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

FORM 10-K

(MARK ONE)

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

FOR THE FISCAL YEAR ENDED MARCH 27, 1998

or

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

For the transition period from ___________ to ___________

Commission File Number 1-8139

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




CANADA NOT APPLICABLE
- -------------------------------------------------------------- ------------------------------------------------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

350 LEGGET DRIVE, KANATA, ONTARIO, CANADA K2K IX3
- -------------------------------------------------------------- ------------------------------------------------
(Address of principal executive offices) (Zip or Postal Code)


Registrant's telephone number, including area code: (613) 592-2122

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

Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
COMMON SHARES, NO PAR VALUE New York Stock Exchange

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

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

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No
--- ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
---
[Cover page 1 of 2 pages]


Exhibit Index Begins on Page 70






At May 29, 1998, 108,459,056 common shares of Mitel Corporation were
issued and outstanding. Non-affiliates of the registrant held 97,073,011 shares
having an aggregate market value of U.S. $1,510,698,733 based upon the closing
price of the common shares on the New York Stock Exchange (May 29, 1998 being
the last trading day) of U.S. $15.5625.

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

EXCHANGE RATES OF THE CANADIAN DOLLAR
(NOON BUYING RATE)
(FINANCIAL INFORMATION IS EXPRESSED IN CANADIAN DOLLARS UNLESS OTHERWISE STATED)

The high and low exchange rates (i.e., the highest and lowest rates at
which Canadian dollars were sold), the average exchange rate (i.e., the average
of the exchange rates on the last day of each full month during the period) and
the period end exchange rate of the Canadian dollar in exchange for United
States currency for each of the five calendar years ended December 31, 1997 and
for the period January 1, 1998 through May 29, 1998, as calculated from the
exchange rates reported by the Federal Reserve Bank of New York, are set forth
below:



JANUARY 1
TO MAY 29,
1998 1997 1996 1995 1994 1993
---------- ---- ---- ---- ---- ----

High 0.7105 0.7487 0.7513 0.7527 0.7632 0.8046
Low 0.6832 0.6945 0.7235 0.7023 0.7103 0.7439
Average 0.6960 0.7223 0.7332 0.7286 0.7318 0.7751
Period End 0.6863 0.6999 0.7301 0.7323 0.7128 0.7544


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



The following trademarks are mentioned in this Annual Report on Form 10-K:
M Mitel (design), MITEL, SX-50, SX-200, SX-2000, XpressStack, XpressWay,
XpressConnect, LANline, SMART-1, GX5000, SUPERSET, iMAGINATION, NeVaDa, Mitel
Personal Assistant, Mitel Media Path and RADICALL, which are trademarks of Mitel
Corporation; Windows NT and Back Office, which are trademarks of Microsoft
Corporation; FLEX, which is a trademark of Motorola Inc.; and AXEL, which is a
registered service mark of Goldman, Sachs & Co.

[Cover page 2 of 2 pages]







TABLE OF CONTENTS


SECTION PAGE NO.
------- --------

PART I

Item 1. Business 1
Overview 1
Business Strategy 1
Recent Acquisitions 2
Industry 3
Semiconductors 3
Business Communications Systems 4
Products and Customers 4
Semiconductors 5
Business Communications Systems 7
Sales, Marketing and Distribution 10
Semiconductors 10
Business Communications Systems 11
Competition 12
Semiconductors 12
Business Communications Systems 13
Manufacturing 14
Semiconductors 14
Business Communications Systems 15
Research and Development 15
Semiconductors 15
Business Communication Systems 15
Proprietary Rights 16
Government Regulation 16
Employees 17
Backlog 18
Forward-Looking Statements and Risk Factors 18
Foreign Exchange and Interest Rate Exposure and Concentration of Credit Risk 18
Technological Changes; Necessity to Develop and Introduce New Products 19
Competition 19
Environmental Regulations 19
Regulatory Requirements 20
Significant International Operations 20
Year 2000 20
Dependence on Key Personnel 21
Intellectual Property Protection 21
Intellectual Property Claims 21
Acquisitions 22
Other Factors 22
Item 2. Properties 22
Item 3. Legal Proceedings 22
Item 4. Submission of Matters to a Vote of Security Holders 23

PART II

i







SECTION PAGE NO.
------- --------

Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters 24
Item 6. Selected Financial Data 25
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 26
Item 8. Financial Statements and Supplementary Data 34
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 57

