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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 40-F

(Check One)

|_|    Registration statement pursuant to Section 12 of the Securities Exchange
       Act of 1934
                                       or
|X|    Annual report pursuant to Section 13(a) or 15(d) of the Securities
       Exchange Act of 1934

       For fiscal year ended:   March 31, 2002   Commission File number: 1-31402

                                    CAE INC.
             (Exact name of Registrant as specified in its charter)

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<S>                                                      <C>                                 <C>
              CANADA                                     3699                                NOT APPLICABLE
(Province or Other Jurisdiction of   (Primary Standard Industrial Classification    (I.R.S. Employer Identification
  Incorporation or Organization)              Code Number, if applicable)                Number, if applicable)

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      SUITE 3060, ROYAL BANK PLAZA, SOUTH TOWER, TORONTO, ONTARIO, M5J 2J1

                                  416-865-0070
    (Address and Telephone Number of Registrant's principal executive office)

              CT CORPORATION SYSTEM, 111 EIGHTH AVENUE, 13th FLOOR,
                       NEW YORK, NY 10011 (212) 894-8700
 (NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE IN THE UNITED STATES)

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

Title of Each Class                                    Name of Each Exchange
                                                       On Which Registered
-------------------------------------------------------------------------------
COMMON SHARES,                                         NEW YORK STOCK EXCHANGE
INCLUDING ASSOCIATED COMMON SHARE
PURCHASE RIGHTS PURSUANT TO THE REGISTRANT'S
SHAREHOLDER RIGHTS PLAN, WHICH PURCHASE RIGHTS
WILL TRADE TOGETHER WITH THE COMMON SHARES

Securities registered or to be registered pursuant to Section 12(g)
of the Act: none

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

For annual reports, indicate by check mark the information filed with this form:
|X|   Annual Information Form        |_|   Audited Annual Financial Statements

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: 218,955,780.

Indicate by check mark whether the registrant by filing the information
contained in this form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934
(the "Exchange Act"). If "Yes" is marked, indicate the file number assigned to
the registrant in connection with such rule. Yes |_| No |X|

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13(d) or 15(d) of the Exchange Act during the
proceeding 12 months (or for such shorter period that the registrant has been
required to file such reports); and (2) has been subject to such filing
requirements in the past 90 days. Yes |X| No |_|

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                                   [LOGO CAE]









                             ANNUAL INFORMATION FORM
                                      2002






                                                               CORPORATE OFFICES
                                                         SUITE 3060, P.O. BOX 30
                                                                ROYAL BANK PLAZA
AUGUST 7, 2002                                          TORONTO, ONTARIO M5J 2J1

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                                TABLE OF CONTENTS

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<S>                <C>                                                             <C>
ITEM 1             COVER PAGE..................................................... 1

ITEM 2             CORPORATE STRUCTURE OF CAE .................................... 3
                   2.1    Name and Incorporation.................................. 3
                   2.2    Intercorporate Relationships............................ 3

ITEM 3             GENERAL DEVELOPMENT OF THE BUSINESS............................ 3
                   3.1(a) General................................................. 3
                   3.1(b) History................................................. 4
                   3.2    Industry Overview and Trends............................ 7
                   3.2(a) Civil Simulation and Training........................... 7
                   3.2(b) Military Simulation and Marine Controls................. 9

ITEM 4             NARRATIVE DESCRIPTION OF THE BUSINESS .........................11
                   4.1    General.................................................11
                   4.2    Civil Simulation and Training...........................13
                   4.3(a) Military Simulation and Training........................14
                   4.3(b) Marine Controls.........................................15
                   4.4    Discontinued Operations.................................16
                   4.5    Research and Development................................16
                   4.6    Employees and Labour Relations..........................17
                   4.7    Manufacturing...........................................17
                   4.8    Competition.............................................18
                   4.9    Government Contracts....................................18
                   4.10   Intellectual Property...................................19
                   4.11   Environment.............................................19
                   4.12   Risk Factors............................................19

ITEM 5             SELECTED CONSOLIDATED FINANCIAL INFORMATION ...................24
                   5.1    Annual Information......................................24
                   5.2    Dividends...............................................25

ITEM 6             REVIEW OF OPERATIONS AND
                          MANAGEMENT'S DISCUSSION AND ANALYSIS ...................25

ITEM 7             MARKET FOR SECURITIES..........................................25

ITEM 8             DIRECTORS AND OFFICERS ........................................25

ITEM 9             ADDITIONAL INFORMATION.........................................30

SCHEDULE "A"       SUBSIDIARIES...................................................31
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                      INFORMATION INCORPORATED BY REFERENCE

The Company's Review of Operations and Management's Discussion and Analysis,
consolidated financial statements for the year ended March 31, 2002, and the
notes thereto (the "Consolidated Financial Statements") appear on pages 17 to 26
and pages 28 to 49 respectively in the Annual Report to Shareholders for the
year ended March 31, 2002 (the "Annual Report"). The information contained
therein is specifically incorporated by reference into this Annual Information
Form. Any parts of the Annual Report not specifically incorporated by reference
do not form part of this Annual Information Form.

UNLESS OTHERWISE NOTED, ALL DOLLAR REFERENCES IN THIS ANNUAL INFORMATION FORM
ARE EXPRESSED IN CANADIAN DOLLARS.

References to fiscal 2002 refer to the period from April 1, 2001 to March 31,
2002, references to fiscal 2001 refer to the period from April 1, 2000 to March
31, 2001 and references to fiscal 2000 refer to the period from April 1, 1999 to
March 31, 2000.


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ITEM 2 - CORPORATE STRUCTURE OF CAE

2.1  NAME AND INCORPORATION

March 17, 1947:     CAE Inc. (the "Company" or "CAE") was incorporated under the
                    name Canadian Aviation Electronics Ltd. under the laws of
                    Canada by letters patent.

July 5, 1965:       The name of the Company was changed to CAE Industries Ltd.

August 3, 1977:     The Company was continued under the Canada Business
                    Corporations Act (the "CBCA") by certificate of continuance.

June 10, 1993:      The Company changed its name to its present one, CAE Inc.

In 1979, the articles of the Company were amended to change its authorized share
capital to an unlimited number of common shares. Each issued and outstanding
Class A and Class B share was redesignated and changed into three common shares.

In 1981, the Company's articles were again amended to subdivide the issued and
outstanding common shares on a three-for-one basis, and to authorize an
unlimited number of preferred shares, issuable in series, with such rights,
privileges, restrictions and conditions as the directors of the Company may
determine by resolution. The articles were amended further in 1984 and 1986,
in each case to subdivide the issued and outstanding common shares on
a two-for-one basis.

On June 9, 1995, the Company's articles were amended to authorize the directors
to appoint additional directors in accordance with the provisions of the CBCA.

On April 1, 2001, the Company was amalgamated with CAE Electronics Ltd., its
wholly-owned subsidiary.

The Company's registered offices are located at Suite 3060, Royal Bank Plaza,
Toronto, Ontario, M5J 2J1, telephone: (416) 865-0070, fax: (416) 865-0337.

2.2  INTERCORPORATE RELATIONSHIPS

The direct and indirect subsidiaries of the Company are set out in Schedule "A"
hereto.


ITEM 3  - GENERAL DEVELOPMENT OF THE BUSINESS

3.1(a) GENERAL

Following incorporation in 1947, CAE's primary business focused on the repair
and overhaul of electronic and electro-mechanical equipment, as well as the
design and installation of telecommunication and navigational systems. By the
early 1950s, the Company had started to pursue new areas of opportunity in the
design, development and manufacture of flight, radar and weapons simulators for
Canadian defense requirements. A few years later, CAE began its commercial
flight simulation activities.

From the 1960s on, the Company embarked on a program of growth and
diversification. CAE acquired several new businesses, both in its traditional
aerospace and electronics market segment and in several industrial technology
segments. The industrial technology businesses provided a number of diverse
engineered products and services for industries worldwide, chiefly those
involved in fiber processing technologies (forest products, pulp and paper),
cleaning technologies (automotive parts, medical equipment and electronic food
processing), and railway technologies and services.

The strategy was significantly changed in fiscal 2000, with the focus turned to
the Company's core strengths and key opportunities.


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Over the last two years, CAE has executed this strategy, divesting itself of its
non-core businesses and undergoing a significant transformation from being
primarily a manufacturer of simulation and controls equipment to a provider of
fully integrated training in its three core businesses: Civil Simulation and
Training, Military Simulation and Training and Marine Controls. The Company is
leveraging its technology, expertise and customer relationships acquired in
supplying high quality simulation equipment and services to develop integrated
training solutions for military forces, commercial airlines, business aircraft
operators, aircraft manufacturers and marine vessel operators. Training
solutions are customized to meet customers' varied needs for a range of
equipment, facilities, training materials, support services and personnel.

3.1(b) HISTORY

The transformation of CAE began in fiscal 2000.

In February 2000, the Company announced a "Repositioning for Value" strategy
intended to improve shareholder value. The strategy, developed from an intensive
review of CAE's core strengths and an analysis of key opportunities, had three
main elements:

     FOCUS:   Divesting non-core businesses and concentrating on three high
              growth, high margin businesses: Commercial Simulation and
              Training, Military Simulation and Controls, and Forestry Systems.

     FIX:     A combination of integration, consolidation and productivity
              measures intended to reduce costs, increase efficiency, and
              enhance CAE's competitiveness.

     GROW:    A series of growth initiatives enabling CAE to expand the scope of
              its core businesses.

Significant progress has been achieved in implementing this strategy:

FOCUS

The Company concluded the sale of the Railway Technologies and Services Group in
fiscal 2000.

In the first quarter of fiscal 2001, the Company sold substantially all the
assets of its Energy Control Systems business to SNC-Lavalin Group Inc.

On December 18, 2001, the Board of Directors approved a plan to divest CAE's
Forestry Systems business segment to further sharpen the Company's focus.

On February 28, 2002, the Company completed the sale of two of CAE's Cleaning
Technologies operations. The Company sold CAE Ransohoff Inc., of Cincinnati,
Ohio and CAE Ultrasonics, Inc., of Jamestown, New York, to the former management
of these operations.

On March 28, 2002, CAE completed the sale of its fiber screening business to the
Advanced Fiber Technologies Income Fund.

On June 28, 2002, CAE completed the sale of CAE Cleaning Technologies plc,
another of CAE's Cleaning Technologies operations, to the same former management
group which previously purchased CAE Ransohoff Inc. and CAE Ultrasonics, Inc.

On July 31, 2002 CAE signed a purchase and sale agreement for its sawmill
businesses with the parent company of COE manufacturing.

Negotiations to sell the remaining Forestry Systems businesses are proceeding
and CAE expects to conclude agreements to dispose of some or all of the
remaining businesses during fiscal 2003.


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FIX

Through a combination of divestments and consolidations the Company reduced the
number of profit centres from 21 to 3, signifying most dramatically how the
Company changed the manner in which it manages its businesses.

CAE's Operations and Engineering groups are reducing the cost and production
time of commercial simulators while simultaneously improving the product
quality. Together, these efforts contributed to a strong increase in operating
margins (from 11.3% in fiscal 2000 to 21.5% in fiscal 2002).

CAE is investing in software and hardware innovations that will sustain its
leading edge technologies and complement the entry into pilot training. The
Company's next generation simulator, Sim XXI(TM) achieved a significant
technical milestone with the inaugural test flight in January 2002. The first
production of these simulators is underway and will be delivered to CAE's
training centres in fiscal 2003.

The corporate functions - finance, treasury, human resources, communications and
business development - are now fully integrated into the businesses.

Specific productivity goals have been established for each profit centre.

GROW

The most significant growth initiatives stem from CAE's decision to make a
major, but disciplined, move into pilot training, the Company's commitment to
increase its access to the US and European military markets and its decision to
expand the scope of the Marine Controls product offering to include the
commercial marine sector.

During fiscal 2002, CAE completed four strategic acquisitions, two of which
accelerated CAE's move into aviation training, one which significantly improved
the Company's access to the US defense market and one which provided immediate
entry into the commercial marine control systems market:

     -   On April 2, 2001, the Company acquired all of the issued and
         outstanding shares of BAE SYSTEMS Flight Simulation and Training Inc.
         (now called CAE USA Inc.) located in Tampa, Florida. The business has a
         well-established position in the US defense market for the manufacture
         of transport and helicopter simulation equipment and has significant
         training and support service activities for both civil and military
         markets.

     -   On August 1, 2001, the Company acquired all of the issued and
         outstanding shares of Valmarine AS of Norway. Valmarine is the global
         leader for marine control systems for the commercial market.

