation    Capital Assets   Legal costs      Total
--------------------------------------------------------------------------------------------------------------------------
     <S>                                          <C>             <C>             <C>              <C>         <C>
     Balance of reverse as of April 27, 2001      $        --     $        --     $         --     $     --    $        --

     Fiscal 2002:
       Charges                                           10.5              --              0.6          0.6           11.7
       Cash payments                                     (7.2)                                         (0.4)          (7.6)
       Asset loss on disposal                              --              --             (0.6)          --           (0.6)
--------------------------------------------------------------------------------------------------------------------------
     Balance of reserve as of April 28, 2002              3.3              --               --          0.2            3.5
--------------------------------------------------------------------------------------------------------------------------
     Fiscal 2003:
       Charges                                           19.9             4.7              0.4           --           25.0
       Adjustments                                       (3.2)           (0.1)              --         (0.2)          (3.5)
       Cash payments                                    (18.7)           (0.7)              --           --          (19.4)
       Asset loss on disposal                              --              --             (0.4)          --           (0.4)
       Foreign currency impact                           (0.4)           (0.1)              --           --           (0.5)
--------------------------------------------------------------------------------------------------------------------------
     Balance of reserve as of April 27, 2003      $       0.9     $       3.8     $         --     $     --    $       4.7
--------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                      F-17
<PAGE>

Consolidated Financial Statements - US GAAP                         Confidential

6.   SEGMENT INFORMATION

     General description

     The Company  reports its  operations  in two segments:  the  Communications
     Solutions   segment   ("Solutions")   and  the  Customer  Services  segment
     ("Services"). The Solutions segment represents the Company's core business,
     consisting of enterprise voice, video and data  communications  systems and
     software  as well  as  communications  applications.  These  Solutions  are
     provided  through the Company's dealer and reseller network and are used by
     large  enterprises,  small and  medium  businesses  as well as  government,
     education and healthcare  organizations.  The Services  segment consists of
     direct product sales and services,  professional services,  maintenance and
     technical  support  services.  These  services  are  provided  through  the
     Company's  direct sales  offices  throughout  North  America and the United
     Kingdom.

     The Company's  Chief  Executive  Officer ("CEO") has been identified as the
     chief operating  decision  maker.  The CEO evaluates the performance of the
     segments  and  allocates  resources  based on  information  provided by the
     Company's  internal  management  system which reports  segmented  operating
     income (loss) representing sales less the cost of sales and direct expenses
     incurred  within the  operating  segments.  The Company  does not  allocate
     general and administrative expenses,  amortization of acquired intangibles,
     stock-based  compensation  expense and one-time  charges to its segments as
     management does not use this  information to measure the performance of the
     operating  segments.  These unallocated  expenses are included in corporate
     and other in the  reconciliation of operating results.  In addition,  total
     asset  information by segment is not presented because the CEO does not use
     such  segmented  measure to  allocate  resources  and  assess  performance.
     Depreciation  of property and  equipment is allocated to each segment based
     on available  segmented property and equipment  information.  Inter-segment
     sales are based on fair market values and are eliminated on  consolidation.
     The  accounting  policies  of  reported  segments  are the  same  as  those
     described in the summary of significant accounting policies.

     Business segments

     The following table sets forth information by business segment:

<TABLE>
<CAPTION>
                                                                                        Corporate
                                                          Solutions      Services       and Other       Total
     ------------------------------------------------------------------------------------------------------------
     <S>                                                  <C>           <C>             <C>           <C>
     Year ended April 27, 2003
       External revenue                                   $     254.1   $      289.0    $        --   $     543.1
       Inter-segment revenue                                     46.3             --          (46.3)           --
     ------------------------------------------------------------------------------------------------------------
       Total revenue                                            300.4          289.0          (46.3)        543.1
     ------------------------------------------------------------------------------------------------------------
       Goodwill                                                   4.5            3.1             --           7.6
     ------------------------------------------------------------------------------------------------------------
       Depreciation of property and equipment                     7.2            4.6            8.0          19.8
     ------------------------------------------------------------------------------------------------------------
       Segment operating income (loss)                          (73.4)          64.1             --          (9.3)
       Corporate and unallocated shared expenses                   --             --          (35.7)        (35.7)
       Stock-based compensation                                    --             --           (0.2)         (0.2)
       Special charges                                             --             --          (21.5)        (21.5)
       Amortization of intangible assets                           --             --          (45.4)        (45.4)
     ------------------------------------------------------------------------------------------------------------
       Operating income (loss)                            $     (73.4)  $       64.1    $    (102.8)  $    (112.1)
     ------------------------------------------------------------------------------------------------------------
     Year ended April 28, 2002
       External revenue                                   $     248.7   $      311.5    $        --   $     560.2
       Inter-segment revenue                                     51.4             --          (51.4)           --
     ------------------------------------------------------------------------------------------------------------
       Total revenue                                            300.1          311.5          (51.4)        560.2
     ------------------------------------------------------------------------------------------------------------
       Goodwill                                                   4.5            3.1             --           7.6
     ------------------------------------------------------------------------------------------------------------
       Depreciation of property and equipment                     8.0            4.6            8.1          20.7
     ------------------------------------------------------------------------------------------------------------
       Segment operating income (loss)                          (96.2)          54.2             --         (42.0)
       Corporate and unallocated shared expenses                   --             --          (49.3)        (49.3)
       Stock-based compensation                                    --             --           (0.2)         (0.2)
</TABLE>


                                      F-18
<PAGE>

Consolidated Financial Statements - US GAAP                         Confidential

<TABLE>
<CAPTION>

     <S>                                                  <C>           <C>             <C>           <C>
       Special charges                                             --             --          (11.7)        (11.7)
       Loss on sale of manufacturing operations                    --             --           (2.4)         (2.4)
       Amortization of intangible assets                           --             --          (68.6)        (68.6)
     ------------------------------------------------------------------------------------------------------------
       Operating income (loss)                            $     (96.2)  $       54.2    $    (132.2)  $    (174.2)
     ------------------------------------------------------------------------------------------------------------
     Ten week ended April 27, 2001
       External revenue                                   $      47.9   $       73.5    $        --   $     121.4
       Inter-segment revenue                                     14.8             --          (14.8)           --
     ------------------------------------------------------------------------------------------------------------
       Total revenue                                             62.7           73.5          (14.8)        121.4
     ------------------------------------------------------------------------------------------------------------
       Goodwill                                                   4.5            3.1             --           7.6
     ------------------------------------------------------------------------------------------------------------
       Depreciation of property and equipment                     2.4            0.4            2.0           4.8
     ------------------------------------------------------------------------------------------------------------
       Segment operating income (loss)                          (11.4)          12.5             --           1.1
       Corporate and unallocated shared expenses                   --             --          (11.2)        (11.2)
       In-process research and development                         --             --          (20.7)        (20.7)
       Amortization of intangible assets                           --             --          (12.9)        (12.9)
     ------------------------------------------------------------------------------------------------------------
       Operating income (loss)                            $     (11.4)  $       12.5    $     (44.8)  $     (43.7)
     ------------------------------------------------------------------------------------------------------------
</TABLE>

     Product information

     The following table sets forth net sales for groups of similar products and
     services:

<TABLE>
<CAPTION>
                                                                    Year Ended              Ten Weeks Ended
                                                         April 27, 2003   April 28, 2002    April 27, 2001
     ------------------------------------------------------------------------------------------------------
     <S>                                                    <C>             <C>                 <C>
     Products:
      Communications platforms and desktop appliances       $   294.7       $   298.9           $   64.3
      Software applications                                      45.7            52.2                6.1
      OEM products                                               41.2            42.3               14.2
      Other (1)                                                  14.4            30.5                7.3
     ------------------------------------------------------------------------------------------------------
                                                                396.0           423.9               91.9
     ------------------------------------------------------------------------------------------------------
     Services:
      Maintenance and support                                   128.6           114.0               23.3
      Managed services                                           14.9            10.8                1.1
      Professional services                                       3.6            11.5                5.1
     ------------------------------------------------------------------------------------------------------
                                                                147.1           136.3               29.5
     ------------------------------------------------------------------------------------------------------

       Total                                                $   543.1       $   560.2           $  121.4
     ------------------------------------------------------------------------------------------------------
</TABLE>

     (1)  Other  products  include  mainly  Network  Access  Solutions  products
          representing  one  percent,  four  percent  and five  percent of total
          revenue in Fiscal 2003, Fiscal 2002 and Fiscal 2001, respectively.

     Geographic information

     Revenues from external  customers are attributed to geographic  areas based
     on location  of the  customers.  The  following  table sets forth  external
     revenue by geographic areas:

                                         Year Ended              Ten Weeks Ended
                               April 27, 2003   April 28, 2002    April 27, 2001
     ---------------------------------------------------------------------------
     Canada                      $    38.7        $    35.8        $     8.4
     United States                   267.3            289.6             59.7
     United Kingdom                  194.3            196.5             44.1
     Other foreign countries          42.8             38.3              9.2
     ---------------------------------------------------------------------------
                                 $   543.1        $   560.2        $   121.4
     ---------------------------------------------------------------------------


                                      F-19
<PAGE>

Consolidated Financial Statements - US GAAP                         Confidential

     Geographic  long-lived asset  information is based on the physical location
     of the assets as at the end of each fiscal period. The following table sets
     forth long-lived assets by geographic areas:

<TABLE>
<CAPTION>

                                        Year Ended April 27, 2003                  Year Ended April 28, 2002
                                  --------------------------------------     ---------------------------------------
                                    Property                                   Property
                                      and                    Intangible          and                     Intangible
                                   Equipment     Goodwill      Assets          Equipment    Goodwill       Assets
     ---------------------------------------------------------------------------------------------------------------
     <S>                          <C>            <C>          <C>              <C>           <C>           <C>
     Canada                       $   15.7       $   4.7      $   1.8          $   22.0      $   4.7       $    6.5
     United States                     0.7           1.0           --               1.2          1.0           15.5
     United Kingdom                   19.8           1.9          0.1              18.4          1.9            7.2
     Barbados                           --            --          0.2                --           --           18.5
     Other foreign countries           0.6            --           --               0.5           --             --
     ---------------------------------------------------------------------------------------------------------------
                                  $   36.8       $   7.6      $   2.1          $   42.1      $   7.6       $   47.7
     ---------------------------------------------------------------------------------------------------------------
</TABLE>

     Concentrations

     The Company  sells its products and services to a broad set of  enterprises
     ranging  from  large,  multinational  enterprises,  to small and  mid-sized
     enterprises,  government  agencies,  health care organizations and schools.
     Management  believes  that the Company is exposed to minimal  concentration
     risk since the majority of its business is conducted with companies  within
     numerous  industries.  The Company performs periodic credit  evaluations of
     its  customers'   financial   condition  and  generally  does  not  require
     collateral  for its accounts  receivable.  In some cases,  the Company will
     require  payment in advance or security in the form of letters of credit or
     third-party  guarantees.  No  single  customer  accounted  for more than 10
     percent of the  Company's  revenue  for the years  ended April 27, 2003 and
     April 28, 2002.

