Document:

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17                     27                    28              31                       52                    53
<S>                    <C>                   <C>             <C>                      <C>                   <C>
Review of Operations   Management and        Consolidated    Notes to Consolidated    Board of Directors    Shareholder
and Management's       Auditors' Reports     Financial       Financial Statements     and Officers          Information
Discussion and                               Statements
Analysis
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                                                                  EXHIBIT 4.4

REVIEW OF OPERATIONS AND                                                      17
MANAGEMENT'S DISCUSSION AND ANALYSIS

Management's Discussion and Analysis (MD&A) of the fiscal 2002 financial results
focuses on the core businesses of CAE Inc. (CAE), Civil (formerly Commercial)
Simulation and Training and Military Simulation and Marine Controls (formerly
Military Simulation and Controls). During the year CAE accelerated its
transformation from a supplier of simulation equipment to a provider of
integrated training solutions in the civil aviation training market with the
December 2001 acquisition of SimuFlite Training International ("SimuFlite") of
Dallas, Texas and the August 2001 acquisition of Schreiner Aviation Training
("Schreiner") of the Netherlands. CAE's Military Simulation and Marine Controls
segment strengthened its position in the US military market with the first
quarter acquisition of BAE SYSTEMS Flight Simulation and Training Inc. ("BAE
SYSTEMS") in Tampa, Florida and entered the commercial marine systems market
with the second quarter acquisition of Valmarine AS ("Valmarine") in Drammen,
Norway. On December 18, 2001, the Board of Directors approved the divestiture of
the Company's Forestry Systems segment to further sharpen CAE's focus and to
enhance its growth potential. The results of this segment are reported as
discontinued operations and comparative amounts have been restated. The MD&A
includes a review of the operations and financial condition of each segment and
should be read in conjunction with the audited financial statements contained on
pages 28 to 49.
     This MD&A contains forward-looking statements with respect to CAE and its
subsidiaries based on assumptions that CAE considers reasonable at the time they
were prepared. These forward-looking statements, by their nature, necessarily
involve risks and uncertainties that could cause actual results to differ
materially from those contemplated by the forward-looking statements. CAE
cautions the reader that the assumptions regarding future events, many of which
are beyond the control of CAE and its subsidiaries, may ultimately prove to be
incorrect. Factors that could cause actual results or events to differ
materially from current expectations are discussed on page 26.

Summary of Consolidated Results

Continuing Operations
EARNINGS
Consolidated earnings from continuing operations for the year climbed to
$149.3 million, a 42% increase over the fiscal 2001 $105.2 million result.
Earnings per share increased from $0.49 to $0.69, reflecting the effect of
the restatement of Forestry Systems earnings as discontinued operations and
the impact of the 100% stock dividend declared on June 20, 2001, effectively
a stock split. All segments reported significantly improved performances
this year resulting from productivity improvements and cost reductions.
Operating margins reached 21.5% for the year as compared to 17.0% last year.
This improvement stems from the reduction in the manufacturing time to build
a civil simulator, better execution on several military programs and cost
containment initiatives. In addition, the Military Simulation and Marine
Controls segment achieved robust results for the year due mainly to improved
performance on its major programs, the first quarter acquisition of BAE
SYSTEMS and the August 2001 acquisition of Valmarine. The Civil Simulation
and Training segment's accelerated move into aviation training, through the

<page>
18                                                                   CAE AR 2002

two strategic acquisitions, helped to drive a 30% increase in this segment's
operating earnings. In the fourth quarter, the segment absorbed the $7.0
million provision for work-force reductions announced in February 2002, the
majority of which was expended by March 31, 2002.
     The earnings growth more than offset an increase in interest expense.
Interest expense for the year, at $22.7 million, is higher than last year due
primarily to the acquisition of four strategic businesses and capital spending
in support of our growth initiatives in pilot training. In addition to cash flow
from operations, this growth has been financed through the use of proceeds from
the disposition of discontinued operations, utilization of CAE's cash balances,
short-term investments and long-term credit facilities.

REVENUE
Consolidated revenue for fiscal 2002, at $1.13 billion, reflects a 26% increase
over the $891.4 million reported for the prior year. Revenue for Military
Simulation and Marine Controls grew by 42% or $171.4 million, due primarily to
the acquisition of BAE SYSTEMS, which significantly enhanced CAE's access to the
US Military market, and Valmarine, which facilitated entry into the commercial
marine control systems market. Civil Simulation and Training rose 13%, driven by
the acquisitions of SimuFlite in December and Schreiner in the second quarter,
combined with the December opening of the Toronto Aviation Training Centre, the
first quarter opening of the Sao Paulo Centre and other training centre
initiatives.

Discontinued Operations
On December 18, 2001, the Board of Directors approved the divestiture of the
Company's Forestry Systems segment. Commencing in the third quarter 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
restated, accordingly. On March 28, 2002, CAE closed the sale of the Pulp and
Paper division 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 $123.0 million. AFT used the proceeds and an
additional $39.0 million to acquire the business from CAE. 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. Negotiations to sell the
remaining businesses are proceeding and the Company expects to conclude
agreements to dispose some or all of the divestitures in the first half of
fiscal 2003.

Net Earnings
Consolidated net earnings increased 39% to $150.6 million or $0.69 per share in
fiscal 2002 compared with consolidated net earnings of $108.1 million or $0.50
per share in fiscal 2001.