     -   On August 24, 2001, the Company acquired all of the issued and
         outstanding shares of the Netherland-based Schreiner Aviation Training
         B.V. The business provides simulator and ground-school civil aviation
         training through its four established training centres (Amsterdam and
         Maastricht, The Netherlands, Brussels, Belgium, and Dallas, Texas),
         adding a total of 19 full flight simulators to the Company's existing
         network of training facilities.

     -   On December 31, 2001, the Company acquired all of the issued and
         outstanding shares of SimuFlite Training International Inc. (now called
         CAE SimuFlite Inc. ("SimuFlite")) from GE Capital Equipment Financing
         ("GEC"). Headquartered in Dallas, Texas, with over 370 employees,
         SimuFlite operates two training facilities in Dallas, Texas and a C-130
         training facility in Marietta, Georgia. SimuFlite is the world's second
         largest provider of business aviation training. The acquisition of
         SimuFlite was completed on December 31, 2001 for US$210.9 million,
         subject to an adjustment based on an audit of the closing balance
         sheet. In addition, simulator equipment in the amount of US$54 million
         was financed through a sale and leaseback transaction with GEC. The
         acquisition was accounted for using the purchase method. The allocation
         of the purchase price was to net non-cash working capital for $14.8
         million, tangible assets for $175.8 million, intangible assets for
         $76.9 million, goodwill for


                                       5
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         $106.3 million, future income tax for $15.1 million and long-term debt
         for $52.4 million. Up until this strategic move, entry into aviation
         training had concentrated on the wide-bodied and regional jet markets
         in the civil sector. The acquisition of SimuFlite positions CAE in the
         business-aircraft training segment-- and in the key US market. Next
         year, SimuFlite will have 29 full flight simulators, all but one in
         Dallas, serving the business-aircraft market (the largest addressable
         or out-sourced aviation training market in the world). CAE views this
         market segment as the one least affected by the events of September 11,
         2001 and one with solid growth potential. It is also a market
         specifically suited to CAE's new, next generation simulator
         -- CAE Sim XXI.

In addition to acquisitions, CAE's move into civil aviation and training was
further accelerated with the launch of four new training centre initiatives:

     -   On April 19, 2001, CAE inaugurated its first flight training centre in
         Sao Paulo, Brazil and announced the anchor tenant Aeros Meridionais SA.

     -   On July 14, 2001, CAE and Emirates, the international airline of the
         United Arab Emirates, signed an agreement to build and operate jointly
         a training centre in Dubai. The centre is scheduled to open in the
         second quarter of fiscal 2003 but training is already taking place in a
         temporary facility.

     -   In November 2001, construction began on CAE's aviation training centre
         in Denver, Colorado. The centre, owned and operated by CAE, became
         operational in July 2002.

     -   On December 13, 2001, CAE inaugurated its Toronto Aviation Training
         Centre near Pearson International Airport and announced an agreement
         with Air Canada to train its Boeing 747-400 pilots at the new facility.
         Air Canada is the fourth Canadian airline anchor tenant at the Centre,
         joining Air Canada Jazz (formerly Air Canada Regional Inc.), Skyservice
         and Air Transat. The Centre provides training on three full flight
         simulators, an Airbus A330/340, an Airbus A320 and a Boeing 747-400.
         A fourth simulator for the Bombardier Dash 8-100/300 will be installed
         in 2003.

On July 17, 2000, the MSH Aircrew Training Facility (MSHATF) officially opened
at Royal Air Force (RAF) Base Benson in Oxfordshire. The facility provides
training to the RAF and third party customers on the Eurocopter Puma, Boeing
CH-47 Chinook, and EHI EH-101 Merlin helicopters. The MSHATF is equipped with
six CAE-built full mission simulators, four computer-based training classrooms,
and a state-of-the-art tactical control centre to plan and monitor training
missions. It is staffed with a team of highly experienced former military
instructors. Of the total initial contract, valued at (pound)399 million,
(pound)274 million ($633 million) is still included in our backlog, being the
"take or pay" training commitment of the UK Ministry of Defence. The balance of
the contract consists of subcontract work and third party financing.

During the second quarter of fiscal 2002, the FAST Consortium, owned half by CAE
and half by Alenia Marconi Systems, signed a contract with the Defence
Procurement Agency of the UK Ministry of Defence for the Astute Class Submarine
Training program. This Private Finance Initiative contract is for the provision
of comprehensive training services to the Royal Navy for 30 years, with an
option to renew for an additional 10 years, in the operation and maintenance of
the Astute Class submarines. A new training centre is being built in Scotland to
house the simulators and provide classroom-training facilities. The contract
added over $400 million to the Company's backlog and complements the other
growth initiatives in the Marine Controls segment. Also during the second
quarter, Eurofighter Simulation Systems GmbH selected CAE for visual systems for
the Eurofighter EF2000 combat aircraft Aircrew Synthetic Training Aids program.
Valued at over $170 million, the contract extends over several years, with the
first deliveries to take place in calendar year 2002.

In July 2002, CAE was selected as one of several prime contractors under the
United States Air Force (USAF) Training Systems Acquisition II contract. This
permits CAE to pursue USAF, Air Force Reserve, Air National Guard and Foreign
Military Sale products and services programs. During the fourth quarter of
fiscal 2002, CAE signed a contract with the US Army to be the prime contractor
for the Army Special Operations Forces Aviation Training and Rehearsal Systems
(ASTARS). The initial delivery order, valued at approximately $50 million, is
for the design of the world's first AH/MH-6 Light Assault/Attack Reconfigurable
(LASAR) Combat Mission Simulator to train aircrews of both the AH-6 and MH-6
helicopters. The helicopter simulator, which will feature a 24-foot dome
display, will be used by the US Army 160th Special Operations Aviation Regiment
(SOAR), the


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elite regiment of soldiers known as the "Night Stalkers", who have played a key
role in Afghanistan. As prime contractor for the ASTARS program, CAE will also
analyze the training and simulation needs of the US Army 160th SOAR and assist
in the development of upgrades to existing systems and new training systems.
This contract enhances CAE's prospects for securing other US military contracts
at a time when military spending is on the rise.

3.2  INDUSTRY OVERVIEW AND TRENDS

The military and civil markets CAE serves are driven by factors particular to
each market. The Company believes the military market is most influenced by a
combination of defense spending and the nature of military activity. CAE
believes the civil market is most affected by the nature and composition of
aircraft fleets, pilot demographics, certification requirements and market
demand for commercial and business air travel.

3.2(a) CIVIL SIMULATION AND TRAINING

The use of flight simulators in pilot and crew training is well established
within the commercial and business markets. Increased utilization of simulators
has occurred as a result of the growth in commercial and business air travel
which, in turn, has driven fleet expansion and increased demand for pilot
training. Civil simulator usage has also increased due to advances in technology
that enable increased realism and the significant cost savings provided by
flight simulation training compared to actual flight time. The use of
synthetically-generated reproductions of airport configurations and terrain
incorporated into the simulation further enhance the effectiveness of simulation
training. Simulators are also utilized by pilots to supplement actual flying
time to maintain their certification. Today's most sophisticated civil flight
simulators are rated Level D by the US Federal Aviation Administration or
receive similar ratings from regulatory authorities in other countries,
indicating that a pilot can be certified to fly an aircraft type based solely on
simulator training. Flight simulators also allow pilots to experience and learn
emergency procedures that cannot be practiced safely aboard the actual aircraft.

Flight simulation equipment is purchased by major and regional airlines,
aircraft manufacturers and independent training providers. Simulators are
manufactured by a limited number of companies and are sold based on the criteria
of product quality, service, delivery, supplier reputation, price and life cycle
costs. In fiscal 2002, 26 full flight simulators were sold to third parties in
the global competed market, in which contracts are awarded on the basis of a
competitive bidding process. Prices for civil flight simulation equipment can
range from US$2 to US$5 million for a flight training device to US$12 to US$14
million for a full flight simulator.

Within the flight simulation industry, training services is the largest and
fastest growing market segment. The training services market consists of sales
of equipment systems, facilities, tools and programs designed to enable pilots
to obtain and retain the necessary qualifications to pilot a particular
aircraft, and to enable maintenance workers to inspect, maintain and repair
aircraft. Training is carried out by airlines as well as independent training
providers. Currently, approximately 45% of the full flight simulators in use
around the world are owned and operated by commercial airlines to provide
training to their pilots, with the vast majority owned by large commercial
airlines. These large commercial airlines also use independent training
facilities to supplement their training programs. Ownership of simulators by
regional airlines and business aircraft operators is considerably less common.
As a result these companies primarily use independent training providers.

CAE believes the following trends and developments will continue to drive the
civil simulation and training industry:

EFFECTIVENESS AND COST ADVANTAGES OF SIMULATOR TRAINING

Simulator training is an essential element in civil pilot and crew training. The
realism of the simulated flight experience has made simulators an effective tool
for training pilots and crew. Pilots and crew can be trained for a variety of
aircraft, using visualizations of most of the civil airports around the world,
and in varying environmental conditions. The cost savings to aircraft operators
are substantial as costs such as fuel, ground crew and maintenance, as well as
aircraft wear and tear, are avoided. The average cost to train in a full flight
simulator is US$500 an hour, whereas it can cost as much as US$5,000 to
US$10,000 to fly an actual aircraft for an hour. In addition, simulator training
minimizes the risk of accidents and resulting injury to personnel and


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damage to equipment. Full flight simulator training users are also accorded more
favorable liability insurance premiums. Simulator-based training also offers
considerable flexibility with respect to the timing and duration of training
sessions. In the past, the use of independent training services was limited by
the availability of convenient training centres. With the development of
additional independent training centres around the world, CAE believes that this
historical deterrent will be addressed. CAE believes that the costs of acquiring
and maintaining full flight simulators will encourage additional usage of
independent training providers by commercial airlines.

PILOT CERTIFICATION AND LICENSE REQUIREMENTS

Piloting an aircraft is a regulated activity requiring both initial and
recurring training to achieve defined levels of competence and experience. To
keep a license to fly an aircraft weighing over 12,500 pounds, certain
regulations require pilots to demonstrate proficiency for that aircraft type at
least once a year. Certification and license requirements can be satisfied
through simulated flight and many pilots elect to do so.

EXPANSION AND DIVERSIFICATION OF AIRCRAFT FLEETS

The introduction of new aircraft and expansion and diversification of fleets
creates incremental pilot training requirements. Simulation training is now
considered an essential element in pilot and crew training for the large
commercial, regional and business segments of the market. An experienced pilot
typically needs between 15 and 40 hours on a simulator to learn the intricacies
of a new aircraft. CAE estimates that approximately one simulator is required to
support every 20 commercial aircraft in operation.

New aircraft deliveries are a major driver for this market. In "The World Market
for Large Commercial Jet Transports", Forecast International/DMS Inc. projects
that 6,895 large commercial jet transports worth some US$550 billion will be
produced from 2002 to 2011.

Demand for civil air travel and the timing of delivery of new aircraft have been
adversely affected by the September 11, 2001 terrorist attacks. As a result, CAE
anticipates a reduction in new third party orders for full flight simulators in
this fiscal year. However, the impact of these events has been less severe on
the demand for flight training services.

Virtually every business aircraft transaction, whether a new or after-market
transaction, triggers the need for pilot training. Business aircraft simulation
training is primarily provided by independent training providers. CAE believes
that additional demand for business aircraft simulation training will be
attributable to growth in new business aircraft sales; 2,500-3,000 after-market
sales annually of existing aircraft in operation; and the increase in fractional
ownership and unscheduled charter flights. CAE believes the long-term growth
outlook for civil air travel will drive increased aircraft deliveries across the
spectrum of aviation service providers and, in turn, the demand for simulation
technology and training.

PILOT DEMOGRAPHICS

According to AIR Inc., a major pilot recruitment firm, US-established airlines
will retire 50% of their pilots by 2010. AIR Inc. estimates that almost
9,000 American pilots will retire in the next five years. As pilots retire,
other pilots must be trained to fly the aircraft. Historically, the major
commercial airlines hired a substantial number of pilots from the military as
these pilots retired or otherwise left military service. In recent years there
have been fewer available military pilots. The relative lack of available
military pilots has caused increased demand for qualified pilots throughout the
industry. As a result, the major airlines have begun to more actively promote
pilots to larger aircraft from within their existing ranks or from regional
airlines operating smaller aircraft. This increased mobility within a fleet
results in more pilots needing to be certified on different aircraft and a
corresponding increase in training requirements.

OTHER FACTORS

The September 11, 2001 terrorist attacks had an immediate and severe adverse
impact on the passenger traffic and yields of CAE's customers in the civil
airline industry. Civil airline operators have continued to experience
significantly lower revenue and have incurred additional costs for increased
security and higher insurance


                                       8
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premiums. As a result of the events of September 11, 2001 and continuing weak
domestic and international economic conditions, CAE expects that the delivery of
new aircraft will be delayed, which will result in delays in the delivery of
civil flight simulators. This will reduce or delay a portion of future revenue.