PART III

Item 10. Directors and Executive Officers of the Registrant 57
Directors 57
Statement of Corporate Governance Practices 58
General 58
Mandate of the Board 58
Composition of the Board and of its Committees 59
Audit Committee 59
Compensation Committee 59
Nominating Committee 60
Independence from Management 60
Other 60
Executive Officers 60
Item 11. Executive Compensation 61
Summary Compensation Table 61
Employee Share Ownership Plan 61
1991 Stock Option Plan for Key Employees and Non-Employee Directors 62
Stock Option Grants in Last Fiscal Year 63
Year-End Option Values Table 63
Compensation of the President and Chief Executive Officer 64
Executive Compensation Agreements 64
Compensation of Non-Employee Directors 65
Directors' and Officers' Liability Insurance 65
Indebtedness of Directors, Executive Officers and Senior Officers 65
Report on Executive Compensation 66
Performance Graph 67
Item 12. Security Ownership of Certain Beneficial Owners and Management 68
Item 13. Certain Relationships and Related Transactions 69

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 69
Signatures 72
Power of Attorney 72
Annex A - Glossary of Terms 74

ii







PART I
ITEM 1. BUSINESS

Mitel maintains its financial accounts in Canadian dollars. All financial
information and references to "$" and "dollars" are expressed in Canadian
dollars unless otherwise stated. Unless the context indicates otherwise, "Mitel"
and the "Company" refer to Mitel Corporation and its consolidated subsidiaries.
A glossary of certain technical and industry terms used in this Annual Report on
Form 10-K is included as Annex A attached.

OVERVIEW

Mitel designs, manufactures and markets semiconductors, subsystems and
systems to world markets in the communications industries. These products
include integrated circuits ("ICs") for wired and wireless applications,
application-specific integrated circuits ("ASICs"), optoelectronic devices and
custom silicon wafers; voice communications systems, networked voice and data
systems, applications and telephony-enabled servers; public switching systems;
and alternate network and remote access products. The Company also provides
related services. Service activities consist primarily of hardware and software
maintenance, training and other ancillary support services. Mitel operates
through two principal business units, Mitel Semiconductor and Business
Communications Systems ("BCS").

Mitel Semiconductor's standard and application-specific integrated
circuits, analog line components, optoelectronic devices and custom silicon
wafers are distributed worldwide as high performance solutions primarily for the
communications industries and also for specialized industries such as aerospace,
medical and instrumentation technologies. Mitel's semiconductor products are
primarily non-commodity, specialized products that are proprietary in design and
are often designed for a specific application or customer. See
"Business--Products and Customers--Semiconductors."

Mitel's BCS business unit designs, manufactures and markets customer
premise telephone switching systems (also known as Private Branch Exchanges or
PBXs), specialized proprietary telephones, datasets, terminals, systems and
applications providing integrated telephony and computer functionality
("computer telephony integration" or "CTI"), convergent voice and data systems,
public switching equipment and alternate network and remote access products. See
"Business--Products and Customers--Business Communications Systems."

Mitel Corporation was incorporated in Canada in 1971 and continued under
the Canada Business Corporations Act in 1976. The registered office and the
principal executive offices of Mitel Corporation are located at 350 Legget
Drive, Kanata, Ontario, Canada K2K1X3 and its telephone number at that address
is (613) 592-2122.

BUSINESS STRATEGY

Mitel's business strategy is to exploit the worldwide growth in the
markets for communications components and products, including the convergence of
the voice, data and video industries. Mitel implements this strategy by
capitalizing on its core competencies in the design and production of
microelectronic components for mixed-signal, radio-frequency ("RF") and system
integration applications; the development of real-time and fault-tolerant system
technologies; and the development of customer solutions that provide access to
Mitel's newest technologies through cost-effective product migration and
evolution. Mitel applies its core competencies at various levels of what the
Company views as the "communications value chain," which represents the spectrum
of target customers and markets from those for microelectronic components for
wired, wireless and optoelectronic applications, to telephony sub-systems for
convergent voice and data systems, to complete voice and multimedia systems as
well as systems integration for selected enterprise markets.