     As a result of the disposal of the  manufacturing  operations  described in
     note 4, the  Supplier  exclusively  manufactures  substantially  all of the
     Company's  Communications  Solutions  products  at  facilities  located  in
     Canada,  the  United  States  and the United  Kingdom.  The  Company is not
     obligated to purchase products from the Supplier in any specific  quantity,
     except as the Company outlines in forecasts or orders for products required
     to be  manufactured  by the  Supplier.  In  addition,  the  Company  may be
     obligated to purchase  certain  excess  inventory  levels from the Supplier
     that could result from the Company's  actual sales of product  varying from
     forecast.  As at April 27, 2003,  there was no excess  inventory  level for
     which the Company was committed.  The Company's  supply  agreement with the
     Supplier  results in a concentration  that, if suddenly  eliminated,  could
     have an  adverse  effect on the  Company's  operations.  While the  Company
     believes that alternative sources of supply would be available,  disruption
     of its primary source of supply could create a temporary, adverse effect on
     product  shipments.  The  Company  is not  aware of any  other  significant
     concentration of business transacted with a particular supplier that could,
     if suddenly  eliminated,  have a material  adverse  affect on the Company's
     financial position, results of operations or cash flows.

     7.   OTHER RECEIVABLES

     Included  in other  receivables  is an amount of $10.9  (2002 - $11.6)  for
     unbilled  accounts and an amount of $1.2 (2002 - $nil) of  restricted  cash
     provided  as  collateral  in  connection  with  certain  customer  bid  and
     performance related bonds.

8.   INVENTORIES

                                                    April 27,     April 28,
                                                      2003          2002
     -----------------------------------------------------------------------
     Raw materials                                   $   2.3     $  12.7
     Finished goods                                     48.9        56.6
     -----------------------------------------------------------------------
                                                     $  51.2     $  69.3
     -----------------------------------------------------------------------


                                      F-20
<PAGE>

Consolidated Financial Statements - US GAAP                         Confidential

     In  connection  with the  disposal  of its  manufacturing  operations,  the
     Company  recorded a lower of cost or market  adjustment of its inventory in
     the amount of $2.1 in Fiscal 2002 to reduce the  carrying  value of its raw
     material inventory.

9.   PROPERTY AND EQUIPMENT

                                                        April 27,     April 28,
                                                          2003          2002
     ---------------------------------------------------------------------------
     Cost:
       Land                                            $     0.8     $      0.7
       Buildings                                             6.0            5.9
       Equipment                                            75.3           62.2
     ---------------------------------------------------------------------------
                                                            82.1           68.8
     ---------------------------------------------------------------------------
     Less accumulated depreciation:
       Buildings                                             0.2            0.1
       Equipment                                            45.1           22.3
     ---------------------------------------------------------------------------
                                                            45.3           22.4
     ---------------------------------------------------------------------------
                                                       $    36.8     $     46.4
     ---------------------------------------------------------------------------

     As at April 27, 2003,  equipment  included  leased assets with cost of $4.0
     (2002 - $3.3)  and  accumulated  depreciation  of  $1.7  (2002 - $0.6)  and
     equipment  utilized in the  provision of Managed  Services  (see note 3(e))
     with cost of $16.9  (2002 - $12.2)  and  accumulated  depreciation  of $8.8
     (2002 - $2.9).  Depreciation  expense  recorded in Fiscal 2003  amounted to
     $19.8 (2002 - $20.7).

10.  GOODWILL, INTANGIBLE AND OTHER ASSETS

                                                        April 27,     April 28,
                                                          2003          2002
     ---------------------------------------------------------------------------

     Goodwill                                          $    20.1     $     20.1
     Less: Accumulated amortization                         12.5           12.5
     ---------------------------------------------------------------------------
     Net goodwill                                      $     7.6     $      7.6
     ---------------------------------------------------------------------------
     Intangible assets:
       Developed technology                            $     2.9     $     90.0
       Customer base                                          --           21.9
       Patents, trademarks and other                         3.4            2.9
     ---------------------------------------------------------------------------
                                                             6.3          114.8
     ---------------------------------------------------------------------------
     Less accumulated amortization:
       Developed technology                                  2.7           52.6
       Customer base                                          --           13.6
       Patents, trademarks and other                         1.5            0.9
     ---------------------------------------------------------------------------
                                                             4.2           67.1
     ---------------------------------------------------------------------------
     Net intangible and other assets                   $     2.1     $     47.7
     ---------------------------------------------------------------------------

     Effective April 29, 2002, the Company reclassified  acquired workforce with
     net book value of $7.6 to goodwill in  accordance  with the new  accounting
     pronouncement (see also note 3(i)). During Fiscal 2003, the Company removed
     from both the cost and accumulated  depreciation  amounts intangible assets
     with original cost of $109.0.

11.  BANK INDEBTEDNESS

     The  Company  has a 364 day  revolving  credit  facility  of $30.0  (or the
     equivalent amount in U.S. dollars) that is subject to a borrowing base. The
     facility  bears  interest  at the  prime  rate or U.S.  base  rate plus 2.5
     percent or LIBOR or Bankers' Acceptances plus 3.5 percent and is secured by
     a general assignment of substantially all the Company's accounts receivable
     and a general  security  interest in the  remaining  assets of the Canadian
     parent company and its two U.S. wholly-owned subsidiaries.  Upon receipt of
     net proceeds of at least $20.0 from an equity  offering,  interest rates on
     the facility will decrease to prime rate or U.S. base rate plus 1.5 percent
     or LIBOR or Bankers'  Acceptances  plus 2.5  percent.  The credit  facility
     matures  on  February  26,  2004  and  contains  certain  restrictions  and
     financial  covenants.  At April 27, 2003, the Company was not in compliance
     with certain financial covenants,  however


                                      F-21
<PAGE>

Consolidated Financial Statements - US GAAP                         Confidential

     subsequent  to year end, the bank has provided a waiver of these  financial
     covenants  under  certain  conditions,  including the transfer of $5.0 to a
     cash collateral  account until the maturity of the loan facility.  At April
     27, 2003,  the Company had borrowed  cash of $17.9 under this  facility and
     $1.2 was committed under letter of credit arrangements.

     The Company's  United Kingdom ("U.K.")  subsidiary has a $9.5  ((pound)4.1)
     loan  facility  that is subject to a borrowing  base.  The  facility  bears
     interest at LIBOR plus 3.5 percent,  which will  decrease to LIBOR plus 2.5
     percent  upon  receipt  of net  proceeds  of at least  $20.0 from an equity
     offering.  The principal amount of the loan is payable on March 4, 2004 and
     interest  is payable  quarterly  starting  in June 2003.  The  facility  is
     secured by a general assignment of the Company's accounts  receivable and a
     general  security  interest in the remaining  assets of the Canadian parent
     company  and its two U.S.  wholly-owned  subsidiaries.  The  loan  facility
     contains certain restrictions and financial  covenants.  At April 27, 2003,
     the Company was not in compliance with certain financial covenants, however
     subsequent  to year end, the bank has provided a waiver of these  financial
     covenants  under  certain  conditions,   including  the  transfer  of  $1.6
     ((pound)0.7)  to a cash  collateral  account until the maturity of the loan
     facility.  At April 27,  2003,  the Company had  borrowed  the total amount
     available under this facility.

     The  Company's  U.K.  subsidiary  also  has a $2.3  ((pound)1.0)  overdraft
     facility and indemnity facilities totaling $5.3 ((pound)2.3)  available for
     letters of credit and other guarantees. At April 27, 2003, $2.4 of the U.K.
     facilities was committed under letters of credit and other indemnities.

12.  ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

                                                       April 27,     April 28,
                                                         2003          2002
     ---------------------------------------------------------------------------
     Trade payables                                   $    19.5     $     15.6
     Employee-related payables                             13.3           13.6
     Other accrued liabilities                             35.6           44.5
     ---------------------------------------------------------------------------
                                                      $    68.4     $     73.7
     ---------------------------------------------------------------------------

13.  LONG-TERM DEBT

<TABLE>
<CAPTION>
                                                                                  April 27,     April 28,
                                                                                    2003          2002
     ----------------------------------------------------------------------------------------------------
     <S>                                                                          <C>           <C>
     Capital leases,  at interest rates varying from 9.1% to 11.4%,  payable
     in monthly installments, with maturity dates ranging from
     17 to 58 months, secured by the leased assets                                $   2.6       $   2.9

     Chattel  mortgage loan,  bearing  interest at 7.7%,  payable in monthly
     installments and due in October 2004, secured by certain
     United Kingdom equipment [(pound)2.6]                                            6.1           9.6

     Chattel  mortgage loan,  bearing  interest at 6.3%,  payable in monthly
     installments and due in April 2006, secured by certain
     United Kingdom equipment [(pound)0.8]                                            2.0             -

     Mortgage loan,  bearing  interest at 7.4% until December 2006,  with an
     option to  continue  using the fixed rate or select a variable  rate at
     LIBOR  plus 1.75%  thereafter,  payable in  quarterly  installments  of
     (pound)0.3 with the balance due in December 2011,
     secured by the United Kingdom real estate properties [(pound)6.9]               15.9          16.9
     ----------------------------------------------------------------------------------------------------
                                                                                     26.6          29.4
     Less: current portion                                                            7.1           5.8
     ----------------------------------------------------------------------------------------------------
                                                                                  $  19.5       $  23.6
     ----------------------------------------------------------------------------------------------------
</TABLE>

     Pursuant to the terms of the building  mortgage  agreement,  the  Company's
     U.K. subsidiary must comply with certain financial covenants.  At April 27,
     2003, the subsidiary was in compliance with these financial covenants.

     Interest  expense related to long-term debt,  including  obligations  under
     capital leases, was $2.2 in Fiscal 2003 (2002 - $0.9; 2001 - $nil).  Future
     minimum lease payments under capital leases total $3.0 of which $1.3, $1.2,
     $0.2,  $0.2 and $0.1  relate to fiscal  years  2004 to 2008,  respectively.
     Interest  costs of $0.3 are included in the total  future  lease


                                      F-22
<PAGE>

Consolidated Financial Statements - US GAAP                         Confidential

     payments.  Scheduled  principal  mortgage  repayments  during the next five
     fiscal years are: 2004 - $6.0;  2005 - $4.2; 2006 - $2.2; 2007 - $1.9; 2008
     and beyond - $9.7.