The US government is developing regulations that would require any non-US person
to apply for permission to enter the US for the purpose of flight training.
Depending on the final content of these regulations, they may delay or prevent
the ability of foreign pilots to enter the US for flight training, which could
have a negative effect on CAE's training business in the US.

3.2(b) MILITARY SIMULATION AND MARINE CONTROLS

Military forces increasingly rely on sophisticated and interrelated weapons
systems and equipment, computer systems, visual systems and other advanced
technologies to operate in a broadening range of conditions and scenarios.
Achieving a high state of operational readiness is a constant goal and challenge
for militaries. Simulators enable military organizations to achieve their
training goals while minimizing the physical use of expensive systems and
equipment. In addition, the use of simulators helps to avoid injuries to
personnel and the loss of equipment due to training accidents. Simulators allow
for the training of tasks and missions that cannot be practiced in the real
world.

Flight simulators are used to train pilots to operate a variety of military
aircraft including fighter jets, helicopters and transport aircraft. Flight
simulators permit the crews of military aircraft to coordinate and improve their
essential combat skills in a safe, cost-effective and realistic range of
environments. The simulators enable pilots to realistically practice both
offensive and defensive tactics, such as firing aircraft weapons systems and
avoiding attack from enemy surface and air threats. The immersive environment
provided by simulators allows pilots to train for highly demanding maneuvers and
life threatening scenarios, such as rotor failure, missile impact or the effects
of exceptional turbulence.

Simulators for land systems provide similar advantages. Though land systems
equipment is generally less complex than that found in aircraft and marine
vessels, the systems often operate in conjunction with other equipment in
environments involving many soldiers and various weapons systems.

Simulators for submarines and other naval vessels provide many of the same
training advantages as flight simulators. Crews of submarines are able to
coordinate and improve their essential combat and operational skills, including
navigation, weapons deployment, mission skills and speed in processing critical
data in a safe, cost-effective and realistic range of environments. Such
simulators are used to train crews for highly demanding maneuvers and life
threatening scenarios, such as catastrophic structure failure and missile
impact. Other simulators for naval control systems permit a crew to learn to
operate a ship's control systems in a variety of environments.

Integrated shipboard control systems installed on naval and civil ships enable
crews to monitor and control the vital platform machinery and systems such as
propulsion, electrical power generation and distribution, steering, auxiliaries
and damage control. The operational effectiveness of a ship is greatly enhanced
by incorporating on-board control systems training capability. Operators can be
continuously trained while at sea using these systems. This facilitates high
levels of fleet readiness to respond to demands of national security for naval
ships and facilitates enhanced passenger comfort and safety in civil
applications such as cruise liners.

CAE believes the following trends will continue to drive the development of the
military simulation and marine controls market:

INCREASING DEFENSE SPENDING

Following the September 11, 2001 terrorist attacks, the US government increased
its defense spending. The fiscal 2003 defense budget submitted by the Bush
administration to Congress was US$379 billion, a 13.5% increase over the amended
fiscal 2002 defense budget of US$334 billion. The Bush administration's defense
budget also requested an increase in spending of approximately US$120 billion
over the next five years. The US government's defense spending has recently
represented about 40-50% of the world's total defense spending. Military
spending is also increasing in Asia, while defense expenditures are stable in
NATO countries other than


                                       9
<PAGE>

the US. Apart from spending on defense, there is an increased emphasis on
security in most Western nations in the face of increased terrorist threats.
CAE expects that some of this spending will address new technologies and
training for counter-terrorism activities.

RAPID EVOLUTION OF TECHNOLOGY AND WARFARE

Technological advances and the changing nature of warfare have resulted in a
rapid evolution of weapons systems and equipment. This has been illustrated by
current events in Afghanistan, where the coalition forces are facing asymmetric
threats and where extensive use is being made of unmanned air vehicles (UAV)
such as the Predator and Global Hawk. Military forces face a wide range of
operations which are increasingly likely to be asymmetric or involve operations
in urban terrain. In light of these changing circumstances, the key focus of
military forces has evolved towards information dominance linked with networked
weapons systems. These highly technical networked systems lend themselves to
simulation training.

Accelerated developments in computer and visual technologies enable devices of
greater fidelity and promote the proliferation of simulation technologies. In
particular, the rapid evolution of commodity graphics technologies of recent
years has substantially redefined the price/performance envelope of visual
equipment. Visual systems provide simulator-correlated, geo-specific
representations of the synthetically generated environment under a broad range
of weather, illumination and other conditions. Visual database representations
can be rapidly synthesized from Geographical Information System data and applied
to military mission rehearsal exercises.

The introduction of new aircraft and weapons platforms, as well as upgrades and
life extensions to existing aircraft and weapons platforms, will necessitate new
training requirements for military operators. For example, CAE expects programs
in Europe such as the Eurofighter 2000, the A400M military airlifter, the NH90
helicopters as well as upgrades for the Tornado tactical aircraft and Lynx
helicopter fleets will create additional flight simulation requirements. The
USAF upgrade of its C-130 fleet under the Avionics Modernization Program will
also require corresponding upgrades and new simulators to train aircrews on
upgraded aircraft. The USAF's decision to lease KC-767 tankers from Boeing will
also produce a need for new training simulators.

Early in 2002, the US Army announced its next generation training strategy,
Flight School XXI, which calls for extensive integrated simulator training for
aviators before their first combat unit assignments. The US Army is effecting
far-reaching changes to its land forces structure through a program called the
Future Combat System. This program will employ a range of manned and unmanned
vehicles which will generate significant training requirements as the equipment
is deployed. CAE believes that the Future Combat System will generate new
opportunities to exploit simulation technology in vehicle and system design. CAE
also expects the advent of new digital communications systems and lighter air
mobile forces to create additional training needs for European land forces.

EVOLVING ROLE OF SIMULATION TRAINING

CAE believes that the military will continue to make greater use of simulation
as an effective solution for more frequent and sophisticated training
requirements for several reasons. First, advances in technology have enhanced
the realism that can be achieved in simulation training. As a result, militaries
are more receptive to utilizing this technology. The achieved realism combined
with the development of extensive environment databases offer militaries the
ability to train in situations and conditions either difficult or impossible to
consistently replicate in a physical setting. Second, simulation training also
is more cost effective than training personnel on actual equipment. Third,
simulation training involves less potential for accidents and resulting injury
to personnel and damage to equipment. Finally, CAE believes simulation will
increasingly be used in areas consistent with the Simulation Based Acquisition
initiatives of the US Department of Defense which seek to use simulation to
evaluate competing system designs prior to commitment to full scale design and
development.


                                       10
<PAGE>

INCREASING INTEREST OF GOVERNMENTS IN PRIVATELY FINANCED
LONG-TERM TRAINING MODELS

The increasing sophistication of weapons systems has resulted in the need for
more sophisticated training equipment and services. The development,
construction and delivery of these training resources require a high level of
specialized technology and knowledge, and often involve significant expense. The
UK government has increasingly turned to private sector companies to build,
maintain and deliver training equipment and services under long-term financed
arrangements because these companies can deliver an integrated training solution
more quickly and efficiently and at lower cost. CAE is already in full scale
operation in the UK's first military training privately financed initiative, the
Medium Support Helicopter Aircrew Training Facility, and are under contract to
deliver the Astute Class Submarine Training program under private finance. The
UK is currently considering the outsourcing of all undergraduate pilot training
under the Military Flying Training System project. It is reviewing bids on the
Armoured Vehicle Training Service (AVTS) program, which would be a private
financed initiative outsourcing of all training associated with gunnery, tanks
and armored vehicles. The government of Germany is currently seeking tenders for
the NH90 helicopter training programs under this form of procurement and several
other European nations are also considering this type of procurement approach.

INCREASING COMPLEXITY OF SHIPS AND REDUCED MANPOWER

CAE believes that new ship designs will continue to steadily increase in
complexity and value with the commensurate demand for more sophisticated control
systems and integration solutions. At the same time, the need for navies and
civil ship owners/operators to reduce operational costs by reducing manpower
on-board ships adds to the demand for complex automation. The potential
reduction of engineering manpower is of particular interest to those navies that
face manpower retention problems due to long periods at sea. There is a trend
towards the procurement of larger turnkey packages of ship controls and
associated electronic/electrical systems by navies, owners of high-end merchant
ships and shipbuilders around the world. This should allow companies with the
capability to undertake such larger scale integration tasks to win contracts of
greater value, with the attendant long-term benefits that will accrue due to the
requirement to support these ships typically for over 20 years.


ITEM 4 - NARRATIVE DESCRIPTION OF THE BUSINESS

4.1  GENERAL

CAE is a world leading designer and manufacturer of advanced simulation and
control equipment and provider of integrated training solutions for the
military, civil aviation and marine markets. With over 50 years of experience,
strong technical capabilities, a highly trained workforce and a global reach,
CAE has built an excellent reputation and long-standing customer relationships.

CAE has delivered simulation products to the military forces of more than
30 countries. The Company is the world's leading supplier of civil flight
simulators in the competed market and is the second largest independent provider
of civil aviation and training services based on the number of simulators
operated. CAE is a world leader in the provision of marine automation systems
for both naval and commercial shipping and supplies full scope simulators to
support the training of staff for both nuclear and fossil-fueled power
generation plants. CAE also provides a range of simulation equipment for sea and
land-based activities.

CAE also provides a range of technical support services to civil and military
simulator operators, including parts replacement and repairs, installations,
relocations, upgrades and technical training. Customers use the Company's
technical services to answer questions, trouble-shoot and receive advice. This
extends to service visits by CAE's engineers to assist in customer maintenance
and repair activities. Civil upgrade services are not restricted to CAE
products; the Company can upgrade most other manufacturers' simulators. CAE
services are offered either in conjunction with a sale of a simulator, through
maintenance contracts or individual purchase orders. CAE believes that its
service business provides opportunities to influence the upgrade of installed
simulators while providing valuable insights into customer training needs.

CAE has a global presence with 6,400 employees at manufacturing operations and
training facilities in 16 countries. CAE reports results based on two business
segments: (i) Civil Simulation and Training (formerly


                                       11
<PAGE>

Commercial Simulation and Training) and (ii) Military Simulation and Marine
Controls (formerly Military Simulation and Controls). The Company's consolidated
revenue, from continuing operations, in fiscal 2001 and 2002 was $891.4 and
$1,126.5 million, respectively, and is broken down as follows:

<TABLE>
<CAPTION>

            REVENUE BY PRODUCT LINE (%)                           GEOGRAPHIC DISTRIBUTION OF REVENUE (%)
            ---------------------------                           --------------------------------------
                                       2002     2001                                         2002         2001
=====================================================       ===================================================
<S>                                      <C>      <C>                                           <C>         <C>
Civil Simulation and Training            48       54        Canada                              9           12
Military Simulation and
     Marine Controls                     52       46        US                                 31           30
-----------------------------------------------------
                                        100      100        UK                                 11           16
=====================================================
                                                            Germany                             8           11

                                                            Other European countries           15           14

                                                            Other countries                    26           17
                                                            ---------------------------------------------------
                                                                                               100         100
                                                            ===================================================
</TABLE>

For the fiscal year ended March 31, 2002, sales to customers outside the US and
Canada accounted for approximately 60% of CAE's revenue. The Company expects
that sales outside the US and Canada will continue to account for a significant
portion of its revenue for the foreseeable future. As a result, CAE is subject
to risks of doing business internationally, including:

     -   changes to regulatory requirements;

     -   changes to domestic and foreign government policies, including
         requirements to expend a portion of program funds locally and
         governmental industrial cooperation requirements;

     -   the complexity and necessity of using foreign representatives and
         consultants;

     -   imposition of tariffs or embargoes, export controls, including US,
         Canadian and foreign arms export controls, currency exchange controls
         and restrictions, and other trade restrictions affecting countries in
         which CAE sells its products or services;

     -   the difficulty of managing and operating an enterprise spread over
         various countries;

     -   compliance with a variety of foreign laws; and

     -   general economic and geopolitical conditions, including international
         hostilities, inflation, trade relationships and military and political
         alliances.

The impact of these factors is difficult to predict and any one or more of these
factors could adversely affect the Company's operations in the future.