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

o to develop complete semiconductor customer solutions providing
connectivity for voice and data over copper, air or fiber-optic
transport media, with a focus on the core of the network for wired
communications applications;

1







o to be an integrated semiconductor company that (i) develops and markets
"fabless" technologies of unique intellectual properties and (ii) owns
"fab" facilities utilizing production processes in Complementary Metal
Oxide Semiconductor ("CMOS") and bipolar; and

o to evolve its business communications systems products from their
proprietary nature to an open and distributed architecture that is based
on industry standards and thereby benefit from the convergence of the
voice, data and video industries.

Management believes the Company is well positioned to implement its
business strategy in the Mitel Semiconductor business unit by reason of its
strong core technologies, which configure, signal, transport and switch voice
and data; its position as a leader in RF technology, with key applications in
tuners, set top boxes, analog and digital cellular telephones, pagers, wireless
LAN and global positioning systems; its CMOS ASIC technology, which enables the
Company to maintain a leadership position in medical applications and provide
complex communications solutions for systems level integration; and its
expertise with respect to optoelectronic devices principally found in
transmitters and receivers for LANs and access networks, as well as in
integrated circuits for optical storage applications. See "Business--Products
and Customers--Semiconductors."

In the BCS business unit, Mitel will pursue its strategy to remain a
leader in modular, fiber-optic-based voice communications systems for the
under-100 line size enterprise segment, and in seamless networking technologies
that enable Mitel to scale its systems to larger line sizes. Mitel's leadership
is based on its core competencies in real-time and fault-tolerant technologies,
its products' ease of use and reliability and the strength of its indirect
distribution channels to market. Mitel will continue to develop products that
bring voice communications as an application to the information technology
("IT") infrastructure. Mitel's initiatives are aimed at telephony-enabling data
servers for sale through enterprise IT channels as well as enterprise voice
systems which use the LAN switching system as the communications backbone and
utilize other network technologies for remote applications. Mitel will also seek
to capitalize on its systems integration skills to market complete, fully-
featured communications systems to selected vertical markets, principally the
hospitality, educational, health and financial services markets. See
"Business--Products and Customers--Business Communications Systems."

RECENT ACQUISITIONS

Beginning in Fiscal 1996 through the first quarter of Fiscal 1999, Mitel
has pursued strategic acquisitions. During such time the Company completed six
transactions, commencing with the acquisition of Mitel Semiconductor AB
(formerly ABB Hafo AB) in March 1996 and including the recently-completed
acquisition of the Plessey Semiconductors Group ("Plessey"). Management believes
that, as a result of such acquisitions, Mitel has increased its manufacturing
capabilities and obtained complementary technology and product offerings and
stronger distribution channels. The acquisitions were made in both the Mitel
Semiconductor and BCS business units and include the transactions described
below.

SEMICONDUCTORS

On February 12, 1998, the Company acquired all of the capital stock of
four affiliated entities which, together with their respective subsidiaries,
comprise Plessey from The General Electric Company plc for U.S.$225.0 million in
cash. Plessey, headquartered in Swindon, U.K., is an international semiconductor
manufacturer for communications and media applications. Plessey now operates as
Mitel Semiconductor Limited in the U.K. and as Mitel Semiconductor Americas Inc.
in the U.S. As a result of the Plessey acquisition, management believes that
Mitel ranks among the major networking and telecommunications semiconductor
companies in the world, with a diverse product portfolio, advanced technology
expertise and the ability to manufacture bipolar, CMOS and optoelectronic
components.

Management further believes that the Plessey acquisition significantly
enhances the Company's operations, technologies and product portfolio by
providing a strong customer base and an expanded geographic presence, enhanced
research and development capabilities, increased manufacturing facilities and a
diverse and complementary product line. Plessey had annualized sales of
approximately U.S.$275.0 million based on sales for the fiscal quarter ended
December 31, 1997. As a result of the acquisition, Mitel obtained technology
expertise in radio frequency and high-speed transmission for communications and
ASICs markets, as well as gate-array and reduced instruction set computer
processor technologies. The acquired manufacturing capability principally
includes two semiconductor fabrication facilities, a leading-edge 150 mm bipolar
facility in Swindon, U.K. and a high performance 200 mm CMOS facility in
Plymouth, U.K. that uses 0.35 micron technology. The product portfolio consists
of ASIC components, wireless applications and mass optical storage and
networking (fast ethernet) products,

2








complemented by system level expertise for custom solutions. Management also
believes that Plessey maintained a strong direct sales channel relationship with
its customers that will also benefit Mitel as a result of the acquisition.