Cash Flow
CAE's cash and short-term investments decreased by a combined $169.5 million to
$88.8 million and $21.3 million, respectively, and long-term debt increased by
$560.2 million. These changes are the result of the four strategic acquisitions
totalling $757.6 million and capital expenditures of $249.6 million primarily
related to CAE's expansion into aviation training. Total proceeds amounting to
$187.1 million, received primarily in the fourth quarter from the disposition of
the Pulp and Paper division of Forestry Systems and the sale of CAE Ransohoff
Inc. and CAE Ultrasonics Inc., were used to pay down debt. The Company received
$42.6 million in the third quarter on the completion of a tax efficient sale and
leaseback of the first two simulators installed in the Toronto Training Centre.

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                                     MANAGEMENT'S DISCUSSION AND ANALYSIS     19

In addition, on January 15, 2002, CAE completed a US$36.4 million project
financing transaction with Banco ITAU of Brazil for the Sao Paulo Aviation
Training Centre. This project financing comprises a 7.5-year term loan issued by
the Brazilian bank and enables CAE to borrow exclusively on the strength of its
Brazilian operations.

Backlog
Order backlog as at March 31, 2002, reached $2.7 billion, up $0.9 billion or 50%
over last year. The backlog includes two major programs, the Eurofighter visual
system program and the Astute Class Submarine Training program for the UK Royal
Navy, secured in the first half of the 2002 fiscal year.

Review of Operations

Civil Simulation and Training
CAE's Civil Simulation and Training business is a world leader in the design and
production of commercial flight simulators, visual systems and training systems.
The acquisitions of Schreiner in the second quarter and SimuFlite in December,
combined with the December opening of the Toronto Training Centre, the first
quarter opening of Sao Paulo Centre and other training centre initiatives, have
accelerated CAE's move into aviation training. These strategic initiatives have
facilitated CAE's transformation from a supplier of simulation equipment to a
provider of integrated training solutions in the civil aviation training market
and positioned CAE as the world's second largest independent aviation training
company.

FINANCIAL RESULTS

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(amounts in millions of dollars)               2002       2001       2000       1999       1998
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<S>                                     <C>   <C>        <C>        <C>        <C>        <C>
Revenue                                 $     545.2      481.5      480.2      352.8      296.8
Operating earnings                      $     152.3      117.0       82.3       55.9       56.7
Operating margins                       %      27.9       24.3       17.1       15.8       19.1
Backlog                                 $     641.2      649.5      527.8      482.7      339.9
Capital expenditures                    $     216.7       72.9       11.7       23.2       27.4
-----------------------------------------------------------------------------------------------
</TABLE>

Revenue for the fiscal year reached $545.2 million, $63.7 million or 13%
ahead of last year. The increase in revenue from last year primarily stems
from the Schreiner and SimuFlite acquisitions combined with the launch of the
Sao Paulo, Toronto and Madrid training centres. In addition, higher visual
upgrade and support service revenues were realized. Operating earnings of
$152.3 million for the year were $35.3 million or 30% higher than last year.
These results reflect the impact of the accelerated move into aviation
training and significant margin improvement achieved through productivity
gains and cost containment initiatives. In addition, these operating earnings
reflect a fourth quarter $7.0 million provision for workforce reductions, the
majority of which was spent by March 31, 2002.
     Capital expenditures increased significantly in the fiscal year, the
majority of which relate to the construction of five new training facilities.

OPERATIONAL HIGHLIGHTS
During the first half of the fiscal year, CAE's strategy to expand and grow
through pilot training gained significant momentum. The acquisition of Schreiner
was announced along with plans to open a flight-training centre in Denver and an
agreement to build and operate, with Emirates, the international airline of the
United Arab Emirates (UAE), a new flight-training centre in Dubai. The
acquisition of Schreiner in August 2001, and its four established training
centres (Amsterdam and Maastricht in The Netherlands, Brussels, Belgium, and
Dallas, Texas) added a total of 19 full flight simulators (FFS) to CAE's network
of training facilities. On July 6, 2001, a long-term training agreement with
Alitalia Linee

<page>
20                                                                   CAE AR 2002

Aeree Italiane was signed for three FFSs to be built, installed and
owned by CAE, to provide training to Alitalia and other carriers at the
Alitalia training centre in Rome. On July 14, 2001, CAE and Emirates signed
an agreement to build and operate jointly a new aviation training centre in
Dubai. The centre is scheduled to open in the summer of 2002. CAE also signed
a five-year training service agreement with Qatar Airways, the new centre's
first anchor customer.
     During the second quarter CAE concluded a contract with Frontier Airlines
to train at CAE's new training centre in Denver, Colorado, scheduled to open
in the summer of 2002. On December 13, CAE officially opened the Toronto
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 FFSs, 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 early 2003. The acquisition of SimuFlite of Dallas, Texas was
completed on December 31, 2001, for US$210.9 million, subject to an adjustment
based on an audit of the closing balance sheet. Up until this strategic move,
CAE's 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 FFSs, all but one in Dallas, serving the
business-aircraft market (the largest addressable or outsourced aviation
training market in the world). CAE sees 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(TM). By the end of fiscal 2003, CAE
expects to have in operation an installed base of over 80 FFSs. 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.
     CAE achieved one of the most significant milestones on the CAE Sim XXI(TM)
simulator program - its inaugural test flight in January. CAE Sim XXI(TM)'s
modular design is the result of the latest next-generation technologies, used to
produce high quality high-fidelity FFSs faster than any other prototype that
uses new technologies. CAE Sim XXI(TM) is easier to assemble, test, integrate,
evaluate, deliver and maintain. Engineering activities for the first and second
production of CAE Sim XXI(TM) simulators are underway and will be delivered to
CAE's training centre in Dubai. CAE Sim XXI(TM) manufacturing techniques will be
extended to all CAE simulator production. In addition, during the fourth quarter
CAE's FFSs at both the Toronto and Madrid aviation training centres received
Level D certification, the highest level in full flight simulation. These
achievements clearly demonstrate CAE's commitment to maintaining its
technological leadership.
     During the fiscal year, CAE was awarded 22 of 26 FFS orders or 85% of the
competed market (fiscal 2001 - 35 of 42 FFS orders). CAE also captured 16 of 27
competed visual systems, or 59%. New customers included a $100.0 million
contract for four FFSs all equipped with CAE MAXVUE(TM) Plus visual systems, to
Khalifa Airways and an Airbus A330 FFS equipped with CAE's new image generator,
CAE Tropos(TM), to Taiwan-based Eva Airways Corp.