14.  COMMITMENTS AND GUARANTEES

     Operating leases

     The Company  leases  certain  equipment and  facilities  under  arms-length
     operating leases.  The Company is also committed under related party leases
     and  subleases  for certain  facilities  (see note 4).  Rental  expense and
     income on operating leases were as follows:

                                                                    Ten Weeks
                                         Year Ended                   Ended
                               April 27, 2003   April 28, 2002    April 27, 2001
     ---------------------------------------------------------------------------

     Rental expense
       Arms-length                $  15.3         $   15.6           $   3.1
       Related party                  9.2              9.6               1.0
     ---------------------------------------------------------------------------
       Total                      $  24.5         $   25.2           $   4.1
     ---------------------------------------------------------------------------
     Rental income
       Arms-length                $   1.8         $    1.7           $   0.2
       Related party                  5.7              4.1                --
     ---------------------------------------------------------------------------
       Total                      $   7.5         $    5.8           $   0.2
     ---------------------------------------------------------------------------

     Future  operating  minimum lease payments and future sublease income are as
     follows:

                      Future Lease Payments             Future Lease Income
                  -------------------------------  -----------------------------
     Fiscal year   Arms-length    Related Party     Arms-length    Related Party
     ---------------------------------------------------------------------------
     2004            $  11.4        $   9.4          $   1.7         $   5.5
     2005                8.5            9.4              1.7             5.5
     2006                5.0            9.4              1.6             5.5
     2007                2.6            9.4              0.2             3.4
     2008                2.1            9.4              0.2             2.4
     Thereafter         14.4           28.1              1.3            22.0
     ---------------------------------------------------------------------------
     Total           $  44.0        $  75.1          $   6.7         $  44.3
     ---------------------------------------------------------------------------

     Capital expenditures

     As at April 27,  2003,  capital  expenditure  commitments  to the  Supplier
     amounted to $0.7 (2002 - $0.7).

     Guarantees

     The Company has the following major types of guarantees that are subject to
     the disclosure requirements of FIN 45:


                                      F-23
<PAGE>

Consolidated Financial Statements - US GAAP                         Confidential

     Product warranties:

     The Company provides all customers with standard warranties on hardware and
     software  for  periods up to fifteen  months.  Customers  can  upgrade  the
     standard  warranty  and  extend  the  warranty  up to five years on certain
     products.   The  following  table  details  the  changes  in  the  warranty
     liability:

                                                                    Year Ended
                                                                  April 27, 2003
                                                                  --------------
     Balance, beginning of year                                      $   3.0
     Warranty costs incurred                                            (1.0)
     Warranties issued                                                   0.5
     Changes to accruals related to pre-existing warranties              0.3
     ------------------------------------------------------------------------
     Balance, end of year                                            $   2.8
     ------------------------------------------------------------------------

     Intellectual property indemnification obligations:

     The Company  enters on a regular basis into  agreements  with customers and
     suppliers  that  include  limited  intellectual  property   indemnification
     obligations that are customary in the industry.  These guarantees generally
     require the Company to compensate  the other party for certain  damages and
     costs  incurred as a result of third  party  intellectual  property  claims
     arising from these transactions.  The nature of these intellectual property
     indemnification  obligations  prevents the Company from making a reasonable
     estimate of the maximum potential amount it could be required to pay to its
     customers  and  suppliers.  Historically,  the  Company  has not  made  any
     significant  indemnification  payments under such  agreements and no amount
     has been accrued in the consolidated  financial  statements with respect to
     these guarantees.

     Bid and performance related bonds:

     The  Company  enters  into bid and  performance  related  bonds  related to
     various customer  contracts.  Performance related bonds usually have a term
     of  twelve  months  and  bid  bonds  generally  have a much  shorter  term.
     Potential  payments  due  under  these  may be  related  to  the  Company's
     performance   and/or  the  Company's   resellers'   performance  under  the
     applicable contract. Under FIN 45, the Company must measure and recognize a
     liability  equal to the fair  value of bid and  performance  related  bonds
     involving the  performance of the Company's  resellers.  At April 27, 2003,
     the  liability  recognized  in accounts  payable  and  accrued  liabilities
     related  to  these  bid  and  performance  related  bonds,  based  on  past
     experience of  management's  best estimate,  was  immaterial.  At April 27,
     2003,  the total maximum  potential  amount of future  payments the Company
     could be required to make under bid and performance related bonds was $5.5.

15.  CONTINGENCIES

     The Company is a defendant in a small number of claims or potential  claims
     that have arisen in the normal  course of its  business.  In the opinion of
     the  Company's  management  and legal  counsel,  any monetary  liability or
     financial  impact of such claims or  potential  claims to which the Company
     might be subject  after  final  adjudication  would not be  material to the
     consolidated  financial position of the Company or the consolidated results
     of its operations.

16.  REDEEMABLE COMMON SHARES

     Pursuant  to  a   subscription   agreement   dated  August  31,  2001  (the
     "Commencement  Date")  entered into with an unrelated  private  corporation
     (the  "Investor"),  the Company  issued  4,000,000  common  shares for cash
     consideration  of $16.0.  Under the  terms of the  subscription  agreement,
     within thirty days following the occurrence of certain  triggering  events,
     including (i) the Company's  failure to complete an initial public offering
     of its common  shares  ("IPO") on or before  the fifth  anniversary  of the
     subscription agreement; (ii) a change in the Principal Shareholder's status
     as an  officer  or  director  of the  Company  prior to an IPO;  (iii)  the
     disposal by the Principal  Shareholder of more than twenty-five  percent of
     his  investment  in the Company to an  unrelated  party prior to an IPO, or
     (iv) the disposal by the Principal Shareholder of any common shares held in
     the Company at a price below $4.00 per share prior to an IPO,  the Investor
     has the right (the "Put  Right") to  require  the  Company to redeem all or
     part of its  common  shares  at a price of $4.00 per  share  plus  interest
     accrued at an annual  rate of 7 percent  commencing  on August 31, 2001 and
     compounded  semi-annually.  Accordingly,  the common  shares,  including an
     aggregate  amount


                                      F-24
<PAGE>

Consolidated Financial Statements - US GAAP                         Confidential

     of $1.9 (April 28, 2002 - $0.8)  accreted  for accrued  interest  since the
     Commencement  Date, were recorded in the mezzanine section of the April 27,
     2003  Consolidated  Balance Sheet. The accreted interest was recorded as an
     increase to accumulated deficit as at April 27, 2003.

     If, at any time prior to the Company  having  completed a single  equity or
     equity  component  financing of at least $20.0,  the Company  issues common
     shares or common share  equivalents  (the  "Securities") to any party under
     terms that are more  favourable  than the rights of the Investor  under the
     amended and restated shareholders' agreement, the Investor has the right to
     exchange its shares for that number of such  Securities  as would be issued
     at a $4.00 subscription  price, with certain additional rights attaching to
     the  Securities.  If,  at any  time  prior  to the  Company  completing  an
     aggregate $40.0 in equity financing  subsequent to the  Commencement  Date,
     the Company  issues  Securities  to any party at a price or exercise  price
     below $4.00 per share, the Investor has the right to require the Company to
     issue,  for  nominal  consideration,  an  additional  number of  Securities
     necessary to maintain the then current ownership percentage of the Investor
     in the Company.

     In connection with the subscription agreement described above, the original
     shareholders  agreement dated February 16, 2001 previously  entered into by
     the Company,  Systems and Zarlink, was amended on August 31, 2001. Pursuant
     to the amended and  restated  shareholders  agreement,  within  thirty days
     following  the  failure  by the  Company to  complete  an IPO of its common
     shares on or prior to the fifth  anniversary of the date of the amended and
     restated  shareholders  agreement,  Zarlink  has the right to  require  the
     Company to redeem for cash all or part of its 10,000,000 common shares held
     in the  Company  at a price of $2.85 per  share.  Accordingly,  the  common
     shares  held by  Zarlink  with an  original  carrying  value of $25.9  were
     reclassified  in the mezzanine  section of the April 27, 2003  Consolidated
     Balance Sheet as redeemable common shares.  In addition,  an amount of $0.9
     (April 28, 2002 - $0.3)  accreted for the excess of the  redemption  amount
     over the original  carrying  value was  recorded as at April 27, 2003.  The
     accreted  amount was recorded as an increase in  accumulated  deficit as at
     April 27, 2003.

     Pursuant to the amended and restated  shareholders  agreement  dated August
     31,  2001,  no  Securities  shall  be  issued,   other  than  for  employee
     stock-based  compensation or in connection with a business acquisition,  to
     any persons before the Securities  have first been offered to the Investor,
     Zarlink and Systems  (the  "Offerees").  The  Offerees  are not entitled to
     acquire more than their proportionate share of the Securities being offered
     calculated as at the date of offer of the Securities.

17.  CONVERTIBLE DEBENTURES

                                                           Year Ended
                                                 April 27, 2003   April 28, 2002
     ---------------------------------------------------------------------------
     Convertible debentures issued in the year      $  10.1          $   --
     Plus: accrued interest                             0.4              --
     ---------------------------------------------------------------------------
     Convertible debentures - end of year           $  10.5          $   --
     ---------------------------------------------------------------------------

     On August 16, 2002,  the Company  closed a private  offering of  debentures
     convertible into shares of the Company that resulted in total cash proceeds
     of $10.1. The term of the convertible debentures ends on July 27, 2003. The
     debentures  provide  for  interest  to accrue at the rate of 6.5% per annum
     payable on the  maturity  date or upon  conversion  of the  debentures  and
     accrued  interest  into common  shares of the  Company.  At April 27, 2003,
     total  accrued  interest  amounting  to $0.4  was  recorded  as part of the
     carrying amount of the convertible debentures.  The principal amount of the
     debentures, together with accrued interest outstanding under the debentures
     is subject to mandatory  conversion,  and will  automatically  convert into
     shares in the Company (i) if an equity  financing  pursuant to which equity
     securities which are, or which are convertible  into,  common shares in the
     Company  are issued  occurs  during the term,  at an  equivalent  price per
     share,  or (ii) if no such financing  occurs during the term, at the end of
     the term, into fully-paid and non-assessable  common shares of the Company,
     at a price per common  share equal to the lesser of $3.00 per share and the
     price per share determined by an independent valuation.