CAE deals with a variety of goods and services suppliers across its business
segments. It is not dependent on any single supplier for any key manufacturing
components or services. Significant shortages of goods and services are not
expected, and have not been encountered in the past. However, CAE's products
contain sophisticated computer systems that run on software and operating
systems supplied to it by third parties. Such computer systems and software may
not always be available to CAE to license or purchase. The production of CAE
simulators is often dependent upon receipt by CAE of data, including
confidential or proprietary data, concerning the functions, design and
performance characteristics of a product or system, the performance of which
CAE's simulator is intended to simulate. The Company cannot guarantee that it
will be able to obtain such data on reasonable terms, or at all. Original
manufacturers of these products and systems could object to the simulation by
CAE of components of, or the totality of their products or systems, or could
request high license fees that could negatively impact the Company's
profit margins.


                                       12
<PAGE>

The following sets out, by business segment, the locations of CAE's primary
subsidiaries and divisions:

<TABLE>
<CAPTION>
                                                       MILITARY SIMULATION AND
CIVIL SIMULATION AND TRAINING                          MARINE CONTROLS
==================================================     ========================================================
<S>                                                    <C>
CANADA                                                 CANADA
-   Montreal, Quebec                                   -   Montreal, Quebec
-   Toronto, Ontario

UNITED STATES                                          UNITED STATES
-   Dallas, Texas                                      -   Leesburg, Virginia
-   Denver, Colorado                                   -   Tampa, Florida
-   Fort Worth, Texas
-   Grapevine, Texas

EUROPE                                                 EUROPE
-   Amsterdam, The Netherlands                         -   Burgess Hill, United Kingdom
-   Brussels, Belgium                                  -   Drammen, Norway
-   Madrid, Spain                                      -   Royal Air Force base, Oxfordshire, United Kingdom
-   Maastricht, The Netherlands                        -   Stolberg, Germany

OTHER                                                  OTHER
-   Dubai, United Arab Emirates                        -   Adelaide and Silverwater, Australia
-   Sao Paulo, Brazil
==================================================     ========================================================
</TABLE>

4.2  CIVIL SIMULATION AND TRAINING

The Company builds civil simulators for all categories of aircraft including
those built by Airbus, Boeing, Bombardier, Cessna, Dassault, Embraer,
Fairchild/Dornier, Gulfstream and Raytheon. CAE also builds simulators for civil
helicopters, including models by Bell Helicopter and Sikorsky. During fiscal
2002, CAE was awarded 22 of 26 full flight simulator orders or 85% of the
worldwide-competed market (fiscal 2001 -- 35 of 42 full flight simulator
orders). CAE also captured 16 of 27 competed visual systems, or 59% of the
worldwide competed visual systems market. Since its inception, CAE has taken
orders for approximately 440 full flight simulators and flight training devices
from approximately 100 commercial airlines, aircraft manufacturers and training
centres in 38 countries, and to date has delivered about 410 of them. With half
a century of experience in designing and manufacturing full flight simulators,
CAE has established long-standing relationships with leading commercial airlines
throughout the world. CAE believes its ability to maintain its global leadership
is strengthened by the capital and technology intensive nature of the industry,
which creates substantial barriers for new entrants.

In 2001, CAE entered the civil flight training business by opening its first
pilot training centre in Sao Paulo, Brazil in April and launching its Toronto,
Canada facility in December. During 2001, the Company also acquired Schreiner
and SimuFlite, adding six new pilot training centres to its operations. CAE is
the world's second largest independent provider of training services, based on
the number of simulators available for third party training. As at March 31,
2002, CAE had an installed base of 59 civil full flight simulators in seven
countries, located in nine CAE training centres and three other locations.

CAE intends to continue to expand its global network of strategically located
training centres. The Company's practice is to secure at least one long-term
training agreement with a major or regional airline prior to establishing a new
civil training centre. CAE's customers at the commercial aviation training
centres include major and regional airlines that elect to outsource some of the
training of their pilots and other crew members using either the Company's
training instructors or their own. The third party aviation training centres are
used by more than 3,000 customers who tend to use third party training centres
as their primary source for simulation training. By the end of fiscal 2003, CAE
expects to have in operation an installed base of over 80 full flight
simulators. CAE will continue to execute its pilot training strategy, with the
focus now on integrating the SimuFlite and Schreiner operations, ramping up
utilization in the Toronto, Madrid and Sao Paulo Training centres, and
progressing as planned on the Denver, Rome and Dubai centres.


                                       13
<PAGE>

CAE expects to maintain a commanding leadership position in civil simulation and
visual systems due to a focus on customer relationships, commitment to
innovation and technology, product quality, reliability and efficiency, and
continuing efforts to shorten delivery cycles through process improvements. CAE
expects to increase its advantage in lead-time, cost, quality and reputation for
performance through operational improvements and research and development
programs. Last year CAE launched a large-scale research and development program
to improve flight simulator products. CAE Sim XXI's modular design is the result
of the latest next-generation technologies used to produce high quality high
fidelity full flight simulators. The CAE Sim XXI simulator is easier to
assemble, test, integrate, evaluate, deliver and maintain. In fiscal 2002, CAE
achieved one of the most significant milestones on the CAE Sim XXI simulator
program -- its inaugural test flight in January. Engineering activities for the
first and second production of CAE Sim XXI simulators are underway and will be
delivered to the training centre in Dubai. The next generation full flight
simulator, CAE Sim XXI, is expected to go into full production later this year
and is targeted for the growing regional and business jet training markets. CAE
Sim XXI manufacturing techniques will be extended to other of simulation
products and should provide significant spin-off benefits for the Company's
entire suite of simulation and training products.

CAE's capabilities in simulation-based interactive learning, including CAE
Simfinity system, will also complement its traditional strength in full flight
simulators and flight training devices. Combined with a growing network of
training centres, this complete suite simulation-based equipment and training
products permits CAE to offer airlines and business jet operators a range of
training solutions.

The events of September 11, 2001 had a negative impact on commercial airlines,
on aircraft manufacturers and, by extension, on CAE, which to some degree is
dependent on the health and success of those industries. CAE has experienced
some softening of near-term demand for civil simulators and anticipates a
reduction in simulator orders in fiscal 2003. In addition, now that the Company
has entered the civil aviation training market, the market for new simulators to
third parties has been reduced, as CAE now manufactures these for its own use.
The building of simulators for the Company's training centres, as well as for
sale, the introduction of CAE Sim XXI, a continued focus on productivity savings
through cycle time reductions and other cost containment initiatives should
enable CAE to maintain current operating margins. The growth expected to come
from training should offset the decline in simulator sales.

4.3  MILITARY SIMULATION AND MARINE CONTROLS

(a)  MILITARY SIMULATION AND TRAINING

CAE is a world leader in the design and production of military flight simulation
equipment. The Company develops simulation equipment and training for a variety
of military aircraft, including fighter jets, helicopters and transport planes.
CAE also has an extensive product range covering many American and European
weapon systems. Its military simulators provide full combat environments that
include interactive enemy and friendly players, as well as weapons and military
sensors. These simulators incorporate highly realistic visual scenes covering
areas as large as whole countries that are able to show the effects and
characteristics of a variety of battlefield features, including those seen
through Infra Red and Low Light Level TV Sensors. CAE has moved beyond the
supply of simulation equipment into the provision of military training with the
Company's Medium Support Helicopter Aircrew Training Facility in the UK and
its C-130 transport plane training facilities in Tampa, Florida and
Marietta, Georgia.

CAE provides simulation equipment and training to the military forces of more
than 30 countries, including those of the US. CAE has provided simulators for a
wide range of aircraft and has developed the broadest rotary wing expertise of
any simulator manufacturer. The Company has established a leading position in
Europe in the supply of army command team land-based training systems, by
supplying such systems to the forces of Germany, Austria, Italy and Norway. The
selection of a CAE visual system for the prestigious Eurofighter program solidly
establishes CAE's Medallion visual system as a premier system for full mission
simulation applications.

Military support services include the provision of contractor logistic support,
maintenance services and simulator instruction at over 60 sites worldwide. CAE
provides maintenance support for all of the Canadian Forces flight simulators at
six bases and all but one of the installed flight simulators of the German Army,
Air Force and Navy. In the US, CAE provides a range of services across a wide
number of bases, including the


                                       14
<PAGE>

instruction of UAV Predator operators. CAE also provides a range of support
services to facilities in Australia, the UK, the Netherlands and Italy, as well
as mission software support for Canada's CF-18 fighter aircraft.

The Company believes that its physical presence in countries such as the US,
Germany and the UK has enabled it to develop strong relationships and a good
reputation with governments and other defense contractors who are important
decision makers regarding defense contracts. In fiscal 2002, CAE was awarded
contracts, among others, by the German Army Aviation School, the US Coast Guard,
the German Armed Forces, the Dutch Army School of Artillery, the Norwegian Armed
Forces, the Canadian Department of National Defence, the Republic of Singapore
Air Force, the UK Royal Navy, the Australian Army and the Royal Netherlands Air
Force. Following CAE's April 2001 acquisition of BAE SYSTEMS Flight Simulation
and Training in Tampa and the subsequent creation of CAE USA Inc., CAE's ability
to win contracts with the US military has been significantly enhanced with the
awarding of prime contractor status under several omnibus procurement programs.

CAE will focus on growing its business with military customers around the world,
and particularly in the US. The Company believes it can capitalize on the
experience, expertise and increased visibility with military customers that it
has gained from winning and performing significant contracts, such as the UK
Royal Air Force Medium Support Helicopter program. CAE will continue its
commitment to customer service by focusing on anticipating and meeting the needs
of its military clients for highly-customized equipment and training. CAE
believes its ability, through CAE USA Inc., to be a prime contractor in the US,
in addition to strong supplier relationships with leading US defense
contractors, will enable CAE to further penetrate the US military simulation and
controls market. CAE intends to continue to foster partnerships with key
original equipment manufacturers such as Boeing, with whom it is teamed to
pursue the US Army's Flight School XXI program, Agusta Westland (CAE's partner
in the Rotorsim consortium) with whom CAE is teamed to deliver training
equipment and services in support of Agusta Westland aircraft sales worldwide,
and Lockheed Martin, with whom CAE is teamed on the C-130 Aircrew Training
System for the USAF. CAE is also leading the Landmark consortium, comprising
Westland, Vickers and others, which is bidding on the AVTS program for the UK
Ministry of Defence. CAE will continue to pursue opportunities to provide
long-term training services to military organizations, including leveraging the
naval training expertise and experience gained in the UK and Canada into
other markets.

The military simulation and training market is driven by the introduction of new
aircraft platforms, upgrades and life extensions to existing aircraft and a
shift to greater use of simulation in pilot training programs due to the high
degree of realism and the significantly lower cost compared to live training.
CAE expects to increase its advantage in lead-time, cost, quality and reputation
for performance through continued operational improvements and research and
development programs. In particular, CAE launched a research and development
program to introduce CAE NeTTS Networked Tactical Training Systems, a new
PC-based architecture to address the requirement for scalable, re-configurable,
cost effective training devices. With a leading-edge technology solution, CAE is
well positioned to capitalize on upcoming international military programs in
Canada, the US, Europe, the UK, Asia and Australia, as well as teaming and/or
collaboration arrangements in other countries.

(b)  MARINE CONTROLS

CAE is a world leader in the supply of automation and controls systems for the
naval and commercial marine markets, and has been selected for the provision of
controls for more than 100 warships in 13 navies. CAE's marine control systems
monitor and control propulsion, electrical steering, ancillary, auxiliary and
damage control systems. CAE's Integrated Platform Management Systems (IPMS) have
accumulated over 2.5 million hours of operational experience and have been or
are in the process of being installed on 100 warships (including submarines) of
13 navies around the world, including those of the US, the UK and Germany. The
Company has moved beyond the supply of marine controls into the provision of
naval training services through its participation in the 30-year UK Royal Navy
Astute Class Submarine Training program. CAE is a leading supplier of maritime
mission training devices. In August 2001, CAE entered the commercial marine
market by acquiring Valmarine, a civil marine control systems vendor focused on
cruise lines, passenger ferries and cargo vessels. Valmarine has installed
automation systems on approximately 450 vessels worldwide.


                                       15
<PAGE>

CAE's systems can be provided for new ship classes as well as retrofitted for
existing vessels. The Company also provides full scope IPMS trainers and
software support facilities. CAE was the first company in the world to provide
an integrated On-Board Training System (OBTS) that enables sailors to train
whether at sea or in port. CAE's damage control systems (DCS) provide
significant improvement to the traditional plotting of damage assessment
information and repair actions with advanced Human-Machine Interface hardware
(consoles) at every DCS. The OBTS and DCS along with other advanced features of
CAE's IPMS greatly improve the operational effectiveness of naval vessels.

The Damatic XD ship automation system sold by CAE Valmarine under license is
installed in approximately 440 vessels worldwide. CAE Valmarine supplies many of
the world's cruise lines, passenger ferry companies and shipbuilders. The
advanced functionality that CAE pioneered in the naval automation sector, such
as its DCS, is now being introduced to CAE Valmarine's customers.