OUTLOOK
CAE expects to maintain its commanding leadership position in civil simulation
and visual systems due to its focus on customer relationships, its commitment to
innovation and technology, product quality, reliability and efficiency, and its
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 (R&D)
programs. Last year CAE launched a large-scale R&D program to improve its flight
simulator products. The next generation

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                                     MANAGEMENT'S DISCUSSION AND ANALYSIS     21

FFS, CAE Sim XXI(TM), is expected to go into full production later this year
and is targeted for the growing regional and business jet training markets.
It will also provide significant spin-off benefits for CAE's entire suite of
simulation and training products. CAE's capabilities in simulation-based
interactive learning, including its CAE Simfinity(TM) system, will also
complement CAE's traditional strength in FFSs and flight training devices.
By teaming with the growing network of CAE training centres, CAE can offer
airlines and business jet operators a range of training options.
     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. To date we
have received no cancellations of orders. 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 CAE 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 its own training centres, as well as for sale, the introduction
of CAE Sim XXI(TM), 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 CAE expects to come from training should
offset the decline in simulator sales.

Military Simulation and Marine Controls
CAE's Military Simulation and Marine Controls business is a premier designer and
manufacturer of military flight and land-based simulation and training systems,
and is a world leader in the supply of marine control systems. Three major
events occurred during the first half of fiscal 2002, which served to accelerate
CAE's strategic initiatives in the military and marine markets. First, the
acquisition of BAE SYSTEMS was completed on April 2, 2001, reflecting CAE's
commitment to strengthen its access to the US Defence market. On August 1, 2001,
CAE announced the acquisition of Valmarine for approximately $63.0 million.
Valmarine is a leader in the commercial marine control systems market (namely
cruise lines, large passenger ferries and specialized cargo vessels). This
acquisition is the foundation for growth in the Marine Controls Division and
meets a key strategic objective by accelerating CAE's entry into the commercial
marine control systems market. In July, CAE was selected as one of several prime
contractors under the US Air Force (USAF) Training Systems Acquisition II (TSA
II) contract. This permits CAE to pursue USAF, Air Force Reserve, Air National
Guard, and Foreign Military Sale training products and services programs.

FINANCIAL RESULTS

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(amounts in millions of dollars)                2002       2001        2000       1999      1998
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<S>                                <C>       <C>        <C>         <C>        <C>       <C>
Revenue                            $           581.3      409.9       384.9      355.7     334.2
Operating earnings                 $            90.0       34.9        15.4       25.2      20.6
Operating margins                  %            15.5        8.5         4.0        7.1       6.2
Backlog                            $         2,054.7    1,103.3     1,219.3    1,242.6   1,242.2
Capital expenditures               $            32.9        3.4        10.1       45.7      25.4
------------------------------------------------------------------------------------------------
</TABLE>

Revenue of $581.3 million for the year was $171.4 million or 42% above last
year, driven by the acquisitions of BAE SYSTEMS and Valmarine and activity on
major programs awarded earlier in the year (Astute, Eurofighter). Operating
earnings of $90.0 million were $55.1 million or 158% better than last year.
These results reflect the significant improvement in performance on major
programs, including the E-3A Airborne Warning and Control System, the Astute
Class Submarine Training program, the C-5B Weapon System Trainer, the NATO
Flying Training in Canada program and the Medium Support Helicopter Aircrew
Training Facility, in addition to the BAE SYSTEMS and Valmarine acquisitions
and the continuing impact of productivity and cost saving initiatives.
     Backlog, at a record $2.06 billion, almost doubled last year's amount
and includes the Eurofighter visual system program and the Astute Class
Submarine Training program.

<page>
22                                                                   CAE AR 2002

OPERATIONAL HIGHLIGHTS
This segment secured three major contracts in the year, reinforcing its strategy
and accelerating initiatives. 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 $170.0 million,
the contract extends over several years, with the first deliveries to take place
in calendar year 2002. Also during the second quarter, the FAST Consortium,
owned half by CAE's Marine Controls division 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
$400.0 million to CAE's backlog. During the fourth quarter, 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 (CMS) 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 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.

OUTLOOK
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 R&D programs. In
particular, CAE launched an R&D program to introduce CAE Networked Tactical
Training Systems (NeTTS), a new PC-based architecture to address the requirement
for scalable, reconfigurable, cost-effective training devices. In addition to
technology and price, the customers' - in most cases, governments - key purchase
criteria often include the contractor's local geographic presence. With its
leading edge technology solution, CAE is well positioned to capitalize on
upcoming international Military and Marine programs in Canada, the United
States, Europe, the United Kingdom, Asia and Australia, as well as teaming
and/or collaboration arrangements in other countries. CAE's Military Simulation
and Marine Controls segment has provided an exceptionally strong performance in
fiscal 2002. Following the events of September 11, 2001, there was strong
evidence of an increase in military spending, particularly in the United States.
CAE expects to benefit from these increases especially now that the Company has
a recognized presence in the US to bid as a prime on defence contracts. These
factors coupled with the record backlog, the majority of which is long-term,
provide a solid platform for the future.