     At the time the  convertible  debentures  were issued,  the most  favorable
     conversion  price  ($3.00)  was at least  equal  to the  fair  value of the
     Company's common shares.  According to EITF 00-27, a contingent  beneficial
     conversion  feature  may be  triggered  at the  time of  conversion  if the
     conversion  price per share is lower than the fair  value of the  Company's
     common shares of $2.75 on the commitment  date (August 16, 2002),  which is
     based on an independent valuation.


                                      F-25
<PAGE>

Consolidated Financial Statements - US GAAP                         Confidential

18.  WARRANTS

     The  Company,  in  conjunction  with the  Partner  Company  and the Funding
     Company,  has signed an agreement for funding from the Canadian  Government
     for up to $60.0 of the Funding  Company's,  the Partner  Company's  and the
     Company's  research and  development  activities  over a three year period.
     Pursuant to the terms of the  agreement,  in exchange for funding  received
     from the Government of Canada,  the Company has committed to issue warrants
     to Her Majesty the Queen in Right of Canada for the zero dollar purchase of
     common shares, with the warrants to be issued as of September 30 in each of
     2002, 2003 and 2004, and valued in accordance  with fair market value.  The
     warrants  have no expiry date.  The following  table  outlines the carrying
     value of warrants:


                                                              As at
                                                 April 27, 2003   April 28, 2002
     ---------------------------------------------------------------------------
     Government funding received -
       warrants issued                            $  17.0            $    --
     Government funding received -
       no warrants issued                             7.8                 --
     Accrued government funding receivable -
       no warrants issued                             2.3                 --
     ---------------------------------------------------------------------------
     Total                                        $  27.1            $    --
     ---------------------------------------------------------------------------

     The Company issued warrants to acquire  6,182,588  common shares related to
     $17.0 of the cash  received.  The number of warrants  issued was calculated
     based on a fair value of $2.75 per share,  as determined by an  independent
     valuation.  Warrants  related to the remaining $10.1 of government  funding
     receivable  and  received  in the year  will be issued  in  September  2003
     according to the terms of the agreement.

19.  SHARE CAPITAL

     The Company's  authorized  capital stock consists of an unlimited number of
     common  shares.  The holders of common  shares are entitled to one vote per
     share and are  entitled to  dividends  when and if declared by the Board of
     Directors.

     During Fiscal 2003, the Company issued 10,487 shares (2002 - 62,709 shares;
     2001 - nil) for total  consideration  of $0.1 (2002 - $0.3; 2001 - $nil) in
     the form of  professional  services  received.  The  carrying  value of the
     shares represents the fair market value of the services received.

     Equity offerings

     On June 8, 2001,  February 15, 2002 and on February  28, 2002,  the Company
     completed  three  equity  offerings  to  certain   employees  and  eligible
     investors.   The  Company   issued   5,606,180   common  shares  for  total
     consideration  of $22.5,  of which $13.2 was  received in cash and $9.3 was
     covered by employee  interest-free  loans  repayable  to the Company over a
     maximum  two-year  period from the date of each  offering.  As at April 27,
     2003,  outstanding employee share purchase loans receivable,  in the amount
     of $1.1 (2002 - $3.7), were recorded against shareholders' equity.

     Employee Share Purchase Plan

     In May 2001,  the Company and its  shareholders  approved an Employee Stock
     Purchase Plan ("ESPP") allowing U.S. employees to purchase common shares of
     the Company through a single lump sum payment and/or payroll deductions. Of
     the 6,000,000  common shares  authorized  under the ESPP,  3,000,000 common
     shares were available for purchase at $4.00 (U.S. $2.58) per share during a
     first  offering  period  that  started on May 14,  2001 and ended April 28,
     2002. As at April 28, 2002, employees purchased 645,032 common shares under
     the plan for total cash consideration of $2.6. The existing plan expired on
     April 30, 2003 with no additional  offerings  made under a second and final
     optional period.


                                      F-26
<PAGE>

Consolidated Financial Statements - US GAAP                         Confidential

Stock Option Plan

     In March 2001,  the  Company's  shareholders  approved  the Mitel  Networks
     Corporation   Employee  Stock  Option  Plan  applicable  to  the  Company's
     employees,  directors,  consultants and suppliers and authorized 25,000,000
     shares for issuance  thereunder.  The options are  generally  granted at no
     less than the fair market value of the common  shares of the Company on the
     date of grant and may generally be exercised in equal  portions  during the
     years following the first,  second,  third and fourth  anniversaries of the
     date of grant,  and  expire on the  earlier  of the fifth  anniversary  and
     termination  of  employment.  Available  for grant at April  27,  2003 were
     8,962,846  (2002 - 8,126,701;  2001 -  10,735,850)  shares.  Following is a
     summary of the Company's stock option activity and related information:

<TABLE>
<CAPTION>

                                     Year Ended April 27, 2003     Year Ended April 28, 2002    Ten Weeks Ended April 27, 2001
                                     --------------------------    --------------------------    -----------------------------
                                                    Weighted                     Weighted
                                                    Average                      Average                         Weighted
                                      Number of     Exercise       Number of     Exercise         Number of       Average
                                       Options       Price          Options        Price           Options    Exercise Price
     -------------------------------------------------------------------------------------------------------------------------
     <S>                             <C>            <C>            <C>             <C>            <C>             <C>
     Outstanding options:
     Balance, beginning of period    16,873,299     $     3.60     14,264,150      $    3.50              --      $        --
     Granted                           1,406,900    $     2.82      4,357,778      $    3.90      14,359,250      $      3.50
     Exercised                            (3,695)   $     3.76         (3,562)     $    3.50              --      $        --
     Forfeited                        (1,774,572)   $     3.67     (1,745,067)     $    3.58         (95,100)     $      3.50
     Expired                            (464,778)   $     3.61             --      $      --              --      $        --
     -------------------------------------------------------------------------------------------------------------------------
     Balance, end of period           16,037,154    $     3.52     16,873,299      $    3.60      14,264,150      $      3.50
     -------------------------------------------------------------------------------------------------------------------------
     Weighted  average  fair value
     price of options  granted
     during the year
     using the minimum value
     option pricing model                           $     0.60                     $    1.60                      $      0.82
     -------------------------------------------------------------------------------------------------------------------------
</TABLE>

     A summary of options outstanding at April 27, 2003 is as follows:

<TABLE>
<CAPTION>
                                 Total Outstanding                         Total Exercisable
                          --------------------------------         -------------------------------
                                         Weighted Average                         Weighted Average
                          Number of         Remaining              Number of         Remaining
     Exercise Price        Options       Contractual Life           Options       Contractual Life
     ---------------------------------------------------------------------------------------------
           <S>             <C>              <C>                      <C>             <C>
           $2.75            1,312,825       4.4 years                       --              --
           $3.50           12,121,364       2.9 years                6,130,607       2.9 years
           $4.00            2,602,965       3.4 years                  657,033       3.4 years
     ---------------------------------------------------------------------------------------------
                           16,037,154                                6,787,640
     ---------------------------------------------------------------------------------------------
</TABLE>

     Earnings (loss) per share

     The following  table sets forth the  computation  of basic and diluted loss
     per share:

<TABLE>
<CAPTION>

                                                                                                  Ten Weeks
                                                                        Year Ended                  Ended
                                                            April 27, 2003     April 28, 2002   April 27, 2001
     ---------------------------------------------------------------------------------------------------------
     <S>                                                     <C>                <C>               <C>
     Net loss, as reported                                   $     (109.2)      $    (179.7)      $    (45.3)
     Stock-based dividend                                            (0.1)             (3.9)              --
     Accreted  interest on redeemable common shares (see
      note 16)                                                       (1.7)             (1.1)              --
     ---------------------------------------------------------------------------------------------------------
     Net loss available to common shareholders               $     (111.0)      $    (184.7)      $    (45.3)
     ---------------------------------------------------------------------------------------------------------
     Weighted average number of shares outstanding            113,109,751       106,848,314      100,000,000
     ---------------------------------------------------------------------------------------------------------
     Loss per common share - basic and diluted               $      (0.98)      $     (1.73)      $    (0.45)
     ---------------------------------------------------------------------------------------------------------
</TABLE>


                                      F-27
<PAGE>

Consolidated Financial Statements - US GAAP                         Confidential

     As a result of the net losses for each of the following fiscal periods, the
     following  potentially  dilutive  securities  have not been included in the
     calculation  of diluted loss per common share,  because to do so would have
     been anti-dilutive:

<TABLE>
<CAPTION>
                                                                       Year Ended              Ten Weeks Ended
     (number of shares)                                      April 27, 2003    April 28, 2002   April 27, 2001
     ---------------------------------------------------------------------------------------------------------
     <S>                                                       <C>                <C>              <C>
     Stock options                                                     --         1,744,242               --
     Warrants                                                   5,254,920                --               --
     Convertible debentures                                     4,885,389                --               --
     Shares issuable to the Funding Company (see note 4)               --         2,917,796        1,019,269
     ---------------------------------------------------------------------------------------------------------
     Total                                                     10,140,309         4,662,038        1,019,269
     ---------------------------------------------------------------------------------------------------------
</TABLE>

     Options that are  anti-dilutive  because the exercise price is greater than
     the average  market  price of the common  shares,  are not  included in the
     computation  of diluted  earnings per share.  For Fiscal  2003,  15,538,533
     stock  options  were  excluded  from the above  computation  of diluted EPS
     because they were  anti-dilutive  (2002 - 3,242,762  stock options;  2001 -
     14,264,150 stock options).

     Stock-based compensation

     In Fiscal 2002,  the Company  applied the  intrinsic  value based method to
     record stock compensation  expense of $0.1 as part of selling,  general and
     administrative  expense in connection with 174,072 stock options granted to
     employees in May 2001 at an exercise price per share of $3.50 when the fair
     value  of  the  underlying  common  shares,   based  on  third  party  cash
     transactions  during  similar time  periods,  was $4.00 per share.  For all
     other stock  options  granted to  employees in the periods  disclosed,  the
     exercise  price of each stock option granted was equal to the fair value of
     the underlying common share at the date of grant.

     During Fiscal 2003, the Company granted 30,000 (2002 - 320,749; 2001 - nil)
     stock  options at an  exercise  price of $2.75 (2002 - $3.50 and $4.00) per
     share to  consultants  and advisory  directors,  as well as employees  who,
     subsequent to the options grants, became former employees of the Company as
     a  result  of  the  disposal  of the  manufacturing  operations  and  other
     outsourcing  actions. The fair market value of these stock options has been
     determined  using a  Black-Scholes  model  based on the  fair  value of the
     common shares at the vesting date and, for the unvested shares, as at April
     28, 2002 ($4.00).  The following  assumptions  were used:  five-year  life,
     interest  rate of 5 percent,  volatility  of 100 percent and no  dividends.
     Unvested stock options granted to non-employees must be accounted for based
     on variable plan accounting.  Under variable plan accounting,  compensation
     expense is measured as of each  reporting  date, as the amount equal to the
     change in fair value of the stock options.  Deferred stock  compensation of
     an  immaterial  balance  (2002 - $1.0) was recorded and is being  amortized
     over the  vesting  period of four years  from the date of grant,  with $0.2
     (2002  -  $0.1;   2001  -  $nil)   amortized  into  selling,   general  and
     administrative  expense  for the year ended April 27,  2003.  The amount of
     deferred stock compensation  expense to be recorded in future periods could
     decrease if options for which  accrued but unvested  compensation  has been
     recorded are forfeited.