Within CAE's Marine Controls segment, the Company also designs and manufactures
power plant simulators and provides power plant simulator software upgrades.
Power plant training simulators are used by electric utilities to train
operators of power plant control rooms. CAE has supplied power plant training
simulators to utilities around the world. CAE is the sole supplier of CANDU
simulators and control systems to utilities worldwide. In addition, the Company
supplies power plant simulators for pressurized water reactors, boiling water
reactors, and fossil and process simulators.

CAE intends to grow its naval controls business by expanding the scope of its
products and services and to use its technologies and experience in naval
control systems to enhance CAE Valmarine's position as a world leader in
commercial marine controls. In addition, CAE expects that it will be able to
exploit its customer-installed base to enhance CAE's naval simulation and
controls equipment and training services.

4.4  DISCONTINUED OPERATIONS

On December 18, 2001, the Board of Directors approved the divestiture of the
Forestry Systems segment. Commencing in the third quarter of fiscal 2002, the
results of Forestry Systems were reported in discontinued operations and
combined with the results of the Cleaning Technologies segment. Prior year
amounts have been reclassified, accordingly. On March 28, 2002 CAE closed the
sale of the fiber screening business of Forestry Systems to Advanced Fiber
Technologies Income Fund (AFT), a publicly traded income trust. The proceeds
of the AFT offering, net of commissions, were approximately $123 million. AFT
used the proceeds and an additional $39 million to acquire CAE's fiber
screening business. In February, CAE completed the sale of CAE Ransohoff Inc.
and CAE Ultrasonics, Inc., two of the five Cleaning Technologies operations,
to the former management of these operations, for US$21.4 million in the form
of cash and subordinated notes. The result of these transactions, combined
with an estimate of the net realizable value of the remaining discontinued
operations contributed to a $1.3 million gain from discontinued operations
for the year. On June 28, 2002, CAE completed the sale of CAE Cleaning
Technologies plc, another of the Cleaning Technologies operations, for
(pound)528,000 in the form of a subordinated note, to the same former
management group which previously purchased CAE Ransohoff Inc. and CAE
Ultrasonics, Inc. On July 31, 2002 CAE signed a purchase and sale agreement
for its sawmill businesses with the parent company of COE manufacturing.
Negotiations to sell the remaining Forestry Systems businesses are proceeding
and CAE expects to conclude agreements to dispose of some or all of the
businesses in the first half of fiscal 2003.

4.5  RESEARCH AND DEVELOPMENT

CAE differentiates itself by providing superior products and services that rely
on the latest, most advanced technology available. As a result, the Company has
a long-standing commitment to research and development. Each business segment is
encouraged to apply research and development across the whole spectrum of its
operations, from product development to production processes and techniques.

An additional part of CAE's research and development strategy is to participate
with several universities and government agencies in North America and in Europe
in specific research projects. While development is the first priority, applied
research is also vitally important to the Company's future. In addition to the
basic internal research and development, research and development may also be
carried out within customer contracts. This involves the development of
technology which is necessary to complete a contract requirement but is also
useful


                                       16
<PAGE>

and may be reapplied by the Company in a broader sense. Certain CAE initiatives
also receive the support of the Canadian government through Technology
Partnerships Canada.

Total research and development expenditures include basic research and
development costs as well as program related development costs. Basic internal
research and development expenditures were in excess of $50 million for fiscal
2002, the product portion of which was largely associated with the development
of the CAE Sim XXI simulator, CAE Simfinity training system and CAE Tropos
visual system. In addition to these development activities, basic internal
research and development funds a variety of product enhancement and process
improvement initiatives. Basic research and development expenditure is expected
to be at the same level in fiscal 2003 and will be primarily focussed on
applying CAE Sim XXI design and manufacturing techniques to additional simulator
platforms, extending the CAE Simfinity and CAE Tropos product capabilities, and
developing the next generation open and distributed simulation environment.

4.6  EMPLOYEES AND LABOUR RELATIONS

Of the Company's 6,400 employees, approximately 825 of the employees are
unionized, covered by 13 collective agreements. Six labour contracts were
ratified in fiscal 2002. Over the next 15 months CAE will enter into
negotiations for the renewal of six collective agreements including the
collective agreement for 700 employees in Montreal which will expire in June
2003. There are no indications that negotiations on new contracts will include
work stoppages. CAE considers employee relations to be satisfactory.

4.7 MANUFACTURING

CAE's manufacturing facilities are located in Montreal, Canada; Tampa, US;
Burgess Hill, UK; and Stolberg, Germany.

The manufacturing process for CAE simulators is complex, involving the
coordination of approximately 250,000 parts and millions of lines of software
code. The manufacture of a civil simulator includes five major stages: design,
manufacture and assembly, testing, pack and ship and final test on-site. This
entire process has historically taken up to 18 months. As a result of recent
process improvements in the manufacture and assembly stage, the time has been
reduced to approximately 14 months. Military simulators are much more complex
and unique than civil simulators, and therefore take more time to design,
manufacture and test.

Manufacturing is organized into 12 manufacturing cells comprised of the
following three major disciplines: electronics (printed circuit board assembly),
electrical (cables and harnesses, cabinets and chassis, aircraft instruments and
avionics), and mechanical (welding, sheet metal and machine shop, precision
assembly and hydraulics, structural assembly and final assembly).

Most of the raw materials used in manufacturing (such as sheet metal, wires,
cables and electronic integrated circuits) are available off-the-shelf from
multiple commercial sources. The unique parts are the aircraft parts. These are
usually available from aircraft manufacturers, the resale market, as well as
through simulated part manufacturers.

The availability of most parts in a timely manner facilitates a relatively
smooth production flow. Aircraft parts, in some instances, may be an exception,
especially on new aircraft types or those out of production. The timely delivery
of these parts is often the responsibility of CAE's customers. CAE's contracts
normally link these aircraft parts delivery dates to the simulator delivery
schedules. In cases where such aircraft parts cannot be made available, CAE's
customers rely on CAE's ability to make simulated parts.


                                       17
<PAGE>

4.8  COMPETITION

The markets in which CAE sells its products are highly competitive. Certain
competitors are also the Company's customers and suppliers on specific programs.
The extent of competition for any single project generally varies according to
the complexity of the product and the dollar volume of the anticipated award.
CAE believes that it competes on the basis of:

     -    the performance and flexibility of its products;
     -    reputation for prompt and responsive contract performance;
     -    accumulated technical knowledge and expertise;
     -    breadth of product line; and
     -    price.

CAE's future success will depend in large part upon its ability to improve
existing product lines and to develop new products and technologies in the same
or related fields.

CAE's major competitors in the military simulation and training market include
Lockheed Martin Corporation, L-3 Communications Corporation, Boeing, NLX
Corporation, Indra Systemas, Alenia Marconi Systems, Thales Training Simulation,
Flight Safety International, Inc. and STN ATLAS Elektronik GmbH. Some of these
competitors are predominantly local (one country or region) competitors. CAE
sometimes partners with these and other competitors to cooperate on program
contracts.

CAE's major competitors in the marine controls market include Lockheed Martin
Corporation, Northrop Grumman Corporation (Sperry Marine Systems), Siemens AG,
ABB Asea Brown Boveri Ltd., Vosper Thornycroft Holdings plc, L-3 Communications
Corporation and MTU Elekronik GmbH.

CAE's major competitors in the civil simulation equipment market include Thales
Training Simulation and NLX Corporation. Evans & Sutherland Computer Corporation
also competes for visual systems. The Company's major competitors in civil pilot
training include FlightSafety Boeing Training International L.L.C, FlightSafety
International, Inc., GE CAT and PanAm International Flight Academy Inc.

4.9  GOVERNMENT CONTRACTS

The majority of CAE's contract revenue in its military simulations and marine
controls business segments result from contracts with militaries or government
bodies performed under predominantly fixed-price contracts with only a small
number of cost-plus contracts.

In most instances, under government regulations, certain costs, including
certain financial costs, portions of research and development costs, lobbying
expenses, certain types of legal expenses and certain marketing expenses related
to the preparation of bids and proposals, are not allowed for pricing purposes
and calculation of contract reimbursement rates under flexibly-priced contracts.
Governments also routinely regulate the methods under which costs are allocated
to government contracts. CAE is subject to a variety of audits performed by
government agencies. These include pre-award audits that are performed at the
submission of a proposal to the government. The purpose of the pre-award audit
is to determine the basis of the bid and provide the information required for
the relevant government to effectively negotiate the contract. During the
performance of a contract the government has the right to request and to examine
any labor charges, any material purchase, and any overhead changes to any
contract that is active. Upon a contract's completion, the government may
perform a post award audit of all aspects of contract performance to insure that
the Company has performed in accordance with the terms of the contract.

Government contracts are generally, by their terms, subject to termination by
the government either for convenience or default by the contractor. Fixed-price
contracts provide for payment upon termination for items delivered to and
accepted by the government and, if the termination is for convenience, for
payment of fair compensation of work performed plus the costs of settling and
paying claims by terminated subcontractors, other settlement expenses and a
reasonable profit on the costs incurred. Cost-plus contracts generally provide
that, upon termination, the contractor is entitled to reimbursement of its
allowable costs and, if the termination is for


                                       18
<PAGE>

convenience, a total fee proportionate to the percentage of the work completed
under the contract. If a contract termination is for default, however,
typically,

     -    the contractor may be paid an amount agreed upon for completed and
          partially completed products and services accepted by the government;

     -    the government may not be liable for the contractor's costs with
          respect to unacceptable items, and may be entitled to repayment of
          advance payments and progress payments, if any, related to the
          termination portion of the contract; and

     -    the contractor may be liable for excess costs incurred by the
          government in procuring undelivered items from another source.

In addition to the right of the government to terminate, government contracts
are often conditioned upon the continuing availability of appropriations.
Consequently, at the outset of a major program, such contracts are usually
partially funded and additional monies are normally committed to the contract by
the procuring agency only as appropriations are made for future fiscal years.
Failure to obtain such appropriations normally results in termination of the
contract and compensation to the contractor at less than the full value of the
contract.

4.10 INTELLECTUAL PROPERTY

CAE owns certain patents and has filed applications in respect of additional
patents. The Company enters into agreements containing non-disclosure and
confidentiality clauses with third parties and has similar provisions in place
with its employees to protect its proprietary information and trade secrets. CAE
also has internal policies concerning both ethics and intellectual property
which guide its employees in their dealings with CAE's intellectual property and
that of third parties. CAE's Intellectual Property Committee, comprising some of
CAE's most senior technology-oriented officers, is mandated to oversee the
protection, management and exploitation of the Company's inventions, trade
secrets and other intellectual property.

Given the lengthy delay in obtaining patents (during which some technology may
evolve into newer generations), the required detailed patent application
disclosure which may permit competitors to reverse-engineer an invention, and
the cost of maintaining and defending patents, CAE believes that certain
intellectual property is adequately protected by either maintaining it as a
trade secret or selectively disclosing enough of it to forestall anyone else
from subsequently claiming it as their own original innovation.

CAE's agreements with Technology Partnerships Canada restrict CAE's ability to
license (other than to customers) or transfer ownership of intellectual property
developed with the program's support until all funding has been repaid or
Technology Partnerships Canada's consent has been obtained.

4.11 ENVIRONMENT

CAE operations include, and past operations and those of some past operators at
some of the Company's sites have included, the use, generation, storage,
handling and disposal of hazardous materials which are subject to environmental
laws and regulations in the various countries in which CAE operates or has
operated. CAE believes the exposure to environmental risk to be relatively
limited and the Company's operations are in compliance in all material respects
with such environmental laws and regulations.

4.12 RISK FACTORS

CAE'S SALES CYCLE IS OFTEN LENGTHY AND UNPREDICTABLE, WHICH COULD RESULT IN
VOLATILITY IN ITS OPERATING RESULTS AND THE PRICE OF ITS COMMON SHARES.

The sales cycle of CAE's products and services is lengthy and unpredictable,
ranging from 6 to 18 months for civil aviation and civil marine applications and
from 6 to 24 months or longer for military applications. While customers are
evaluating CAE's products and services, the Company may incur expenses and
expend management effort. The result of making these expenditures, with no
corresponding revenue in any given quarter, could further exacerbate
fluctuations of its quarterly operating results and share price volatility.


                                       19
<PAGE>

CAE'S SUCCESS  DEPENDS ON THE  RELIABILITY  OF ITS PRODUCTS,  THE QUALITY OF ITS
SERVICES AND ITS ABILITY TO ADAPT TO CHANGING CUSTOMER NEEDS IN A TIMELY MANNER.