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                                     MANAGEMENT'S DISCUSSION AND ANALYSIS     23

Liquidity and Capital Resources

CAE's cash and short-term investments decreased by $169.5 million during the
year. Cash decreased to $88.8 million from the March 31, 2001 level of $156.8
million. Short-term investments amounting to $21.3 million are composed of fixed
term deposits maturing within the next year. Long-term debt increased by $755.8
million primarily on the utilization of new US$200.0 million and US$350.0
million long-term credit facilities and the completion of a US$36.4 million
project financing transaction with Banco ITAU of Brazil for the Sao Paulo
Aviation Training Centre. These changes in cash and long-term debt are also the
result of the Company's strategic acquisitions, totalling $757.6 million for the
year, and capital expenditures of $249.6 million relating to CAE's expansion
into aviation training. In addition, $195.6 million in long-term debt was repaid
from the proceeds received from the disposition of the Pulp and Paper division
of Forestry Systems and the sale of CAE Ransohoff Inc. and CAE Ultrasonics Inc.
totalling $187.1 million and from cash flow from operations.
     CAE employs foreign exchange forward contracts to manage exposures created
when sales are made in foreign currencies. The amount and timing of forward
contracts varies on a number of project related factors, including milestone
billings and the use of foreign materials and/or subcontractors. As at March 31,
2002, CAE had $144.1 million Canadian equivalent in forward contracts. The
Company also entered into cross currency swap-contracts. Currently, three
contracts are in effect and will mature in December 2002. Two of the contracts
are in US dollars and have a total notional value of $21.0 million; the third is
in Canadian dollars and has a notional value of $30.0 million. If both forward
and swap-contracts were marked to market at year-end, a foreign exchange gain of
$3.0 million would result. These would be equally offset by future losses of
foreign denominated cash flows over the balance of the contracts.
     CAE also uses financial instruments to manage its exposure to changing
interest rates and to adjust its mix of fixed and floating interest rate debt.
In order to benefit from the low short-term interest rates prevailing in the
Canadian market, CAE concluded interest rate swap agreements in fiscal 2002 with
three Canadian financial institutions for periods of between one and four years.
Following the implementation of its strategy, the mix of fixed rate versus
floating rate debt was 55% - 45% respectively. As at March 31, 2002, CAE had
interest rate swaps converting mostly floating based long-term debt into fixed
term debt totalling $334.1 million, which if marked to market at that date would
result in a loss of $2.2 million. CAE deals only with sound counterparties in
executing any of its financial instruments.
       As at March 31, 2002, CAE had long-term debt and capital lease
obligations totalling $926.5 million. This compares to long-term debt and
capital lease obligations of $265.3 million in the prior year. This increase
in long-term debt is due to the investments made during the year and sale and
leaseback transactions. At March 31, 2002, the short-term portion of the
long-term debt was $37.5 million compared to $2.3 million last year.
     In addition to the Term Revolver Facilities totalling approximately $1.0
billion, the Company's liquidity is enhanced through access to $57.8 million
in unsecured lines of credit with various banks, compared with $85.0 million
in 2001. In  the normal course of business, CAE issued letters of credit and
performance guarantees for a total amount of $243.0 million.
     As at March 31, 2002, CAE had approximately US$147.8 million of accumulated
non-capital tax losses carried forward that can be used to offset tax payable on
future earnings from US operations. CAE also has accumulated non-capital tax
losses carried forward relating to its operations in other countries of
approximately $64.0 million.

Sale and Leaseback Transactions
From time to time CAE has entered into sale and leaseback transactions to access
low-cost capital to support its growth initiatives. In this fiscal year, CAE
entered into three such transactions. With the acquisition of Schreiner, CAE
acquired a lease for three FFSs valued at $50.0 million. As part of the
acquisition of SimuFlite CAE entered into a 12-year sale and leaseback
arrangement with the seller for five simulators valued at $86.0 million.

<page>
24                                                                   CAE AR 2002

In December 2001, CAE entered into a sale and leaseback arrangement with a
financial institution for two simulators manufactured for its Toronto Training
Centre. Proceeds, at market value, amounted to $42.6 million, $12.2 million over
the carrying value. The guaranteed residual value of $9.2 million will be
deferred as a liability until the lease expiry date and the difference, $3.0
million will be realized over the term of the 22-year lease. Future minimum
lease payments for all such arrangements, amounting to approximately $340.0
million as at March 31, 2002, are disclosed in Note 18 "Operating Lease
Commitments" to the consolidated financial statements.
     This transaction follows another sale and leaseback arrangement completed
in December 1999 for two simulators manufactured for Air Canada. Proceeds
amounted to $35.5 million, $17.2 million above its carrying value. The
guaranteed residual value amounted to $8.3 million.