     In addition,  during Fiscal 2003, there were 20,000 (2002 - 1,358,421; 2001
     - nil)  stock  options  granted  to  employees  of the  Supplier  and other
     companies controlled by the Principal Shareholder. The fair market value of
     the  unvested  stock  options at the grant date was  determined  to be $0.1
     (2002 - $3.9; 2001 - $nil) based on a Black-Scholes model and recognized as
     a dividend to the Principal  Shareholder.  The following  assumptions  were
     used  in  Fiscal  2003:  five-year  life,  interest  rate  of 4.1  percent,
     volatility of 156 percent and no dividends  (Fiscal 2002 - five-year  life,
     interest rate of 5 percent, volatility of 100 percent and no dividends).


                                      F-28
<PAGE>

Consolidated Financial Statements - US GAAP                         Confidential

20.  OTHER INCOME (EXPENSE), NET

<TABLE>
<CAPTION>
                                                                                              Ten Weeks
                                                                   Year Ended                   Ended
                                                         April 27, 2003   April 28, 2002    April 27, 2001
     -----------------------------------------------------------------------------------------------------
     <S>                                                    <C>              <C>               <C>
     Foreign exchange gains (losses), net                   $   4.5          $  (1.2)          $  (0.8)
     Interest income                                            0.6              0.6               0.3
     -----------------------------------------------------------------------------------------------------
                                                            $   5.1          $  (0.6)          $  (0.5)
     -----------------------------------------------------------------------------------------------------
</TABLE>

21.  INCOME TAXES

     Details of income taxes were as follows:

<TABLE>
<CAPTION>
                                                                                              Ten Weeks
                                                                   Year Ended                   Ended
                                                         April 27, 2003   April 28, 2002    April 27, 2001
     -----------------------------------------------------------------------------------------------------
     <S>                                                   <C>              <C>               <C>
     Loss before income taxes:
     Canadian                                              $   (13.5)       $   (75.7)        $  (31.0)
     Foreign                                                  (100.0)          (103.8)           (13.4)
     -----------------------------------------------------------------------------------------------------
                                                           $  (113.5)       $  (179.5)        $  (44.4)
     -----------------------------------------------------------------------------------------------------
     Income tax recovery (expense):
     Current
       Canadian                                            $      --        $      --         $   (0.4)
       Foreign                                                   4.3             (0.2)            (0.5)
     -----------------------------------------------------------------------------------------------------
                                                           $     4.3             (0.2)        $   (0.9)
     -----------------------------------------------------------------------------------------------------
</TABLE>

     The income tax recovery (expense) reported differs from the amount computed
     by applying the Canadian rates to the loss before income taxes. The reasons
     for these differences and their tax effects are as follows:

<TABLE>
<CAPTION>
     Expected tax rate                                           38%           41%         38%
     --------------------------------------------------------------------------------------------
     <S>                                                      <C>          <C>          <C>
     Expected tax benefit                                     $   43.1     $   73.3     $   16.9
     Foreign tax rate differences                                (26.6)       (34.6)        (5.8)
     Tax effect of losses and temporary differences not
       recognized                                                (22.1)       (33.8)        (6.2)
     Tax effect from the recognition of previously
       unrecognized losses                                          --          5.2          8.7
     Corporate minimum taxes                                        --           --         (0.5)
     Permanent differences                                         5.6        (10.3)       (13.6)
     Tax  refunds  and other  adjustments  related to prior
       years                                                       4.3           --         (0.4)
     --------------------------------------------------------------------------------------------
     Income tax recovery (expense)                            $    4.3     $   (0.2)    $   (0.9)
     --------------------------------------------------------------------------------------------
</TABLE>


                                      F-29
<PAGE>

Consolidated Financial Statements - US GAAP                         Confidential

     The tax effect of components of the deferred tax assets and liabilities are
     as follows:

                                                          April 27,    April 28,
                                                            2003         2002
     ---------------------------------------------------------------------------
     Assets:
       Net operating loss carryforwards                    $   57.8    $  51.3
       Allowance for doubtful accounts                          2.7        2.9
       Inventory                                                1.6        2.2
       Restructuring and other accrued liabilities              8.4       10.0
       Pension                                                 10.7        3.2
       Research and development costs                            --        5.1
       Lease obligations and long-term debt                     1.4        1.1
       Property and equipment                                   2.8         --
       Intangible and other assets                             14.9        5.1
       Other                                                    0.3        0.1
     ---------------------------------------------------------------------------
      Total deferred tax assets                               100.6       81.0
     ---------------------------------------------------------------------------
     Liabilities:
       Property and equipment                                     --      (1.3)
     ---------------------------------------------------------------------------
      Total deferred tax liabilities                              --      (1.3)
     ---------------------------------------------------------------------------
     Total gross deferred tax assets net of total
        deferred tax liabilities                              100.6       79.7
     Valuation allowance                                     (100.6)     (79.7)
     ---------------------------------------------------------------------------
     Total deferred tax assets                             $     --    $    --
     ---------------------------------------------------------------------------

     A valuation allowance has been established due to uncertainty regarding the
     realization of the future benefit of the deferred tax assets.

     As at  April  27,  2003,  the  Company  and its  subsidiaries  had tax loss
     carryforwards of approximately  $315.5 (2002 - $264.3)  available to reduce
     future years' income for tax purposes.  These tax loss carryforwards relate
     to operations in Canada,  United States,  United Kingdom,  Italy, Hong Kong
     and Barbados and expire as follows: 2005 - $15.5; 2006 - $0.9; 2007 - $5.5;
     2008 - $50.2;  2009 to 2019 - $243.4. As a result of the acquisition of the
     Company on February 16, 2001,  there are restrictions on the use of certain
     of these losses to offset taxable income in future periods.

     As at April 27, 2003, the Company had a Canadian ITC  carryforward  balance
     of approximately $3.9 which may offset future federal income taxes payable.
     The ITCs expire in 2013.

     The Company  does not expect the  unremitted  earnings of its  subsidiaries
     will be subject to income tax or withholding  taxes as it plans to reinvest
     the earnings of its subsidiaries  indefinitely.  Accordingly,  no provision
     has been made for potential income tax or withholding taxes on repatriation
     of subsidiary earnings.  For the year ended April 27, 2003, the loss before
     income taxes attributable to all foreign operations was $100.0 (2002 - loss
     of $103.8).

22.  ACQUISITION

     On June 22, 2001, the Company  acquired  certain  assets of  privately-held
     e-smith,  Inc., a supplier of  open-source  network  server  software  with
     operations  in  Ontario,  Canada  and  in  the  United  States,  for  total
     consideration of $3.2, consisting of $0.8 in cash and 607,441 common shares
     of the  Company  valued at $2.4.  The fair value of the  common  shares was
     determined  based on the most  recent  arms-length  cash  transaction.  The
     acquisition  was accounted for using the purchase  accounting  method.  The
     purchase price was equal to the fair value of the net identifiable  assets.
     The purchase transaction is summarized as follows:


                                      F-30
<PAGE>

Consolidated Financial Statements - US GAAP                         Confidential

     Net assets acquired, at approximate fair value:

     Capital assets                                                    $  0.5
     Developed technology                                                 2.9
     -------------------------------------------------------------------------
                                                                          3.4
     Liabilities                                                         (0.2)
     -------------------------------------------------------------------------
     Total net assets                                                  $  3.2
     -------------------------------------------------------------------------
     Total consideration                                               $  3.2
     -------------------------------------------------------------------------

     Pro forma financial  information for the acquisition as if the business had
     been  acquired at the  beginning  of the year is not  presented  due to the
     insignificant impact on the Company's results of operations.

23.  PENSION PLANS

     The Company and its  subsidiaries  maintain  defined  contribution  pension
     plans  that  cover  substantially  all  employees  and the  Company's  U.K.
     subsidiary  also  maintains a defined  benefit  pension  plan.  The Company
     matches  the  contributions  of  participating  employees  to  the  defined
     contribution  pension  plans on the basis of the  percentages  specified in
     each plan. The costs of the defined contribution pension plans are expensed
     as incurred.  The defined benefit plan provides  pension  benefits based on
     length of service and final  average  earnings.  The  pension  costs of the
     defined benefit pension plan are actuarially determined using the projected
     benefits method pro-rated on services and management's best estimate of the
     effect of future events.  Pension plan assets are valued at fair value. The
     most recent  actuarial  valuation of the plan was performed as at August 1,
     2000 and has been updated to March 31, 2003.

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

     In Fiscal 2003,  the decline in global  capital  markets and interest rates
     had a negative impact on the Company's  defined benefit pension plan assets
     and  obligations.  As a result,  the  Company  was  required  to adjust the
     minimum pension liability, representing the amount by which the accumulated
     benefit  obligation less the fair value of the plan assets was greater than
     the liability previously  recognized in the consolidated balance sheet. The
     after-tax  effect of this adjustment was to increase the pension  liability
     and increase accumulated comprehensive loss by $25.4, respectively. Because
     this  adjustment  was  non-cash,  its  effect  has been  excluded  from the
     accompanying consolidated statement of cash flows.