The civil aviation, military and marine markets in which CAE operates are
characterized by changes in customer requirements, new aircraft models and
marine vessels and evolving industry standards. CAE's failure to predict
accurately the future needs of its customers and prospective customers and to
develop product enhancements that address evolving standards and technologies
may result in the loss of current customers or negatively affect its revenue and
its ability to secure new customers.

A REDUCTION IN DEFENSE SPENDING COULD RESULT IN A DECREASE IN CAE'S REVENUE.

CAE relies on sales to military customers around the world to generate a
significant portion of its revenue. In fiscal 2002, Military Simulation and
Marine Controls sales accounted for approximately 52% of its revenue. CAE acts
as prime contractor or major subcontractor for various US, European, Canadian
and other foreign government programs. The termination of funding for a
government program would result in a loss of anticipated future revenue
attributable to that program which could have a negative impact on CAE's
operations. A significant reduction in military expenditures by countries with
which CAE has contracts could materially adversely affect its sales and
earnings.

CAE OPERATES IN THE CIVIL SIMULATION EQUIPMENT AND TRAINING SERVICES MARKETS,
BOTH OF WHICH ARE HEAVILY DEPENDENT ON THE AIRLINE INDUSTRY.

CAE derives a material portion of its revenue from the supply of equipment and
services to the commercial and business airline industry. Reduced demand for air
transportation will impact the operating results of airlines and lead to a
reduction or delay of new aircraft purchases which CAE would expect to result in
reduced simulator orders.

INTENSE COMPETITION IN CAE'S TARGET MARKETS COULD LIMIT ITS ABILITY TO ATTRACT
AND RETAIN CUSTOMERS.

The markets in which CAE sells its simulation and control equipment and training
services are highly competitive. Some of the Company's competitors, particularly
in the military market, are larger than CAE and have greater financial,
technical, marketing, manufacturing and distribution resources. In addition,
some competitors have well-established relationships with aircraft
manufacturers, airlines and governments which may give them an advantage over
CAE in winning contracts with these organizations. CAE obtains most of its
contracts through competitive bidding processes that subject the Company to the
risk that it will expend substantial time and effort on proposals for contracts
that may not be awarded to the Company. CAE cannot assure that it will continue
to win competitively awarded contracts at the same rate as in the past.

CAE'S USE OF FIXED-PRICE AND LONG-TERM SUPPLY CONTRACTS COULD SUBJECT THE
COMPANY TO LOSSES IF THERE ARE COST OVERRUNS.

CAE provides its products and services primarily through fixed-price contracts
that require the absorption of cost overruns, notwithstanding the difficulty of
estimating all of the costs incurred in performing these contracts and in
projecting the ultimate level of sales that the Company may achieve. In
addition, a number of CAE's contracts to supply simulators to commercial
airlines are long-term agreements for up to 20 years. These agreements establish
the prices for the simulators to be delivered, subject to adjustments for
inflation and cost increases. If these adjustments do not fully offset inflation
or cost increases, CAE's results of operations could be adversely affected.

CAE'S GOVERNMENT-FUNDED MILITARY PROGRAMS ARE REGULATED AND SUBJECT TO AUDIT.

Like most suppliers of products and services to governments, CAE may be audited
and reviewed periodically on some projects. Adjustments arising from government
audits and reviews may have an adverse effect on results of operations. In
addition, some costs may not be reimbursable or allowed in negotiation of
fixed-price contracts. Further, as a government contractor, CAE may be subject
to an increased risk of legal actions and liabilities which purely private
sector companies are not subject to, the results of which could have a material


                                       20
<PAGE>

adverse effect on operations. Failure to comply with applicable government
regulations and requirements could lead to suspension or being barred from
government contracting or subcontracting for a period of time, which would have
a negative impact on CAE's operations and could have a negative effect on its
reputation and ability to procure other government contracts in the future.

IN THE FUTURE, CAE MAY NOT BE ABLE TO OBTAIN FINANCIAL SUPPORT FOR RESEARCH AND
DEVELOPMENT ACTIVITIES.

Some of CAE's research and development initiatives have been carried out with
the financial support of governmental agencies including amounts from the
government of Canada through Technology Partnerships Canada. If such financial
assistance is not available to the Company in the future, CAE may have to find
other financing, which may not be available.

CAE MAY EXPERIENCE CONTRACT CANCELLATIONS WITHIN ITS EXISTING BACKLOG OF ORDERS.

At March 31, 2002, CAE had approximately 460 active contracts representing a
total order backlog of $2.7 billion. If certain of the Company's customers
become insolvent or experience other financial difficulties, CAE's revenue would
be adversely affected. CAE cannot assure that its existing backlog will result
in sales or that any such sales will be profitable.

CAE'S ABILITY TO PROTECT ITS INTELLECTUAL PROPERTY IS LIMITED, AND COMPETITORS
MAY USE CAE'S TECHNOLOGY WHICH COULD WEAKEN THE COMPANY'S COMPETITIVE POSITION.

CAE relies in part on trade secrets and contractual restrictions, such as
confidentiality agreements and licenses, to establish and protect its
proprietary rights. Such reliance may be insufficient to prevent
misappropriation of CAE's technology or deter others from developing similar
technologies. Enforcement of CAE's intellectual property rights or its ability
to acquire them may be unavailable or limited in some countries.

RELIANCE ON THE INTELLECTUAL PROPERTY OF OTHERS COULD PREVENT OR DELAY CAE'S
PERFORMANCE OF CONTRACTS OR NEGATIVELY IMPACT MARGINS.

CAE's products contain sophisticated computer systems supplied to the Company by
third parties. Such computer systems and software may not always be available to
CAE. The production of CAE's simulators is often dependent upon receipt of data,
including confidential or proprietary data, concerning the functions, design and
performance characteristics of a product or system, the performance of which the
Company's simulator is intended to simulate. CAE cannot assure that it will be
able to obtain such data on reasonable terms, or at all.

CLAIMS BY OTHER COMPANIES THAT CAE'S PRODUCTS INFRINGE THEIR PROPRIETARY RIGHTS
COULD ADVERSELY AFFECT THE COMPANY'S ABILITY TO SELL ITS PRODUCTS AND INCREASE
ITS COSTS.

Infringement claims may be brought against CAE or its customers in the future.
CAE may not be successful in the defense of such claims and may not be able to
develop processes that do not infringe on the rights of third parties or obtain
licenses on commercially acceptable terms, if at all. In addition, any
litigation related to CAE's intellectual property rights could be lengthy and
costly and could adversely affect operations or financial results, whether or
not CAE is successful.

CAE IS SUBJECT TO THE RISKS OF DOING BUSINESS ABROAD AND CURRENCY FLUCTUATIONS.

CAE has operations in 16 countries and sells its products and services to
customers around the world. For the fiscal year ended March 31, 2002, sales to
customers outside the US and Canada accounted for approximately 60% of revenue.
CAE expects that sales outside the US and Canada will continue to account for a
significant portion of revenue for the foreseeable future. As a result, CAE is
subject to risks of doing business internationally. The majority of CAE's
revenue is not currently denominated in Canadian dollars, and the Company
expects that its revenue will continue to be generated in currencies other than
the Canadian dollar. A substantial portion of operating expenses are payable in
Canadian dollars. Fluctuations in the Canadian dollar exchange rate will impact
results of operations and financial condition from period to period. CAE's
currency


                                       21
<PAGE>

hedging activities may not be successful.

SOME OF CAE'S UNION AGREEMENTS ARE SUBJECT TO RENEWAL IN THE NEAR FUTURE, AND
THE COMPANY MAY BE UNABLE TO RETAIN QUALIFIED PERSONNEL WHICH WOULD HARM THE
ABILITY TO CARRY OUT ITS BUSINESS STRATEGY.

CAE is party to 13 collective bargaining agreements throughout its business
units which are subject to expiration at various times in the future. If CAE is
unable to renew these agreements, or others as they become subject to
renegotiation from time to time, it could result in work stoppages and other
labor disturbances which could have a material adverse effect on CAE's business.
CAE's success depends to a significant degree upon the continued contributions
of its qualified technical personnel and its future ability to attract and
retain highly skilled personnel. Any inability to attract and retain qualified
personnel in the future may seriously harm CAE's business and results of
operations.

CAE'S DEBT AGREEMENTS MAY RESTRICT ITS ABILITY TO FINANCE FUTURE OPERATIONS AND,
IF THE COMPANY IS UNABLE TO MEET ITS FINANCIAL COVENANTS, COULD CAUSE CAE'S DEBT
TO BE ACCELERATED.

The indenture governing CAE's senior notes and revolving credit facilities
contain restrictive covenants. These restrictions could hurt the Company's
ability to finance future operations or capital needs, or to engage in other
business activities that may be in CAE's interest. In addition, CAE is also
required to comply with specified ratios and tests, including leverage, interest
coverage ratios and a consolidated net worth test. A breach of any of these
agreements or inability to comply with the required financial ratios or limits
could result in a default, which would permit CAE's lenders to declare amounts
owed to them due and immediately payable.

CAE'S LEVEL OF DEBT MAY ADVERSELY AFFECT ITS FINANCIAL AND OPERATING ACTIVITY.

CAE incurred indebtedness in connection with recent acquisitions and CAE expects
its capital expenditures to continue at greater than historical levels in the
short term as the Company executes its business plan. In the future, CAE may
borrow more money, subject to the limitations imposed by senior notes and credit
facilities. CAE's indebtedness may affect the way it conducts business.

CAE MAY BE SUBJECT TO SIGNIFICANT ENVIRONMENTAL LIABILITIES IMPOSED BY
ENVIRONMENTAL LAWS AND REGULATIONS OR CONTRACTUAL INDEMNITIES.

CAE's operations include, and its past operations and those of some past
operators at some of its sites have included, the use, generation, storage,
handling and disposal of hazardous materials. New laws and regulations, stricter
enforcement of existing laws and regulations, the discovery of previously
unknown contamination, the imposition of new clean-up requirements or claims on
indemnities CAE has been given may require the Company to incur substantial
costs in the future which could have a material adverse effect on its financial
condition and results of operations.

CAE MAY BE SUBJECT TO LIABILITY CLAIMS ARISING FROM CASUALTY LOSSES.

Due to the nature of CAE's business, the Company may be subject to liability
claims arising out of accidents or disasters involving aircraft, marine vessels
or power plants for which CAE has provided training equipment or services or
control systems used by employees operating or conducting maintenance on such
aircraft, marine vessels or power plants, including claims for serious personal
injury or death. CAE cannot be certain that its insurance coverage will be
sufficient to cover one or more substantial claims.

THE PRODUCTS CAE MANUFACTURE MAY BE SUBJECT TO WARRANTY OR OTHER CLAIMS.

The simulators and control systems CAE manufactures are highly complex and
sophisticated and may contain defects that are difficult to detect and correct.
The occurrence of errors and failures in CAE's products could result in warranty
claims or the loss of customers. Correcting such defects could require
significant capital investment. When defective products are integrated in the
customers' equipment, CAE may face product liability claims based on damages to
such equipment. Any claims, errors or failures could have an adverse effect on
operating results and business. CAE cannot be certain that its insurance
coverage will be sufficient to


                                       22
<PAGE>

cover one or more substantial claims.

CAE IS SUBJECT TO COMPLIANCE WITH REGULATORY RULES IMPOSED BY AVIATION
AUTHORITIES THAT MAY CHANGE WITHOUT NOTICE, RESULTING IN DISRUPTIONS TO ITS
SALES AND OPERATIONS.

CAE is subject to compliance with regulatory rules imposed by aviation
authorities that may change without notice, resulting in disruptions to its
sales and operations. Any changes imposed by a regulatory agency, including
changes imposed by aviation authorities such as the US Federal Aviation
Administration (FAA) to safety standards, could require CAE to make unplanned
modifications to its products and services, or may result in delays or
cancellations of sales. CAE cannot predict the future impact of changing law or
regulation on its operations and any changes could have a material adverse
effect on its results of operations or financial condition.

SALES OR LICENSES OF CERTAIN CAE PRODUCTS REQUIRE REGULATORY APPROVALS.

The sale or license of virtually all of CAE's products is subject to regulatory
controls, including the prohibition of sales to certain countries, or of certain
technology such as military-related simulators and nuclear power plant system
simulators, without an export license or other approvals. These regulations
change with some frequency. CAE cannot assure that it will be permitted to sell
or license certain products to customers and the Company may lose potential
revenue as a result of the application of such regulations. Failure to comply
with any of these regulations in the countries in which CAE operates could
subject the Company to fines and other material sanctions.


                                       23
<PAGE>

ITEM 5 - SELECTED CONSOLIDATED FINANCIAL INFORMATION

5.1  ANNUAL INFORMATION

The following summary of financial information has been drawn from the
consolidated financial statements of the Company and covers the three most
recently completed financial years.