Non-Recourse Project Financing
During 1997, the Company arranged project financing for the Medium Support
Helicopter Aircrew Training (MSHAT) program it entered into with the UK
Ministry of Defence. The contract was awarded to a consortium, CAE Aircrew
Training Services plc (Aircrew). The capital value of the assets required to
be supplied by Aircrew is in excess of $200.0 million. The entity that owns
the assets comprised in the training centre is CVS Leasing Ltd. (in which CAE
has an 11% interest). CAE manufactured and sold the simulators to CVS Leasing
Ltd., and CVS Leasing Ltd. then leased this equipment to Aircrew for the full
term of the MSHAT contract. As Aircrew is majority-controlled by CAE, its
financial position and results of operations are consolidated in the
Company's financial statements. Future minimum lease payments associated with
the simulators leased to Aircrew amount to approximately $278.0 million as at
March 31, 2002, and are disclosed in Note 18 "Operating Lease Commitments" to
the consolidated financial statements.
     Both the Canadian Institute of Chartered Accountants and the United States
Financial Accounting Standards Board are reviewing the existing accounting
standards relating to transactions such as those described above. While no new
guidance has yet been made public, any change in the standards could affect
CAE's accounting for these transactions.

Critical Accounting Policies
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of the
contingent assets and liabilities at the date of the financial statements and
revenue and expenses for the period reported. Estimates are based upon
historical experience and various other assumptions that are believed to be
reasonable under the circumstances. These estimates are evaluated on an ongoing
basis and form the basis for making judgements regarding the carrying values of
assets and liabilities and the reported amount of revenue and expenses. Actual
results may differ from these estimates under different assumptions.
     CAE's critical accounting policies are those that it believes are the most
important in determining its financial condition and results, and require
significant subjective judgement by management. A summary of the Company's
significant accounting policies, including the critical accounting policies
discussed below, is set out in the notes to the consolidated financial
statements.

REVENUE RECOGNITION
CAE generates a significant portion of its revenue from long-term contracts. The
payment terms under CAE's contracts varies with the type of project, typically
taking 15 to 18 months for payment for a civil flight simulator and up to two
years or longer for a military or marine project.
     Revenue from long-term contracts is recognized using the percentage of
completion method, where revenue, earnings and unbilled accounts receivable are
recorded as related

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                                     MANAGEMENT'S DISCUSSION AND ANALYSIS     25

costs are incurred, on the basis of percentage costs incurred to date on a
contract, relative to the estimated total costs. Significant judgement is
involved in estimating the total costs to complete a project. Revisions in
cost and earnings estimates during the term of the contract are reflected in
the period in which the need for revision becomes known. Losses, if any, are
recognized fully when first anticipated. Generally, the terms of long-term
contracts provide for progress billing based on completion of certain phases
of work. Warranty provisions are recorded at the time revenue is recognized,
based on past experience. Where customer support is billed separately, revenue
is recorded ratably over the support period.
     Training service revenues are recognized in the period such services are
provided. All other revenue is recorded and related costs transferred to cost of
sales at the time the benefits and the risks of ownership associated with the
product are transferred to the customer.
     Credit risk also exists but it is considered minimal because CAE's
customers are primarily well-established companies with good credit ratings or
government agencies. Before accepting an order, CAE makes a credit evaluation in
order to properly assess the credit risk. When CAE identifies a collection risk,
a provision for doubtful accounts is recorded.

VALUATION OF INTANGIBLE ASSETS AND GOODWILL
CAE accounts for its business combinations under the purchase method of
accounting. The total cost of an acquisition is allocated to the underlying net
assets based on their respective estimated fair values. Part of this allocation
process requires that CAE identify and attribute values and estimated lives to
the intangible assets acquired. CAE may engage experts to assist in these
matters, however, these determinations involve considerable judgement. They
often involve the use of significant estimates and assumptions, including those
with respect to future cash flows, discount rates and asset lives. These
determinations will affect the amount of amortization expense to be recognized
in future periods.
     Effective April 1, 2002, CAE adopted the Canadian Institute of Chartered
Accountants Handbook Section 3062, "Goodwill and Other Intangible Assets". This
section requires that goodwill and intangible assets with indefinite useful
lives not be amortized. Other intangible assets are amortized over their
estimated useful lives. Their fair value is to be assessed annually and, if
necessary, written down for any impairment. Goodwill represents the cost of
investments in subsidiaries in excess of the fair value of the net identifiable
assets acquired. Goodwill for acquisitions made prior to fiscal 2002 was
amortized up to March 31, 2001, using the straight-line method over 40 years.

DEFERRED DEVELOPMENT COSTS
Where CAE intends to produce or market a product under development that is
clearly defined, has identifiable costs, is technically feasible, and has a
clearly defined market or use, and CAE expects to have the financial resources
to complete the project, the costs associated with the project are deferred to
the extent their recovery through future sales or use of the product is
reasonably assured. This requires CAE to make judgements about the likelihood of
recovery of the costs. If CAE determines that recovery of the costs through
future sales or use is no longer likely, any deferred costs not likely to be
recovered are charged against earnings in the period. Once the project is
complete, CAE amortizes the deferred costs by reference to sales of the product
over a period not exceeding five years.

New Accounting Standards
During the year, CAE implemented certain changes to its accounting policies in
order to conform to new Canadian Institute of Chartered Accountants (CICA)
accounting standards.
     On April 1, 2001, the Company adopted the new recommendations of the
CICA Section 1581, "Business Combinations" and Section 3062, "Goodwill and
Other Intangible Assets". Accordingly, all business acquisitions performed
during the fiscal year were accounted for using the purchase method. In
addition, CAE ceased amortizing goodwill from April 1, 2001, as it adopted
the goodwill impairment model introduced by the new accounting rules.
Goodwill amortization amounted to $5.1 million for the year ended March 31,
2001.