BUSINESS COMMUNICATIONS SYSTEMS

On May 8, 1998, the Company acquired the assets of the Customer Premises
Equipment ("CPE") Business Unit of Centigram Communications Corporation
("Centigram") for U.S.$22.0 million in cash. Mitel also purchased receivables
and inventories related to that business for U.S.$4.8 million in cash. The
addition of Centigram's leading voice messaging solutions to Mitel's broad
communications product portfolio is expected to permit Mitel to respond to
increasing customer demand for voicemail and unified messaging applications. The
acquired business unit is based in San Jose, California, with worldwide sales
coordinated through a broad network of independent distributors and agents.

On August 8, 1997, the Company acquired the assets of the technology
business of Gandalf Technologies Inc. ("Gandalf"), in particular the remote
access business, for U.S.$14.9 million in cash. The acquired assets included
Gandalf's remote access products and technology, which facilitate high volume
data and voice communications between corporate home offices, local branches,
teleworkers and agents in the field in a cost-effective manner. These products
are currently sold worldwide as the XpressStack, Xpressway, XpressConnect and
LANline lines of remote access devices. The acquisition also included Gandalf's
inventory of remote access products, but did not include Gandalf's service
business. The Gandalf business unit is based in Kanata, Ontario, Canada.

On May 19, 1998, the Company acquired the products, technology, research
and development facilities and sales and marketing organization of Telecom
Sciences Corporation Limited ("TSc"), based in Glasgow, U.K., for (pound)3.4
million in cash. The acquisition enhances Mitel's product portfolio with
Integrated Services Digital Network ("ISDN") business products for the
small-to-medium enterprise market.

On January 31, 1997, Mitel acquired the business and assets of Global
Village Communication (U.K.) Limited, an ISDN solution provider based in the
United Kingdom, for (pound)2.3 million in cash.

See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for additional information regarding the Company's recent
acquisitions.

INDUSTRY

The global communications industry includes systems, software and products
used for voice, data and video communications. This industry has undergone
significant transformation and growth since the mid-1980s as a result of changes
in domestic and international public policy, technological innovations and
economic factors. Management believes that these factors will intensify, and
that the number of customers and the complexity of the networks they demand will
increase significantly over the next several years. In addition, management
believes that such networks will increasingly become multifunctional in nature,
supporting simultaneous wired or wireless access to combined voice, data and
video communications services, thus reducing the operating costs associated with
separate networks. Management further believes that the traditionally distinct
technology platforms supporting voice and data will converge, as will the
platforms for the traditionally separate wired and wireless networks. Management
anticipates that significant industry growth areas will include wireless access,
multifunctional systems and networking software and that the principal building
blocks of the industry will continue to be software, microelectronics and
product innovation in advanced digital switching and transmission platforms,
supported by a competency in and a knowledge of telecommunications networking.

SEMICONDUCTORS

The primary markets for Mitel Semiconductor products are growing and
technologically-evolving industries. The telecommunications equipment, computer
network server and medical devices industries represent major end-markets for
Mitel Semiconductor products. Each of these industries is expected to grow
significantly over the next several years, which management believes should
provide revenue growth opportunities to Mitel. Increased requirements of end
users and new opportunities should continue to drive the demand for telecom
equipment and infrastructure. The deregulation of telecom services in many parts
of the world has allowed new operators and service providers to be licensed,
many of which need new equipment and facilities. The emergence of these new
operators and service providers has, in turn, intensified the competitive
environment, forcing existing operators and service providers to accelerate
their capital spending plans. In addition, the low penetration of telephone
service in emerging countries is a strong driver for wired and wireless
communications. In the United

3








States, information technology has been growing as a proportion of capital
spending and server growth, in particular, has been spurred by the flow of
information and the requirement within IT departments to make information
accessible and cost-effective. Management believes that these developments
represent significant new market opportunities for Mitel over the next several
years.

BUSINESS COMMUNICATIONS SYSTEMS

The PBX industry began to evolve in the late 1950s as businesses
recognized that they could realize cost savings by reducing the number of
telephone lines leased from the telephone company. In the late 1970s and early
1980s, growth in PBX systems exploded due to two main factors. First, the
computer industry led the development of microelectronics, which facilitated the
production of more cost-effective PBX products. Second, the monopoly held by
American Telephone & Telegraph Company on the provision of telephone equipment
and services was ended, thereby permitting alternate local PBX equipment
suppliers to emerge (such suppliers are often referred to as "interconnects").