                          TWELVE MONTHS ENDED MARCH 31
               (IN MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>

                                                   2002(Note 1)       2001          2000
==========================================================================================
<S>                                                 <C>              <C>           <C>
Continuing Operations
    Revenue                                         $1,126.5       $  891.4      $  865.1
    Earnings                                           149.3          105.2          62.3
    Earnings per share (notes 2 & 3)                    0.69           0.49          0.28
Net earnings                                           150.6          108.1          98.5
Net earnings per share (note 2 & 3)                     0.69           0.50          0.45
Total assets                                         2,384.8        1,372.1       1,248.6
Total long-term debt                                   926.5          265.3         270.7
Shareholders' equity                                   618.5          464.1         379.3
Dividends per share                                     0.11           0.10          0.10
==========================================================================================
</TABLE>

Notes:

(1)  The results for the year ended March 31, 2002 include the results of BAE
     SYSTEMS Flight Simulation and Training Inc. from April 2, 2001, Valmarine
     AS from August 1, 2001, Schreiner Aviation Training B.V. from August 24,
     2001 and SimuFlite Training International, Inc. from December 31, 2001.
     These acquisitions affect the comparability of the fiscal 2002 results with
     fiscal years 2000 and 2001.

     On December 18, 2001, the Board of Directors approved a plan to divest the
     Forestry Systems business segment. As a result of the planned divestitures,
     the consolidated financial statements for fiscal years 2000 and 2001 have
     been reclassified to reflect the results of operations for the Forestry
     group as discontinued operation.

     In addition to the above reclassification, in February 2000, the Company
     announced its intention to divest its Cleaning Technologies and Energy
     Control Systems businesses. On May 31, 2000, the Company completed the sale
     of its Energy Control Systems business to SNC-Lavalin Group Inc. On
     February 28, 2002, the Company completed the sale of two of CAE's Cleaning
     Technologies operations. The Company sold CAE Ransohoff Inc., of
     Cincinnati, Ohio and CAE Ultrasonics Inc., of Jamestown, New York, to the
     former management of these operations

(2)  In fiscal 2002, the new accounting standard for goodwill and intangibles
     was adopted. Giving effect to the standard, adjusted net earnings and
     diluted net earnings per share for fiscal years 2001 and 2000 were $0.52
     and $0.48, respectively. In fiscal 2001, the new accounting standard for
     income taxes and employee future benefits was adopted. See note 1 to the
     consolidated financial statements for details.

(3)  Conversion of all outstanding stock options would not materially dilute
     earnings per share.


                                       24
<PAGE>

5.2  DIVIDENDS

Quarterly cash dividends of $0.025 per common share were declared during fiscal
2001 and for the last three-quarters of fiscal 2000. A cash dividend of $0.02
per common share was declared for the first quarter of fiscal 2000.

On June 20, 2001, the Board of Directors declared a 100% stock dividend in
respect of CAE's common shares, effectively achieving a two-for-one split of
outstanding common shares. CAE's common shares commenced trading on a split
basis on July 5, 2001 on The Toronto Stock Exchange. CAE ascribed essentially no
monetary value to the stock dividend.

Commencing with the dividend payable on September 28, 2001, CAE raised the
quarterly dividend to $0.03 per common share. The Company currently intends to
maintain the quarterly dividend of $0.03 per common share. However, any decision
to declare and pay dividends in the future will be made at the discretion of the
Board of Directors, after taking into account the financial results, capital
requirements and other factors the directors may deem relevant.

CAE permits its shareholders to elect to receive common share dividends in lieu
of cash dividends. During fiscal 2000, 2001 and 2002, CAE issued 68,032, 34,410
and 17,605 common shares, respectively, as share dividends.


ITEM 6 - REVIEW OF OPERATIONS AND MANAGEMENT'S DISCUSSION AND ANALYSIS

The information that appears under the heading "Review of Operations and
Management's Discussion and Analysis" on pages 17 - 26 inclusive of the Annual
Report is incorporated herein by reference.


ITEM 7 - MARKET FOR SECURITIES

The outstanding common shares of the Company are listed and posted for trading
on The Toronto Stock Exchange under the symbol "CAE".

Effective July 29, 2002, CAE listed its shares on the New York Stock Exchange
under the symbol "CGT" (CAE Global Training).


ITEM 8 - DIRECTORS AND OFFICERS

The directors of the Company are elected at each annual meeting of shareholders
and hold office until the next annual meeting of shareholders or until their
successors are elected or appointed. The names and municipalities of residence
of the directors and officers of the Company, the positions and offices held by
them in the Company, and their respective principal occupations for the last
five years are set forth below. In addition to fulfilling all statutory
requirements, the Board of Directors oversees and reviews: (i) the strategic and
operating plans and financial budgets and the performance against these
objectives; (ii) the principal risks and the adequacy of the systems and
procedures to manage these risks; (iii) the compensation and benefit policies;
(iv) management development and succession planning; (v) business development
initiatives; (vi) the communications policies and activities, including
shareholder communications; (vii) the integrity of internal controls and
management information systems; (viii) the monitoring of the corporate
governance system; and (ix) the performance of the President and Chief Executive
Officer.

The Committees of the Board of Directors are the Audit Committee, the Governance
Committee, the Compensation Committee and the Executive Committee.


                                       25
<PAGE>

DIRECTORS

<TABLE>
<CAPTION>

NAME AND MUNICIPALITY OF RESIDENCE AND
YEAR FIRST BECAME A DIRECTOR                      PRINCIPAL OCCUPATION
===============================================   ============================================================
<S>                                               <C>
DEREK H. BURNEY, O.C.                             President and Chief Executive Officer of the Company and is
Toronto, Ontario                                  a member of the Executive Committee. Mr. Burney is also a
(1999)                                            director of Shell Canada Limited. Formerly, Mr. Burney was
                                                  Chairman and Chief Executive Officer of Bell Canada
                                                  International Inc. (1993-October 1999). Prior thereto, he
                                                  was Canada's Ambassador to the United States of America from
                                                  1989.

-----------------------------------------------   -------------------------------------------------------------

JOHN A. (IAN) CRAIG                               Business consultant and was formerly Chief Marketing Officer
Ottawa, Ontario                                   of Nortel Networks Corporation. Mr. Craig is also a director
(2000)                                            of Bell Canada International Inc., Arris Group Inc. and
                                                  Williams Communications Group. Mr. Craig is a member of the
                                                  Audit Committee.

-----------------------------------------------   -------------------------------------------------------------

RICHARD (DICK) J. CURRIE, C.M.                    Non-executive Chairman of BCE Inc. He was formerly President
Toronto, Ontario                                  and a director of George Weston Limited since 1996 and was
(2001)                                            President and a director of Loblaw Companies Limited for
                                                  almost 25 years until December 2000. Mr. Currie has served
                                                  as a member of RJR Nabisco's Advisory Board and on the
                                                  Advisory Board of Jacob Suchard (Zurich) and is presently on
                                                  the Advisory Board of Barry Callebaut (Zurich). Mr. Currie
                                                  is Past Chairman of the Richard Ivey School of Business
                                                  Administration of The University of Western Ontario and has
                                                  served on the Visiting Committee to the Harvard Business
                                                  School. Mr. Currie is a member of the Audit Committee.

-----------------------------------------------   -------------------------------------------------------------

R. FRASER ELLIOTT, C.M., Q.C.                     Senior partner in the legal firm of Stikeman Elliott
Toronto, Ontario                                  (Toronto). Mr. Elliott is also a director of the Toronto
(1951)                                            General & Western Hospital Foundation. Mr. Elliott is a
                                                  member of the Executive Committee.

-----------------------------------------------   -------------------------------------------------------------

H. GARFIELD EMERSON, Q.C.                         National Chairman and a senior partner of the legal firm of
Toronto, Ontario                                  Fasken Martineau DuMoulin. Mr. Emerson is also the Chairman
(1992)                                            of Rogers Communications Inc., Vice-Chairman of Rogers
                                                  Wireless Communications Inc. and a director of Canada
                                                  Deposit Insurance Corporation, University of Toronto Asset
                                                  Management Corporation, Wittington Investments, Limited and
                                                  Sunnybrook & Women's Health Sciences Centre. He was formerly
                                                  President and Chief Executive Officer of NM Rothschild &
                                                  Sons Canada Limited, investment bankers. Mr. Emerson is a
                                                  member of the Governance Committee.
===============================================   ============================================================
</TABLE>


                                                      26
<PAGE>

<TABLE>
<CAPTION>

NAME AND MUNICIPALITY OF RESIDENCE AND
YEAR FIRST BECAME A DIRECTOR                      PRINCIPAL OCCUPATION
===============================================   ============================================================
<S>                                               <C>
ANTHONY S. FELL                                   Chairman of RBC Dominion Securities Limited. Mr. Fell is
Toronto, Ontario                                  also a director of BCE Inc., a director of Munich
(2000)                                            Reinsurance Company of Canada, a director of Loblaw
                                                  Companies Limited, Chairman of the Board of Trustees of
                                                  University Health Network, and a Governor of the Duke of
                                                  Edinburgh's Award Program in Canada. Mr. Fell is the
                                                  Chairman of the Governance Committee.

-----------------------------------------------   -------------------------------------------------------------

THE HONOURABLE JAMES A. GRANT, P.C., Q.C.         Partner in the legal firm of Stikeman Elliott (Montreal).
Montreal, Quebec                                  Mr. Grant is a director of Canadian Imperial Bank of
(1991)                                            Commerce, Shire Pharmaceuticals Group plc and various
                                                  charitable and social organizations. Mr. Grant is a member
                                                  of the Compensation Committee and the Executive Committee.

-----------------------------------------------   -------------------------------------------------------------

JAMES F. HANKINSON                                Business consultant and was formerly President and Chief
Toronto, Ontario                                  Executive Officer of New Brunswick Power Corporation. He is
(1995)                                            also a director of Maple Leaf Foods Inc. Mr. Hankinson is
                                                  the Chairman of the Audit Committee.

-----------------------------------------------   -------------------------------------------------------------

E. RANDOLPH (RANDY) JAYNE II                      Senior Partner in Heidrick & Struggles International, Inc.,
Tysons Corner, Virginia                           an executive search firm (1996-present) and is a Founder and
(2001)                                            the Global Managing Partner of that firm's Semiconductor,
                                                  Hardware and Systems Specialty Practice. Prior to this, he
                                                  served as a senior executive in McDonnell Douglas
                                                  Corporation and an officer in the US Air National Guard
                                                  (1987-1996). Mr. Jayne is a member of the Compensation
                                                  Committee.

-----------------------------------------------   -------------------------------------------------------------

JAMES W. MCCUTCHEON, Q.C.                         Counsel to the law firm of McCarthy Tetrault. Mr. McCutcheon
Toronto, Ontario                                  is a director of Dominion of Canada General Insurance
(1979)                                            Company, E-L Financial Corporation, Empire Life Insurance
                                                  Company (Chairman 1991-1997), Guardian Capital Group Limited
                                                  and Noranda Inc. Mr. McCutcheon is a member of the Audit
                                                  Committee.

-----------------------------------------------   -------------------------------------------------------------

GEORGE K. PETTY                                   Business consultant and was formerly President and Chief
San Luis Obispo,  California                      Executive Officer of BCT.Telus Corporation, a Canadian
(1996)                                            telecommunication and information services company. Mr.
                                                  Petty is the Chairman of the Compensation Committee.

-----------------------------------------------   -------------------------------------------------------------

LAWRENCE N. STEVENSON                             President & Chief Executive Officer of Pathfinder Capital
Toronto, Ontario                                  Inc., an investment and venture capital firm. Mr. Stevenson
(1998)                                            was formerly Chief Executive Officer of Chapters and
                                                  Chapters Online Inc. Mr. Stevenson is also a director of
                                                  SNC-Lavalin Group Inc. and Sobeys Inc. Mr. Stevenson is a
                                                  member of the Governance Committee.
===============================================   ============================================================
</TABLE>


                                                      27
<PAGE>

<TABLE>
<CAPTION>

NAME AND MUNICIPALITY OF RESIDENCE AND
YEAR FIRST BECAME A DIRECTOR                      PRINCIPAL OCCUPATION
===============================================   ============================================================
<S>                                               <C>
LYNTON R. WILSON, O.C.                            Chairman of the Board of the Company, Chairman of the
Oakville, Ontario                                 Executive Committee and is a member of the Compensation and
(1997)                                            the Governance Committees. Mr. Wilson is the Chairman of
                                                  Nortel Networks Corporation and is also a director of
                                                  DaimlerChrysler AG.
===============================================   ============================================================
</TABLE>


OFFICERS WHO ARE NOT DIRECTORS

<TABLE>
<CAPTION>

NAME AND MUNICIPALITY OF RESIDENCE                OFFICE HELD WITH CAE AND PRINCIPAL OCCUPATION(1)
===============================================   ============================================================
<S>                                               <C>
DONALD W. CAMPBELL                                Group President, Military Simulation and Training; formerly
Ottawa, Ontario                                   Executive Vice President, Military Simulation and Training
                                                  2000 to 2002; Deputy Minister of Foreign Affairs and Prime
                                                  Minister's Personal Representative for Economic Summit, 1997
                                                  to 2000; Ambassador to Japan, 1997.