<page>
26                                                                   CAE AR 2002

In addition, no write-down of goodwill arose from the application of the
impairment model upon adoption of these new recommendations.
    In accordance with CICA Section 1650, "Foreign Currency Translation", the
Company will no longer amortize the exchange gains or losses arising on the
translation of long-term foreign currency items. Exchange gains or losses
arising on translation will be included in earnings as incurred. Effective
April 1, 2002, the recommendations will be applied retroactively and
consequently, prior years' financial statements will be restated. At March
31, 2002, the unamortized exchange loss relating to the existing long-term
foreign currency debt amounted to $9.2 million (2001 - $7.6 million). The
impact of this accounting change will be a charge to fiscal 2002 earnings of
$1.1 million, net of $0.5 million in taxes, and a charge to fiscal 2002
opening retained earnings of $5.3 million net of $2.3 million in taxes.
     Effective April 1, 2002, CAE will prospectively adopt the new
recommendations of CICA Section 3870, "Stock-based Compensation and Other
Stock-based Payments". The standard encourages but does not require that the
fair value method of valuing stock options be used for transactions with
employees. The Company will not change the method currently used to account
for stock options granted to employees, but will provide the required pro
forma disclosures on the impact of the fair value method, which produces
estimated compensation charges. For the year ended March 31, 2002, had the
new standard been adopted, a reduction of less than $0.01 on both earnings
and diluted earnings per share from continuing operations and net earnings
and diluted net earnings per share would have been presented.

Business Risks and Uncertainties
CAE operates in different industry segments that involve various risk factors
and uncertainties, which are carefully considered in the Company's management
policies.

MARKET CYCLES
CAE participates in competitive global markets that are subject to worldwide
economic trends and political influences. Many of the Company's products are
affected by industry market cycles. The Civil Simulation and Training market
generally follows the trend established in the commercial airline industry,
particularly the delivery of new aircraft. Military simulation programs, awarded
mainly by governments, are dependent on price, technology, life cycle costs,
delivery, quality and government spending on defence programs, and may also be
influenced by in-country presence. Lead times on military programs can easily
surpass 12 months. CAE has positioned itself in its core business segments,
geographically and by industry sector, and is expanding the scope of its product
offerings to help moderate these risks.

PRODUCT INNOVATION
CAE emphasizes product innovation in all segments. Its success is dependent upon
the advancement of technology on existing products and the introduction of new
products. In response, CAE expends a significant amount on research and
development, which in many cases is sponsored by the customer. Certain
initiatives also receive the support of the Government of Canada through the
Technology Partnerships Canada program.

CHANGES IN CONTRACT COST
CAE's operating results may fluctuate from a change in the cost to complete
long-term fixed-price contracts. Typically these contracts incorporate new
technological solutions, the cost of which is difficult to estimate.

KEY PERSONNEL
CAE is dependent on the continued service of qualified technical personnel, and
its ability to attract and retain them. CAE applies a compensation philosophy
designed to mitigate this risk.QuickLinks
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Exhibit 10.1    
  

 
 

AMENDMENT NO. 3 TO LICENSE AND COLLABORATION AGREEMENT    
  

        THIS AMENDMENT NO. 3 TO LICENSE AND COLLABORATION AGREEMENT (this "Amendment"), effective as of June 26, 2002 (the
"Effective Date") is entered into by and between THE IMMUNE RESPONSE CORPORATION, a Delaware corporation ("IRC"), and TRINITY
MEDICAL GROUP USA, INC., a Florida corporation ("Trinity"), with respect to the following facts. 

RECITALS  

        A.    IRC
and Trinity Medical Group, Co., Ltd., a Thai limited company ("Trinity Thailand"), entered into the License and Collaboration Agreement dated as of
September 15, 1995, which was amended on September 29, 2000, by the Amendment No. 1 to License and Collaboration Agreement, and on May 8, 2001, by the Amendment
No. 2 to License and Collaboration Agreement (collectively the "Agreement"). 

        B.    Pursuant
to the Assignment Agreement dated as of August 3, 2000, between Trinity Thailand and Trinity, Trinity Thailand assigned to Trinity and Trinity assumed,
all of Trinity Thailand's rights and obligations under the Agreement. 

        C.    The
parties now desire to amend the Agreement on the terms and conditions set forth below. 

        D.    In
consideration for amending the Agreement, IRC shall issue up to 7,000,000 shares of its common stock to Trinity upon the terms and conditions set forth below. 

        NOW,
THEREFORE, in consideration of the foregoing premises and the mutual covenants set forth below, the parties amend the Agreement and otherwise agree as follows: 

ARTICLE 1

AMENDMENT OF AGREEMENT  

        1.1  Section 6.3.1(c)
of the Agreement shall be restated in its entirety to read as follows: 

        (c)  With
respect to commercial supply under Section 6.1.2 above, Trinity shall purchase Product from IRC at the following purchase price per dose (the "Purchase
Price"): 

          (i)  For
each dose of Product purchased by Trinity under Section 6.1.2 through the first to occur of the purchase by Trinity under Section 6.1.2 of one million
(1,000,000) doses of Product in the aggregate, and December 31, 2007, the Purchase Price shall equal the sum of (A) one hundred ten percent (110%) of IRC's Manufacturing Cost for such
dose of Product, plus (B) US$50.00; provided, however that the Purchase Price under this Section 6.3.1(c)(i) shall not exceed US$132.00. 

        (ii)  For
each dose of Product purchased by Trinity under Section 6.1.2 following the first to occur of the purchase by Trinity under Section 6.1.2 of one
million (1,000,000) doses of Product in the aggregate, and December 31, 2007, the Purchase Price shall equal one hundred ten percent (110%) of IRC's Manufacturing Cost for such dose of Product. 