         The Company's net benefit plan expense was as follows:

<TABLE>
<CAPTION>

                                                                                         Ten Weeks
                                                              Year Ended                   Ended
                                                   April 27, 2003    April 28, 2002   April 27, 2001
     -----------------------------------------------------------------------------------------------
     <S>                                               <C>               <C>              <C>
     Current service cost - defined contribution       $   2.6           $   4.9          $   1.1
     Current service cost - defined benefit                3.4               2.6              1.5
     Interest cost                                         6.4               4.3              1.3
     Expected return on plan assets                       (6.4)             (4.1)            (1.5)
     Expected return on plan assets                        0.2                --               --
     -----------------------------------------------------------------------------------------------
     Net pension plan expense                          $   6.2           $   7.7          $   2.4
     -----------------------------------------------------------------------------------------------
</TABLE>


                                      F-31
<PAGE>

Consolidated Financial Statements - US GAAP                         Confidential

     United Kingdom Defined Benefit Pension Plan

     The  actuarial  present value of the accrued  pension  benefits and the net
     assets  available to provide for these benefits,  at market value,  were as
     follows:

<TABLE>
<CAPTION>
                                                                              April 27,       April 28,
                                                                                 2003           2002
     --------------------------------------------------------------------------------------------------
     <S>                                                                     <C>            <C>
     Change in accrued pension benefits:
       Benefit obligation at beginning of year                               $      97.3    $      95.0
       Service cost                                                                  2.4            2.2
       Interest cost                                                                 6.4            4.3
       Plan participants' contributions                                              2.6            2.2
       Actuarial (gain) loss                                                        17.0           (3.1)
       Benefits paid                                                                (0.7)          (5.8)
       Foreign exchange                                                              0.8            2.5
     --------------------------------------------------------------------------------------------------
       Benefit obligation at end of year                                           125.8           97.3
     --------------------------------------------------------------------------------------------------
     Change in plan assets:
       Fair value of plan assets at beginning of year                               81.2           83.3
       Actual return on plan assets                                                (20.5)          (4.0)
       Employer contributions                                                        3.6            3.4
       Employee contributions                                                        2.6            2.2
       Benefits paid                                                                (0.7)          (5.8)
       Foreign exchange                                                              1.8            2.1
     --------------------------------------------------------------------------------------------------
       Fair value of plan assets at end of year                                     68.0           81.2
     --------------------------------------------------------------------------------------------------
     Unfunded status                                                               (57.8)         (16.1)
     Unrecognized net actuarial loss                                                22.0            5.8
     --------------------------------------------------------------------------------------------------
     Net pension benefit liability                                           $     (35.8)   $     (10.3)
     --------------------------------------------------------------------------------------------------
</TABLE>

     The following  assumptions  were used to determine the periodic pension
     expense and the net present value of the accrued pension benefits:

                                                       April 27,       April 28,
                                                          2003           2002
     ---------------------------------------------------------------------------
     Discount rate                                        5.5%           6.25%
     Compensation increase rate                           2.5%           3.25%
     Investment returns assumption                        7.5%           7.25%
     Average remaining service life of employees        25 years       25 years

24.  FINANCIAL INSTRUMENTS

     Fair value

     The  Company's  financial  instruments  include cash and cash  equivalents,
     accounts receivable,  long-term  receivables,  accounts payable,  long-term
     debt,  convertible  debentures,  foreign  exchange  forward  contracts  and
     foreign  exchange  swaps.  Due to the short-term  maturity of cash and cash
     equivalents,   accounts   receivable,   accounts  payable  and  convertible
     debentures,  the  carrying  value  of  these  instruments  is a  reasonable
     estimate of their fair value.  Foreign  exchange  contracts  are carried at
     fair value and amounted to $nil and $0.5 classified as other current assets
     and accounts payable and accrued liabilities, respectively, as at April 27,
     2003 (April 28, 2002 - $0.2 and $0.1, respectively).  The fair value of the
     foreign exchange  contracts  reflects the estimated amount that the Company
     would  have  been  required  to pay if forced  to  settle  all  outstanding
     contracts at year-end.  This fair value represents a point-in-time estimate
     that may not be relevant in  predicting  the Company's  future  earnings or
     cash flows. The fair value of long-term  receivables and long-term debt was
     determined  by  discounting  future cash  receipts  and future  payments of
     interest and principal, at estimated interest rates that would be available
     to the  Company  at  year-end.  The  fair  value of  financial  instruments
     approximate their carrying value with the following exceptions:


                                      F-32
<PAGE>

Consolidated Financial Statements - US GAAP                         Confidential

                                  April 27, 2003            April 28, 2002
                               ------------------        -------------------
                               Carrying      Fair        Carrying       Fair
                                Amount      Value         Amount       Value
     ---------------------------------------------------------------------------

     Long-term receivables     $     1.0    $    1.3      $    10.9   $    10.8
     Long-term debt            $   (26.6)   $  (28.4)     $   (29.4)  $   (30.7)

     Credit risk

     The  Company's  financial  assets that are  exposed to credit risk  consist
     primarily of cash and cash  equivalents and accounts  receivable.  Cash and
     cash  equivalents  are invested in  government  and  commercial  paper with
     investment  grade credit  rating.  The Company is exposed to normal  credit
     risk from customers.  However,  the Company's  orientation is global with a
     large  number of diverse  customers  to minimize  concentrations  of credit
     risk.

     Interest rate risk

     The  Company  has  credit   facilities   with  interest  rates  subject  to
     fluctuations in the prime rate or the LIBOR / Bankers' Acceptance rate. The
     Company is not exposed to other  significant  interest rate risk due to the
     short-term maturity of its monetary assets and current liabilities.

     Foreign currency risk

     The Company is exposed to currency rate  fluctuations  related primarily to
     its future net cash flows of U.S. dollars,  British pounds and Euro dollars
     from operations.  The Company uses foreign  currency forward  contracts and
     foreign  currency  swaps to  minimize  the  short-term  impact of  currency
     fluctuations on foreign  currency  receivables,  payables and  intercompany
     balances.  Foreign  currency  contracts  are recorded at fair market value.
     Related  foreign  currency  gains and losses are recorded in other expense,
     net,  in the  consolidated  statements  of  operations  and offset  foreign
     exchange gains or losses from the revaluation of intercompany  balances and
     other current assets and liabilities  denominated in currencies  other than
     the functional currency of the reporting entity.

     The Company's  foreign exchange  contracts mature within one month. For the
     year ended April 27, 2003,  other  expense,  net included a net  unrealized
     gain of $0.5  (2002 - loss of $0.1;  2001 - $nil) for  changes  in the fair
     value of foreign exchange contracts.  As of April 27, 2003, the Company had
     outstanding  foreign exchange  contracts  requiring (i) to exchange British
     Pounds for Canadian dollars with aggregate  notional amounts of $22.6 (2002
     -  $25.3),  (ii) to  exchange  Canadian  dollars  for U.S.  dollars  with a
     notional amount of $nil (2002 - U.S.$4.4),  (iii)to  exchange U.S.  dollars
     for Canadian dollars with a notional amount of $13.0 (2002 - $nil) and (iv)
     to exchange Euro dollars and U.S. dollars for British Pounds with aggregate
     notional amounts of (pound)7.6 (2002 - (pound)3.4).

     Non-derivative and off-balance sheet instruments

     Requests  for  providing   commitments   to  extend  credit  and  financial
     guarantees  are  reviewed  and  approved by senior  management.  Management
     regularly  reviews  all  outstanding  commitments,  letters  of credit  and
     financial  guarantees,  and the results of these reviews are  considered in
     assessing  the adequacy of the  Company's  reserve for possible  credit and
     guarantee  losses.  At April 27, 2003 and at April 28, 2002,  there were no
     outstanding  commitments  to extend  credit to third  parties or  financial
     guarantees  outstanding  other than  letters  of credit.  Letters of credit
     amounted  to $3.6 as of  April  27,  2003  (April  28,  2002 -  $1.2).  The
     estimated fair value of letters of credit,  which is equal to the fees paid
     to obtain the  obligations,  was immaterial as of April 27, 2003 (April 28,
     2002 - immaterial).


                                      F-33
<PAGE>

Consolidated Financial Statements - US GAAP                         Confidential

25.  SUPPLEMENTARY CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                                                             Year Ended               Ten Weeks Ended
                                                                  April 27, 2003     April 28, 2002   April 27, 2001
     ----------------------------------------------------------------------------------------------------------------
     <S>                                                            <C>                <C>               <C>
     Change in non-cash operating assets and liabilities:
       Accounts receivable                                          $    8.8           $   (6.8)         $  (10.9)
       Other receivables                                                (1.6)               6.7              (1.8)
       Inventories                                                      (2.1)             (12.7)              2.1
       Prepaid expenses                                                  3.5               (2.5)             (0.9)
       Long-term receivables                                             1.7                0.7               0.3
       Accounts payable and accrued liabilities                         (0.9)             (28.3)               5.6
       Deferred revenue                                                (10.2)               9.3               2.0
       Due from related parties                                         (0.5)                --                --
       Due to related parties                                            7.7               23.4                --
       Income and other taxes payable                                    1.8               (3.9)              2.3
     ----------------------------------------------------------------------------------------------------------------
                                                                    $    8.2           $  (14.1)         $   (1.3)
     ----------------------------------------------------------------------------------------------------------------
     Interest payments                                              $    4.3           $    2.8          $    0.1
     ----------------------------------------------------------------------------------------------------------------
     Income tax payments                                            $     --           $    3.1          $     --
     ----------------------------------------------------------------------------------------------------------------
</TABLE>


                                      F-34
<PAGE>

                             COMMUNICATIONS SYSTEMS
                                  DIVISION OF
                           ZARLINK SEMICONDUCTOR INC.
                          (FORMERLY, MITEL CORPORATION)


COMBINED STATEMENT OF REVENUES
AND DIRECT EXPENSES
(in accordance with U.S. GAAP)

FOR THE FORTY-SIX WEEK PERIOD ENDED
FEBRUARY 16, 2001

(Audited)


                                      F-35
<PAGE>

          COMMUNICATIONS SYSTEMS DIVISION OF ZARLINK SEMICONDUCTOR INC.
               COMBINED STATEMENT OF REVENUES AND DIRECT EXPENSES
              For the Forty-six Week Period Ended February 16, 2001

                                      INDEX

Auditors' Report                                                            F-37


Combined Statement of Revenues and Direct Expenses for the
Forty-six Week Period Ended February 16, 2001                               F-38


Notes to the Combined Statement of Revenues and Direct Expenses             F-39


                                      F-36
<PAGE>

AUDITORS' REPORT

To the Directors of Mitel Networks Corporation

We have  audited the combined  statement of revenues and direct  expenses of the
Communications  Systems Division (the "Division") of Zarlink  Semiconductor Inc.
("Zarlink")  (formerly  Mitel  Corporation)  for the forty-six week period ended
February  16,  2001.  This  financial  statement  is the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an  opinion on this
financial statement based on our audit.

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

In our opinion,  the combined statement of revenues and direct expenses presents
fairly,  in all  material  respects,  the  revenues  and direct  expenses of the
Division for the  forty-six  week period ended  February 16, 2001 in  accordance
with United States generally accepted accounting principles.