-----------------------------------------------   -------------------------------------------------------------

GARY SCOTT                                        Effective July 8, 2002, Group President, Civil Simulation
Baie D'Urfe, Quebec                               and Training. Formerly, President of FlightSafety Boeing
                                                  Training International from 2000 to 2002; Vice President
                                                  Finance and Business Strategy for Boeing Commercial
                                                  Airplanes' Commercial Aviation Services from 1999 to 2000;
                                                  Vice President Business Strategy for Boeing Commercial
                                                  Airplanes during 1999; Vice President and Chief Operating
                                                  Officer, Boeing Enterprises during 1998; and Vice President
                                                  and General Manager of Boeing Commercial Airplanes Group's
                                                  737/757 Programs from 1996 to 1998.

-----------------------------------------------   -------------------------------------------------------------

PAUL G. RENAUD                                    Executive Vice President, Chief Financial Officer and
Mississauga, Ontario                              Secretary; formerly Vice President Finance, Chief Financial
                                                  Officer and Secretary, 1997 to 2000.

-----------------------------------------------   -------------------------------------------------------------

RASHID A. KHAN                                    Executive Vice President, Marine Controls; formerly Vice
St-Lazare, Quebec                                 President and General Manager, Marine Systems, CAE
                                                  Electronics Ltd., 1998 to 2000; Director Marine Control
                                                  Systems and Power Plant Simulation, CAE Electronics Ltd.,
                                                  1997 to 1998.

-----------------------------------------------   -------------------------------------------------------------

R. HANI MACRAMALLAH                               Executive Vice President, Operations; formerly Vice
Montreal, Quebec                                  President, Operations, CAE Electronics Ltd., 1997 to 2000.

-----------------------------------------------   -------------------------------------------------------------

HARTLAND J.A. PATERSON                            Vice President, Legal and General Counsel, 2001 to present;
Westmount, Quebec                                 formerly Vice President, Legal and Regulatory of Cable &
                                                  Wireless PLC (Japan), 1999 to 2001; Director Legal Affairs
                                                  of Cable & Wireless PLC (Caribbean) from 1997 to 1999.
===============================================   ============================================================
</TABLE>


                                                      28
<PAGE>

<TABLE>
<CAPTION>

NAME AND MUNICIPALITY OF RESIDENCE                OFFICE HELD WITH CAE AND PRINCIPAL OCCUPATION(1)
===============================================   ============================================================
<S>                                               <C>
JEAN-FRANCOIS THIBODEAU                           Vice President and Treasurer, 2001 to present; formerly
Laval, Quebec                                     Treasurer of G.T.C. Transcontinental Group Ltd., 1999 to
                                                  2001; Director of Finance and Treasury of Provigo, 1997 to
                                                  1999.

-----------------------------------------------   -------------------------------------------------------------

ROBERT C. HEDGES                                  Controller and Assistant Secretary, 1998 to present;
Newmarket, Ontario                                formerly Financial Planning Consultant, Financial Concept
                                                  Corporation, 1998; Vice President, Finance and Chief
                                                  Financial Officer, Holliday & Scandrett International Inc.,
                                                  1997 to 1998.
===============================================   ============================================================
</TABLE>


(1)  Where the date 1997 appears, it signifies the beginning of the last five
     years and not necessarily the date upon which the individual commenced the
     relevant position or occupation.

The directors and senior officers of the Company as a group as at the date
hereof beneficially own, directly or indirectly, or exercise control or
direction over 10,332,157 common shares, which represents 4.7 percent of the
Company's outstanding common shares.

                                       29
<PAGE>

ITEM 9 - ADDITIONAL INFORMATION

The Company will provide to any person or company, upon request to the Vice
President, Corporate Communications and Investor Relations or the Secretary of
the Company, the documents specified below:

(a)  When the securities of the Company are in the course of a distribution
     under a preliminary short form prospectus or a short form prospectus:

     (i)  one copy of the annual information form of the Company together with
          one copy of any document, or the pertinent pages of any document,
          incorporated by reference in such annual information form;

     (ii) one copy of the comparative financial statements of the Company for
          its most recently completed financial year together with the
          accompanying report of the auditors and one copy of the most recent
          interim financial statements of the Company for any period after the
          end of its most recently completed financial year;

     (iii)one copy of the information circular in respect of its most recent
          annual meeting of shareholders that involved the election of
          directors;
          and

     (iv) one copy of any other documents which are incorporated by reference
          into the preliminary short form prospectus or the short form
          prospectus and are not required to be provided under (i) to (iii)
          above; or

(b)  At any other time, one copy of any other document referred to in clauses
     (i), (ii) and (iii) of paragraph (a) above, provided that the Company may
     require the payment of a reasonable charge if the request is made by a
     person or company who is not a security holder of the Company.

Additional information, including directors' and officers' remuneration and
indebtedness, principal holders of the Company's securities, options to purchase
securities and interests of insiders in material transactions, where applicable,
is contained in the Proxy Information Circular dated June 10, 2002 in connection
with the Company's Annual Meeting of Shareholders held on August 7, 2002.
Additional financial information is provided in the Consolidated Financial
Statements. A copy of such documents may be obtained from the Vice President,
Corporate Communications and Investor Relations or the Secretary of the Company
upon request.


                                       30
<PAGE>

SCHEDULE "A" - SUBSIDIARIES

Set forth below are the names of all the direct and indirect subsidiaries of the
Company. All companies are wholly owned except as noted.

<TABLE>
<CAPTION>

                                                                                               JURISDICTION OF
NAME OF SUBSIDIARY                                                                             INCORPORATION
===========================================================================================    ==================
<S>                                                                                            <C>
CANADA

CAE International Holdings Limited                                                             Canada
CAE Railway Ltd.                                                                               Canada
CAE Machinery Ltd.                                                                             British Columbia

-------------------------------------------------------------------------------------------    ------------------
UNITED STATES

CAE (US) Inc.                                                                                  Delaware
CAE (US) LLC.                                                                                  Delaware
CAE (US) Services Inc.                                                                         Delaware
CAE USA Inc.                                                                                   Delaware
Civil Aviation Training Solutions Inc.                                                         Florida
CAE Center Dallas, Inc.                                                                        Texas
CAE SimuFlite Inc.                                                                             Texas

-------------------------------------------------------------------------------------------    ------------------
EUROPE

CAE Center Brussels N.V.                                                                       Belgium
Simubel N.V. (a CAE Aviation Training Company)                                                 Belgium
CAE Elektronik GmbH                                                                            Germany
CAE Grundstucksgesellschaft mbH                                                                Germany
CAE Verwaltungsgesellschaft mbH                                                                Germany
CityLine Canadair Simulator und Training GmbH (15%)                                            Germany
SAGO Grunstucks-Verwaltungsgesellschaft mbH (51%)                                              Germany
SAGO Grunstucks-Verwaltungsgesellschaft mbH & Co. KG (95%)                                     Germany
ZFB Zentrum fur Flugsimulation Berlin GmbH (17%)                                               Germany
CAE International Capital Management Hungary LLC                                               Hungary
CAE  Investment S.a r.l.                                                                       Luxembourg
B.V. Nationale Luchtvaartschool                                                                Netherlands
CAE Aviation Training B.V.                                                                     Netherlands
CAE Center Maastricht B.V.                                                                     Netherlands
CAE Euro Co. S.a.r.l.                                                                          Netherlands
CAE Flight Crew Training B.V.                                                                  Netherlands
CAE Holdings BV                                                                                Netherlands
CAE Investments BV                                                                             Netherlands
CAE Training Aircraft B.V                                                                      Netherlands
CAE Training B.V                                                                               Netherlands
NLS Amsterdam B.V                                                                              Netherlands
CAE Holding Norway AS                                                                          Norway
CAE Valmarine AS                                                                               Norway
Academia Aeronautica De Evora S.A.(45%)                                                        Portugal
CAE Servicios Globales de Instruccion de Vuelo S.L.                                            Spain
===========================================================================================    ==================
</TABLE>


                                       31
<PAGE>

<TABLE>
<CAPTION>

                                                                                               JURISDICTION OF
NAME OF SUBSIDIARY                                                                             INCORPORATION
===========================================================================================    ==================
<S>                                                                                            <C>
EUROPE (CONT'D)

CAE Holdings Ltd.                                                                              United Kingdom
CAE Invertron Simulators plc                                                                   United Kingdom
CAE UK plc                                                                                     United Kingdom
CAE Aircrew Training Services plc (74%)                                                        United Kingdom
CVS Leasing Limited (11%)                                                                      United Kingdom
Fast Holding Limited (50%)                                                                     United Kingdom
Fast Training Services Limited (50%)                                                           United Kingdom

-------------------------------------------------------------------------------------------    ------------------
OTHER

CAE Electronics (Australia) Pty Ltd.                                                           Australia
CAE Simco (Barbados) Ltd.                                                                      Barbados
Academia De Treinamento De Voo Do Brasil Ltda.                                                 Brazil
Qindao Fei Sheng International Aviation Technology Development Training Co. Ltd.(33%)          China
CAE Electronics Private Ltd.                                                                   India
ISDAT Simulation SDN BHD (20%)                                                                 Malaysia
CAE Aviation Training International Ltd.                                                       Mauritius
Flight Training Device (Mauritius) Limited                                                     Mauritius

===========================================================================================    ==================

                            DISCONTINUED OR INACTIVE

                                                                                               JURISDICTION OF
NAME OF SUBSIDIARY                                                                             INCORPORATION
===========================================================================================    ==================
UNITED STATES

CAE Alpheus Inc.                                                                               California
CAE McGehee Inc.                                                                               California
CAE Cleaning Technologies, Inc.                                                                Delaware
CAE Railway Inc.                                                                               Delaware
CAE ScreenPlates Inc.                                                                          Delaware
CAE Newnes Inc.                                                                                Washington

-------------------------------------------------------------------------------------------    ------------------
EUROPE

CAE ScreenPlates SA                                                                            France
CAE Beteiligungsgesellschaft mbH                                                               Germany
CAE Beyss GmbH                                                                                 Germany
CAE Center Amsterdam B.V.                                                                      Netherlands
CAE ScreenPlates AB                                                                            Sweden
CAE Cleaning Technologies plc                                                                  United Kingdom

-------------------------------------------------------------------------------------------    ------------------
OTHER

CAE MRAD Pty Ltd.                                                                              Australia
CAE Electronics SPN, BHD                                                                       Malaysia

===========================================================================================    ==================
</TABLE>


                                       32
<PAGE>

                  UNDERTAKING AND CONSENT TO SERVICE OF PROCESS


A.     UNDERTAKING

       CAE Inc. (the "Registrant") undertakes to make available, in person or by
       telephone, representatives to respond to inquiries made by the staff of
       the Securities and Exchange Commission ("SEC"), and to furnish promptly,
       when requested to do so by the SEC staff, information relating to the
       securities in relation to the obligation to file an annual report on
       Form 40-F arises or transactions in said securities.


B.     CONSENT TO SERVICE OF PROCESS

       The Registrant has previously filed with the SEC a Form F-X in connection
       with the Common Shares, including the associated Common Share purchase
       rights pursuant to the Registrant's Shareholder Rights Plan, which
       purchase rights trade together with the Common Shares.

<PAGE>

                                 CERTIFICATIONS


     Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
accompany this annual report on Form 40-F.

<PAGE>

                                   SIGNATURES


     Pursuant to the requirements of the Exchange Act, the registrant certifies
that it meets all of the requirements for filing on Form 40-F and has duly
caused this annual report to be signed on its behalf by the undersigned, thereto
duly authorized.


Date: August 16, 2002           CAE INC.





                                By: /s/ Hartland J. A. Paterson
                                    ------------------------------------------
                                    Name:    Hartland J. A. Paterson
                                    Title:   Vice President, Legal and General
                                             Counsel

<PAGE>

                                  EXHIBIT INDEX


<TABLE>
<CAPTION>

<S>                   <C>
EXHIBIT NO.           DESCRIPTION

1                     Audited annual financial statements for the fiscal
                      year ended March 31, 2002

2                     Management's Discussion and Analysis for the fiscal
                      year ended March 31, 2002

3                     Consent of PricewaterhouseCoopers LLP
</TABLE>