        1.2  Section 6.6.1
of the Agreement shall be restated in its entirety to read as follows: 

        Delivery. IRC's obligation to deliver Products under this Agreement shall be subject to obtaining all necessary consents, approvals,
authorizations and licenses of the applicable governmental and regulatory authorities for the manufacture, export and delivery of Products under this Agreement. IRC shall use commercially reasonable
efforts to obtain such necessary consents, approvals, authorizations and licenses, and Trinity shall cooperate with IRC in obtaining such consents, approvals, authorizations and licenses. IRC's
obligation to deliver Products under this Agreement additionally shall be subject to IRC having sufficient validated and operational manufacturing capacity to satisfy Trinity's reasonably foreseeable
forecasted requirements for 

 

Products in the Territory for use in the Field. IRC shall use commercially reasonable efforts to cause its manufacturing facility for Products to have sufficient validated and operational capacity to
meet the reasonably foreseeable forecasted demand requirements of Trinity for Products as soon as reasonably feasible following marketing approval of Products in the Territory for use in the Field.
All Products supplied under the Agreement shall be shipped f.o.b. place of manufacture. Title and risk of loss and damages to the Products shall pass to Trinity upon release to Trinity's designated
carrier. 

ARTICLE 2

ISSUE OF IRC SHARES  

        2.1  On
the terms and conditions of this Amendment, IRC shall issue to Trinity the following number, up to an aggregate of seven million (7,000,000), of shares of IRC's
common stock (the "Shares") upon achievement of the following milestones (each a "Closing"): 

        2.1.1    IRC
shall issue to Trinity four million (4,000,000) of the Shares on the Effective Date. 

        2.1.2    IRC
shall issue to Trinity one million (1,000,000) of the Shares within thirty days following the date on which Trinity purchases under Section 6.1.2 of the
Agreement, and irrevocably pays to IRC the applicable Purchase Price for, an aggregate of three hundred thousand (300,000) doses of Product. 

        2.1.3    IRC
shall issue to Trinity one million (1,000,000) of the Shares within thirty days following the date on which Trinity purchases under Section 6.1.2 of the
Agreement, and irrevocably pays to IRC the applicable Purchase Price for, an aggregate of six hundred thousand (600,000) doses of Product. 

        2.1.4    IRC
shall issue to Trinity one million (1,000,000) of the Shares within thirty days following the date on which Trinity purchases under Section 6.1.2 of the
Agreement, and irrevocably pays to IRC the applicable Purchase Price for, an aggregate of one million (1,000,000) doses of Product. 

        2.2  IRC's
obligation to issue the Shares pursuant to this Article 2 shall terminate, with respect to all Shares not previously issued pursuant to this
Article 2, on December 31, 2007. 

        2.3  For
purposes of this Amendment, "Share" or "Shares" refers to the class of common stock of IRC in existence as of May 30, 2002. Any subsequent split of the Shares
as authorized by the stockholders of IRC shall increase or decrease the number of Shares that remain to be issued pursuant to this Article 2 by the same factor as the split is computed. 

        2.4  As
a condition precedent to the effectiveness of this Amendment, the parties shall have duly executed and delivered Amendment No. 1 to Stock Purchase Agreement,
dated as of the Effective Date, which shall: 

        2.4.1    Eliminate
Trinity's $5,000,000 stock purchase commitment which would have arisen upon IRC's transfer of certain manufacturing technology to Trinity; and 

        2.4.2    Reduce
the per share cost from $15 to $2.50 for Trinity's $5,000,000 stock purchase commitment which arises on the date that is thirty (30) days after the date
on which Trinity receives the required marketing approval from the governing health authority of Thailand for the Product. 

2

 

ARTICLE 3

REGISTRATION RIGHTS  

        At the request of Trinity, IRC agrees to file up to four registration statements under the Securities Act of 1933, as amended (the "Act"), with the Securities and
Exchange Commission ("SEC") to register the Shares issued pursuant to Article 2 of this Amendment, as soon as practicable after receipt of the request from Trinity following the respective
Closings. IRC shall use reasonable commercial efforts to respond to comments of the SEC within ten (10) business days of receipt of said comments and will use commercially reasonable efforts to
cause the registration statement to be declared effective by the SEC within ninety (90) days of the receipt of the request from Trinity. IRC shall keep the registration statement continuously
effective until the date occurring one year following the date on which the obligation to issue the Shares terminates pursuant to Article 2. IRC shall cause the related prospectus to be amended
or supplemented by a required prospectus supplement pursuant to Rule 424 under the Act. Notwithstanding the foregoing, IRC may delay the filing of the registration statement for 180 days
after receipt of the request from Trinity, if it furnishes to Trinity a certificate signed by the Chairman of the Board of Directors of IRC stating, it would be seriously detrimental to IRC and its
stockholders for such registration statement to be filed and that it is therefore, essential to delay the filing of the registration statement. 

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF IRC  

        IRC hereby represents and warrants to Trinity that: 

        4.1  IRC
is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to
carry on its business as now conducted. IRC is duly qualified to transact business and is in good standing in each jurisdiction in which the failure so to qualify would have a material adverse effect
on IRC. 

        4.2  All
corporate action on the part of IRC, its officers, directors and stockholders necessary for (a) the authorization, execution and delivery of the Amendment,
(b) the performance of all obligations of IRC hereunder, and (c) the authorization, issuance (or reservation for issuance) and delivery of the Shares being sold hereunder has been taken
and the Amendment constitutes the valid and legally binding obligation of IRC, enforceable against IRC in accordance with its terms. 