                                                /s/ ERNST & YOUNG LLP
                                                --------------------------------
Ottawa, Canada                                  ERNST & YOUNG LLP
August 2, 2002                                  Chartered Accountants


                                      F-37
<PAGE>

          COMMUNICATIONS SYSTEMS DIVISION OF ZARLINK SEMICONDUCTOR INC.
               COMBINED STATEMENT OF REVENUES AND DIRECT EXPENSES
              For the Forty-six Week Period Ended February 16, 2001
                        (in millions of Canadian dollars)

--------------------------------------------------------------------------------
 Revenues
   Products                                                           $   403.7
   Services                                                               111.3
 -------------------------------------------------------------------------------
                                                                          515.0
 -------------------------------------------------------------------------------

 Cost of sales
   Products                                                               240.5
   Services                                                                50.5
 -------------------------------------------------------------------------------
                                                                          291.0
 -------------------------------------------------------------------------------

 Gross margin                                                             224.0
 -------------------------------------------------------------------------------

 Other direct expenses:
   Selling, general and administrative                                    202.2
   Research and development                                                74.2
   Special charges                                                         14.8
   Amortization of acquired intangibles                                     2.7
 -------------------------------------------------------------------------------
                                                                          293.9
 -------------------------------------------------------------------------------

 Operating loss before allocated corporate expenses                   $   (69.9)
 -------------------------------------------------------------------------------

              (See accompanying notes to the combined statement of
                         revenues and direct expenses)


                                      F-38
<PAGE>

          COMMUNICATIONS SYSTEMS DIVISION OF ZARLINK SEMICONDUCTOR INC.
         NOTES TO THE COMBINED STATEMENT OF REVENUES AND DIRECT EXPENSES
                        (in millions of Canadian dollars)

1.   BACKGROUND AND BASIS OF PRESENTATION

     Background

     Mitel Networks  Corporation (the "Company") was incorporated under the laws
     of Canada on January 12, 2001. On February 16, 2001, the Company,  acquired
     the "Mitel" name and  substantially  all of the assets and  subsidiaries of
     the   Communication   Systems   Division   (the   "Division")   of  Zarlink
     Semiconductor Inc. ("Zarlink"), formerly Mitel Corporation,  excluding most
     real estate and intellectual property assets.  Zarlink,  which retained its
     semiconductor  division,  sold 90 percent of the shares of the Company (the
     "Separation") to Mitel Systems Corporation  ("Systems"),  a private company
     and unaffiliated  third party.  Zarlink retained a 10 percent  ownership in
     the Company.

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

     The  combined  statement  of  revenues  and direct  expenses  includes  the
     historical  operations of the Division that were  previously  carried on by
     Zarlink,  for the forty-six week period from Zarlink last fiscal  year-end,
     March 31, 2000, to February 16, 2001.

     Basis of Presentation

     The combined  statement  of revenues  and direct  expenses has been derived
     from the  financial  statements  and  accounting  records  of  Zarlink  and
     represents  the  historical  results of  operations  of the  Division.  The
     statement of revenues and direct expenses includes sales, cost of sales and
     operating expenses directly related to the operations of the Division,  and
     excludes any allocation of Zarlink corporate overhead expenses not directly
     attributable to the operations of the Division,  including legal,  finance,
     information systems and human resources. The combined statement of revenues
     and direct expenses also excludes interest  expense,  foreign exchange gain
     and loss and  provision for income taxes.  Following  the  Separation,  the
     Company has been  performing  these  functions  using its own  resources or
     purchased services.

     The combined  statement of revenue and direct expenses is presented instead
     of a full income  statement  due to the  complexity  and the high degree of
     judgement that would be required to estimate the various excluded  expenses
     described above.  Management  believes the significant efforts and expenses
     required  to  complete  a full  carve-out  income  statement  would  not be
     reasonable when measured  against the limited  usefulness such  information
     would provide to the readers of the financial statement.

     Management  believes the assumptions  underlying the combined  statement of
     revenues  and  direct  expenses  are  reasonable.   However,  the  combined
     statement  of  revenues  and  direct  expenses   included  herein  may  not
     necessarily  reflect  the  Company's  revenues  and direct  expenses in the
     future or what its  revenues  and direct  expenses  would have been had the
     Company been a stand-alone  company during the period  presented due to the
     omission  of various  operating  expenses  and any  planned  changes in the
     business.

     Cash Management and Working Capital

     Zarlink  used   centralized  cash  and  foreign  currency  risk  management
     strategies  with no  allocation  of cash  flows  or  cash  balances  to its
     business  segments.  As a result, a statement of cash flows of the Division
     for the  forty-six  week period ended  February 16, 2001 is not  presented.
     Similarly,  Zarlink  managed certain working capital items and the majority
     of its long-term  capital  assets and  liabilities  on a legal entity basis
     with no  allocation of these items to its


                                      F-39
<PAGE>

     business  segments.  Accordingly,  the  combined  statement of revenues and
     direct  expenses  excludes any foreign  exchange  gain or loss and interest
     expense  arising  from the  revaluation  by Zarlink of its working  capital
     items  denominated in currencies other than the functional  currency of the
     reporting entity.

     Pension Costs

     At the Separation,  the Company assumed responsibility for pension benefits
     for the  active  employees  of the  Division.  Until  the  Separation,  the
     Division's  employees  were  participants  in the  Zarlink  pension  plans.
     Zarlink  managed its pension  plans on a legal  entity  basis and  separate
     information  for the  Division is not  readily  available.  Therefore,  the
     Division's  share of the  Zarlink  plans'  assets  and  liabilities  is not
     disclosed  in the notes to the  combined  statement  of revenues and direct
     expenses. For purposes of the statement of revenues and direct expenses the
     pension  costs  were  based  on  estimated  plan  assets  being  equal to a
     proportional  share of plan  obligations  incurred by Zarlink for employees
     who performed services for the Division.

2.   ACCOUNTING POLICIES

     The combined statement of revenues and direct expenses has been prepared by
     management in accordance with United States generally  accepted  accounting
     principles.

     a) Principles of Combination

     The  combined  statement  of  revenues  and direct  expenses  includes  the
     operations of the Division  transferred to the Company,  arising from legal
     entities  located in Canada,  the United States and the United  Kingdom for
     which no direct ownership relationship existed.  Intercompany  transactions
     between  the  entities   comprising  the  Division  have  been  eliminated.
     Transactions  between  the  Division  and other  businesses  of Zarlink are
     included in the combined  statement of revenues and direct expenses and are
     disclosed as related party transactions.

     b) Use of Estimates

     The preparation of the Division's combined statement of revenues and direct
     expenses in conformity  with United States  generally  accepted  accounting
     principles  requires  management  to make  estimates and  assumptions  that
     affect the reported  amounts of revenues and expenses  during the reporting
     period.  Estimates are used for, but not limited to, the accounting for the
     allowance for doubtful  accounts,  inventory  allowances,  special charges,
     depreciation   and   amortization,   warranty  costs,   sales  returns  and
     contingencies.  Estimates and assumptions are reviewed periodically and the
     effects of revisions  are  reflected  in the  financial  statements  in the
     period they are  determined  to be necessary.  Actual  results could differ
     from these estimates.

     c) Foreign Currency Translation

     Income and expenses of the  Division's  foreign  operations  are translated
     from foreign  currencies  into Canadian  dollars at average  exchange rates
     during the  period.  Foreign  exchange  gains and losses  arising  from the
     revaluation  of monetary  items are excluded from the statement of revenues
     and direct expenses.

     d) Revenue Recognition

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

     Indirect channels

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


                                      F-40
<PAGE>

     allocated proportionately.  Revenue attributable to undelivered elements is
     deferred  and  recognized  upon  performance  or ratably  over the contract
     period.

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

     Direct channels

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

     Certain  arrangements  with  direct  customers  provide  for free  customer
     support and maintenance  services  extending twelve months from the date of
     installation.  Customer  support and  maintenance  contracts  are also sold
     separately. When customer support or maintenance services are provided free
     of charge,  such amounts are  unbundled  from the product and  installation
     revenue at their fair  market  value based on the prices  charged  when the
     element is sold separately and recognized ratably over the contract period.
     Consulting and training revenues are recognized upon performance.

     The  Division  provides  long-term  outsourcing  services of  communication
     systems.  Under these  arrangements,  systems management services ("Managed
     Services") and communication  equipment are provided to customers for terms
     that typically range from one to ten years.  Revenue from Managed  Services
     is recognized  ratably over the contract period. The Division retains title
     and risk of loss associated with the equipment utilized in the provision of
     the Managed Services.  Accordingly, the equipment is capitalized as part of
     property and  equipment and is amortized to cost of sales over the contract
     period.

     e) Inventory Obsolescence Provision

     The Division  provides  inventory  allowances based on estimated excess and
     obsolete inventories.

     f) Depreciation and Amortization Method

     Depreciation   of   property,   plant  and   equipment  is  provided  on  a
     straight-line  basis  over the  anticipated  useful  lives  of the  assets.
     Estimated  useful  lives  range from three to ten years for  equipment  and
     twenty-five years for buildings.  Amortization of leasehold improvements is
     computed  using the  shorter of the  remaining  lease  terms or five years.
     Amortization of intangible assets is recorded on a straight-line basis over
     five  years  for  patents  and  trademarks  and over two  years  for  other
     intangible assets.

     g) Research and Development

     Research  costs are  charged to  expense  in the  periods in which they are
     incurred.  Software  development  costs are  deferred  and  amortized  when
     technological feasibility has been established,  or otherwise, are expensed
     as incurred.  The Division has not deferred any software  development costs
     to date,  except  intangible  assets  acquired on February 16, 2001 arising
     from push-down accounting.


                                      F-41
<PAGE>

     h) Stock-Based Compensation

     During the forty-six week period ended February 16, 2001, Zarlink accounted
     for stock option  grants in accordance  with  Accounting  Principles  Board
     Opinion No. 25 ("APB 25"),  "Accounting for Stock Issued to Employees," and
     related  Interpretations.  In accordance with Zarlink policy,  the exercise
     price of the  Zarlink's  stock options was equal to the market price of the
     underlying stock on the date of grant. Accordingly,  under rules of APB 25,
     no related  compensation  expense  was  recorded  in  Zarlink's  results of
     operations,  and  therefore  the combined  statement of revenues and direct
     expenses did not include stock-based compensation cost.

     i) Defined Benefit Pension Plan

     Pension  expense is  actuarially  determined  using the  projected  benefit
     method  prorated on service and  management's  best  estimate  assumptions.
     Pension plan assets are valued at fair value.  The excess of any cumulative
     net  actuarial  gain  (loss) over ten percent of the greater of the benefit
     obligation  and the fair value of plan assets is amortized over the average
     remaining service period of active employees.

     j) Advertising Costs

     The cost of  advertising  is expensed as incurred,  except for  cooperative
     advertising  obligations  which are expensed at the time the related  sales
     are recognized. The Division incurred $14.5 in advertising costs during the
     forty-six week period ended February 16, 2001.

     k) Rental Costs

     The Division leased equipment and facilities under operating leases. Rental
     costs amounted to $10.4 during the forty-six week period ended February 16,
     2001.