        4.3  The
Shares which are being purchased by Trinity hereunder, when issued, sold and delivered in accordance with the terms hereof, for the consideration expressed herein,
will be duly and validly issued, fully paid and nonassessable and, based in part upon the representations of Trinity in Article 5 of this Amendment, will be issued in compliance with applicable
securities laws. 

ARTICLE 5

REPRESENTATIONS AND WARRANTIES OF TRINITY  

        Trinity hereby represents, warrants, acknowledges and covenants to IRC as follows: 

        5.1  Trinity
has the full right, power and authority to enter into this Amendment. This Amendment constitutes Trinity's valid and legally binding obligation, enforceable
against Trinity in accordance with its terms. 

        5.2  Trinity
is an Accredited Investor as defined under Regulation D promulgated under the Act. 

        5.3  Trinity
understands and acknowledges that Shares will be issued to Trinity in reliance upon Trinity's representations to IRC, evidenced by Trinity's execution of this
Amendment. Trinity is acquiring the Shares for investment for its own account, not as nominee or agent, and not with a view 

3

 

to, or for resale in connection with, any distribution or public offering thereof within the meaning of the Act and state securities laws. 

        5.4  Trinity
understands and acknowledges that the Shares will not be registered under the Act or qualified under any blue-sky laws on the grounds that the
offering and sale of the Shares contemplated by this Amendment are exempt from registration under the Act pursuant to Section 4(2) thereof and exempt from registration or qualification pursuant
to state blue-sky laws, and other applicable laws, and that IRC's reliance upon such exemptions is predicated upon Trinity's representations set forth in this Amendment. Trinity
acknowledges and understands that the Shares must be held indefinitely unless the Shares are subsequently registered under the Act and qualified under applicable blue-sky laws or an
exemption from such registration and such qualification is available. 

        5.5  Trinity
is aware of the provisions of Rule 144 promulgated under the Act which permit limited resale of stock purchased in a private placement subject to the
satisfaction of certain conditions, including, among other things, the existence of a public market for the stock, the availability of certain current public information about IRC, the resale
occurring not less than one year after a party has purchased and paid for the stock to be sold, the sale being through a "broker's transaction" or a transaction directly with a "market maker" and the
number of shares of the stock being sold during any three-month period not exceeding specified limitations. Trinity further acknowledges and understands that IRC may not be satisfying the current
public information requirement of Rule 144 at the time Trinity wishes to sell the Shares and, if so, Trinity would be precluded from selling the Shares under Rule 144 even if the one
year minimum holding period has been satisfied. 

        5.6  Trinity
is an investor in securities of companies in the development stage and acknowledges that it is able to fend for itself, can bear the economic risk of its
investment and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Shares. Trinity has been furnished with
and has had access to such information as Trinity considered necessary to make a determination as to the purchase of the Shares. 

        5.7  Trinity
understands that no public market currently exists for the Shares, and that there can be no guaranty that a public market will ever exist for the Shares. 

        5.8  Each
certificate representing the Shares may be endorsed with the following legends: 

        5.8.1    "THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") AND
ARE "RESTRICTED SECURITIES" AS DEFINED IN RULE 144 PROMULGATED UNDER THE ACT. THE SECURITIES MAY NOT BE SOLD OR OFFERED FOR SALE OR OTHERWISE DISTRIBUTED EXCEPT (i) IN CONJUNCTION WITH AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES UNDER THE ACT OR (ii) IN COMPLIANCE WITH RULE 144, OR (iii) PURSUANT TO AN OPINION OF COUNSEL, SATISFACTORY TO IRC, THAT SUCH REGISTRATION
OR COMPLIANCE IS NOT REQUIRED AS TO SAID SALE, OFFER OR DISTRIBUTION." 

        5.8.2    Any
other legends required by applicable law or regulation. 

        5.9  Any
legend endorsed on a certificate and the restrictions on transfer instructions with respect to such legended Shares shall be removed, and IRC shall issue a
certificate without such legend to the holder of such Shares if such Shares are registered and sold under the Act and a prospectus meeting the requirements of Section 10 of the Act is available
or if such holder satisfies the requirements of Rule 144(k) and, where reasonably deemed necessary by IRC, provides IRC with an opinion of counsel for such holder of the Shares, reasonably
satisfactory to IRC, to the effect that (i) such holder, meets the requirements of Rule 144(k) or (ii) a public sale, transfer or assignment of such Shares may be made without
registration. 

4

 
ARTICLE 6

MISCELLANEOUS  

        6.1  All
terms used, but not defined, in this Amendment shall have the respective meanings set forth in the Agreement. 

        6.2  This
Amendment shall be effective for all purposes as of the Effective Date. Except as otherwise expressly modified by this Amendment, the Agreement shall remain in full
force and effect in accordance with its terms. 

        6.3  This
Amendment shall be governed by, interpreted and construed in accordance with the laws of the State of California, without regard to conflict of law principles. 

        6.4  This
Amendment may be executed in counterparts, each of which shall be deemed to be an original and together shall be deemed to be one and the same document. 

        IN
WITNESS WHEREOF, the undersigned have duly executed and delivered this Amendment effective as of the Effective Date. 

	 	 	THE IMMUNE RESPONSE CORPORATION
	

 	
 	

By	
 	

 
	 	 	 	 	
 Dr. Dennis J. Carlo
 President and CEO
	

 	
 	

TRINITY MEDICAL GROUP USA, INC.
	

 	
 	

By	
 	

 
	 	 	 	 	
President
	

 	
 	

By	
 	

 
	 	 	 	 	
Chief Executive Officer

5

QuickLinks

Exhibit 10.1

AMENDMENT NO. 3 TO LICENSE AND COLLABORATION AGREEMENT

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