3.   SEGMENT INFORMATION

     General description

     Prior to the Separation, Zarlink reported the operations of the Division as
     one  of  its  business  segments  with  no  additional  segregation  of the
     Division's  operations.  Following the Separation from Zarlink, the Company
     started  to report  its  operations  in two  segments:  the  Communications
     Solutions   segment   ("Solutions")   and  the  Customer  Services  segment
     ("Services"). The segmented information of the Division presented herein is
     based on this segmentation.  The Solutions segment represents the Company's
     core   business,   consisting   of   enterprise   voice,   video  and  data
     communications systems and software as well as communications applications.
     These  Solutions  are provided  through the  Company's  dealer and reseller
     network and are used by large  enterprises,  small and medium businesses as
     well as government,  education and healthcare  organizations.  The Services
     segment  consists  of  direct  product  sales  and  services,  professional
     services,  maintenance and technical support  services.  These services are
     provided  through the  Company's  direct  sales  offices  throughout  North
     America and Europe.

     The Company's  Chief  Executive  Officer ("CEO") has been identified as the
     chief operating  decision  maker.  The CEO evaluates the performance of the
     segments  and  allocates  resources  based on  information  provided by the
     Company's  internal  management  system which reports  segmented  operating
     income (loss) representing sales less the cost of sales and direct expenses
     incurred  within the  operating  segments.  The Company  does not  allocate
     general and administrative  expenses,  amortization of acquired intangibles
     and  one-time  charges  to its  segments  as  management  does not use this
     information  to measure the  performance of the operating  segments.  These
     unallocated  expenses  are  included  in  other  in the  reconciliation  of
     operating results.  Inter-segment sales are based on fair market values and
     are  eliminated  on  consolidation.  The  accounting  policies  of reported
     segments  are the same as those  described  in the  summary of  significant
     accounting policies.


                                      F-42
<PAGE>

     Business segments

     The  following  table sets forth  information  by business  segment for the
     forty-six week period ended February 16, 2001:

<TABLE>
<CAPTION>
                                                          Solutions      Services         Other         Total
     ---------------------------------------------------------------------------------------------------------
       <S>                                                <C>            <C>            <C>           <C>
       External revenue                                   $  244.7       $  270.3       $     --      $  515.0
       Inter-segment revenue                                  54.9             --          (54.9)           --
     ---------------------------------------------------------------------------------------------------------
       Total revenue                                      $  299.6       $  270.3       $  (54.9)     $  515.0
     ---------------------------------------------------------------------------------------------------------
       Depreciation of capital assets (including
         assets under capital lease)                      $   12.0       $    2.9       $    6.6      $   21.5
     ---------------------------------------------------------------------------------------------------------
       Segment operating income (loss)                    $  (32.4)      $   25.4       $     --      $   (7.0)
       Corporate and unallocated shared expenses                --             --          (45.4)        (45.4)
       Special charges                                          --             --          (14.8)        (14.8)
       Amortization of acquired intangibles                     --             --           (2.7)         (2.7)
     ---------------------------------------------------------------------------------------------------------
       Operating income (loss)                            $  (32.4)      $   25.4       $  (62.9)     $  (69.9)
     ---------------------------------------------------------------------------------------------------------
</TABLE>

     Product information

     The following table sets forth net sales for groups of similar products and
     services for the forty-six week period ended February 16, 2001:

     ---------------------------------------------------------------------------
     Products:
      Communications platforms and desktop appliances                  $   275.6
      OEM products                                                          63.6
      Software applications                                                 28.0
      Other (1)                                                             36.5
     ---------------------------------------------------------------------------
                                                                           403.7
     ---------------------------------------------------------------------------
     Services:
      Maintenance, support and training                                    102.7
      Professional services                                                  4.9
      Managed services                                                       3.7
     ---------------------------------------------------------------------------
                                                                           111.3
     ---------------------------------------------------------------------------
     Total                                                             $   515.0
     ---------------------------------------------------------------------------

(1)  Other  products   include  mainly   Network   Access   Solutions   products
     representing 7 percent of total revenue.

     Geographic information

     Revenues from external  customers are attributed to geographic  areas based
     on location of the  customers.  The  following  table sets forth revenue by
     geographic areas for the forty-six week period ended February 16, 2001:

     ---------------------------------------------------------------------------
     Canada                                                              $  33.5
     United States                                                         248.5
     United Kingdom                                                        186.2
     Other foreign countries                                                46.8
     ---------------------------------------------------------------------------
     Total                                                               $ 515.0
     ---------------------------------------------------------------------------


                                      F-43
<PAGE>

     Concentrations

     The Division  sold its products and services to a broad set of  enterprises
     ranging  from  large,  multinational  enterprises,  to small and  mid-sized
     enterprises,  government  agencies,  health care organizations and schools.
     Management  believes that the Division is exposed to minimal  concentration
     risk since the majority of its business is conducted with companies  within
     numerous industries.  No single customer accounted for more than 10 percent
     of the Division's  revenue for the forty-six week period ended February 16,
     2001.

4.   AMORTIZATION OF ACQUIRED INTANGIBLES

     The Division recorded  amortization of acquired  intangibles of $2.7 in the
     first two months of the  forty-six  week period  ended  February  16, 2001,
     related  to two  business  acquisitions  completed  by Zarlink in May 1998.
     These two  acquisitions  were  integrated as part of the  operations of the
     Division.  The first acquisition  related to certain assets of the Customer
     Premises Equipment Business Unit of Centigram  Communications  Corporation,
     also known as the Advanced  Messaging  business unit of the  Division.  The
     second  acquisition  related  to the  products,  technology,  research  and
     development   facilities   and  sales   and   marketing   organization   of
     Glasgow-based  TSc,  also  known  as the ISDN PBX  business  unit.  Zarlink
     accounted for these two  acquisitions  by the  application  of the purchase
     accounting method and as a result,  recorded total identifiable  intangible
     assets  and  goodwill  of  $42.6,   net  of  in-process   technology.   The
     identifiable  intangible  assets and the goodwill were amortized over a two
     year period according to Zarlink's accounting policy.

5.   SPECIAL CHARGES

     During the  forty-six  week period ended  February  16, 2001,  the Division
     executed   restructuring   programs   to  reduce  its   sales,   marketing,
     administrative  and R&D  workforce  and actions  were taken to downsize and
     consolidate the operations of the Advanced  Messaging  business unit and to
     discontinue the GX-5000 product line based on the decision to exit non-core
     operations.  Accordingly,  special  charges of $14.8 were  recorded  in the
     forty-six week period ended February 16, 2001.  These charges were composed
     of workforce  reduction  costs of $10.1  related to severance  and benefits
     associated  with 238 terminated  employees  across all business  functions,
     predominantly  in North America and the United Kingdom.  As a result of the
     closure of the Advanced Messaging business unit and the exit of the GX-5000
     product line, the Division recorded office closure and related moving costs
     of $2.0, a fixed asset write-down of $2.2 related to impaired  research and
     development  and office  equipment  and  professional  fees of $0.5.  These
     restructuring  programs  were  completed  in the first six months of Fiscal
     2002.

6.   CONTINGENCIES

     The  Division  was a  defendant  in a small  number of claims or  potential
     claims  that have  arisen in the  normal  course  of its  business.  In the
     opinion  of  the  Division's  legal  counsel,  any  monetary  liability  or
     financial  impact of such claims or potential  claims to which the Division
     might be subject  after  final  adjudication  would not be  material to the
     combined results of operations of the Division.

7.   RELATED PARTY TRANSACTIONS

     During the  forty-six  week period ended  February  16, 2001,  the Division
     purchased $11.6 of products from the  semiconductor  division of Zarlink in
     the normal course of its operations  under terms and conditions  reflecting
     prevailing  market  conditions  at  the  time  of the  transactions.  Other
     expenses  incurred  as a result  of  transactions  with  the  semiconductor
     division of Zarlink  amounted to $0.4 for the  forty-six  week period ended
     February 16, 2001.


                                      F-44
<PAGE>

8.   PENSION PLANS

     Zarlink and its subsidiaries  maintained defined contribution pension plans
     that cover substantially all employees and the United Kingdom subsidiary of
     Zarlink also maintained a defined benefit pension plan. Zarlink matched the
     contributions  of  participating  employees  to  the  defined  contribution
     pension plans on the basis of the  percentages  specified in each plan. The
     costs of the defined  contribution pension plans were expensed as incurred.
     Zarlink's defined benefit plan provided pension benefits based on length of
     service  and final  average  earnings.  The  pension  costs of the  defined
     benefit  pension  plan were  actuarially  determined  using  the  projected
     benefits method pro-rated on services and management's best estimate of the
     effect of future events.  The most recent  actuarial  valuation of the plan
     was performed as at February 16, 2001.

     Immediately  following  the  Separation,  the employees of the Division who
     were members of the Zarlink  defined benefit pension plan became members of
     a new  defined  benefit  pension  plan  created  by the  Company  and  that
     replicated the same benefits  available  under the Zarlink  defined benefit
     pension plan. In June 2001, the Company's  defined benefit pension plan was
     closed to new employees and a defined contribution option was introduced to
     members of the defined benefit pension plan.  Members were given the choice
     to continue in the defined  benefit  plan or transfer  their  assets to the
     defined contribution plan.

     The Division's net benefit plan expense for the forty-six week period ended
     February 16, 2001 was as follows:

     ---------------------------------------------------------------------------
     Current service cost - defined contribution                        $  4.5
     Current service cost - defined benefit                                4.9
     Interest cost                                                         4.7
     Expected return on plan assets                                       (5.6)
     ---------------------------------------------------------------------------
     Net pension plan expense                                           $  8.5
     ---------------------------------------------------------------------------


                                      F-45
<PAGE>


                                   SCHEDULE II
                        VALUATION OF QUALIFYING ACCOUNTS
                              AS AT APRIL 27, 2003
                        (in millions of Canadian dollars)

                                          Additions
                                    ----------------------
                        Balance,                Charged to              Balance,
                      Beginning of  Charged to    other                  End of
Description             Period       expenses    accounts   Deductions   Period
--------------------------------------------------------------------------------
Allowance for
  doubtful accounts

Fiscal 2001             $ 4.0        $ 0.3        $  --      $ (0.2)     $ 4.1
Fiscal 2002               4.1          2.7           --        (0.5)       6.3
Fiscal 2003               6.3          0.6           --        (3.0)       3.9


                                      F-46