The industry growth rate for PBX systems closely tracks general economic
trends and is driven primarily by general business expansion. PBX sales depend
significantly on the need of businesses to increase the capacity of their
communications systems, replace older systems and obtain new software and
hardware features for their existing systems. The average product life cycle is
approximately seven years. Recently, the small and medium business sector,
particularly in hospitality, government, health care and education, has
contributed to PBX sales growth.

Management expects that growth in the PBX industry will occur in two major
areas related to overall solutions - customer premise switching platforms and
applications. The customer premise switching market is experiencing the early
effects of technological change with the introduction of Microsoft Windows
NT-based PBXs and PBXs integrated with asynchronous transfer mode ("ATM")
switches, as well as the emergence of the "all-in-one" communications system.
Management believes the evolving convergence of voice, video and data requires
systems that combine all three media on a single network infrastructure.

The second major area for market growth is in applications. Increasingly,
revenue growth is moving from the core switch into other areas such as call
centers, messaging systems and computer telephony integration or CTI. Call
centers typically run on a computer-based system that provides real-time
monitoring of a telephone system's workload, distributes calls to the agent that
is idle longest, uses a queuing or waiting list assignment that holds callers in
queue until an agent is available, averages the random flow of traffic and
decreases peak traffic load. Voice messaging is a computer-based system that
enables flexible, non-simultaneous voice communications. CTI is the linking of
voice (switch) and data (computer) systems in order to permit data and control
information to be transferred between systems, thus providing integrated
applications.

Management believes that the Company is well positioned to respond to the
business communications needs of each of these target markets.

PRODUCTS AND CUSTOMERS

The following tables set forth Mitel's revenue by product group and
geographic location of end customers, respectively, for the Company's last three
fiscal years. A portion of Mitel Semiconductor's product output is supplied to
the BCS business unit for incorporation into the Company's systems products. The
revenue from these products is excluded from the calculation of Mitel's
consolidated revenue and the revenue of the Semiconductor business unit.



Millions of Dollars
---------------------------------------------------------------------------------
Fiscal Year Ended:
March 27, 1998 March 28, 1997 March 29, 1996
-------------------- -------------------- ---------------------

Semiconductors $321.7 36% $221.0 32% $120.9 21%
Business Communication Systems $566.8 64% $474.5 68% $455.5 79%
TOTAL $888.5 100% $695.5 100% $576.4 100%


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Millions of Dollars
---------------------------------------------------------------------------------
Fiscal Year Ended:
March 27, 1998 March 28, 1997 March 29, 1996
-------------------- -------------------- ---------------------

United States $404.1 46% $312.6 45% $271.7 47%
Europe $293.7 33% $228.8 33% $173.1 30%
Other Regions $137.0 15% $104.1 15% $ 85.4 15%
Canada $ 53.7 6% $ 50.0 7% $ 46.2 8%
TOTAL $888.5 100% $695.5 100% $576.4 100%


The principal geographic markets in which Mitel operates are the United
States, Canada and the United Kingdom. Mitel also operates in China and other
Asia-Pacific countries, Central and South America, Mexico, the Caribbean,
France, Germany, Italy, the Middle East, the Netherlands and a limited number of
African countries, including South Africa. The Company is not economically
dependent on any one customer, and no one customer accounts for more than 10% of
the Company's consolidated revenues. For additional information on foreign
operations and geographic segments, see Note 21 of the notes to the consolidated
financial statements appearing elsewhere in this Annual Report on Form 10-K.

SEMICONDUCTORS

Mitel manufactures and sells semiconductor products in the following
categories: wired communication components, wireless communication components,
application-specific integrated circuit systems, optoelectronic components, and
power and automotive. The Company also provides foundry services to third
parties on a contract basis. Mitel's semiconductor revenue accounted for 36%,
32% and 21% of the Company's total revenue in Fiscal 1998, 1997 and 1996,
respectively.

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

Mitel's semiconductor products are primarily non-commodity, specialized
products that are proprietary in design and are often designed for a specific
application or customer. As a result, management believes that Mitel
Semiconductor's revenues are not as susceptible to the volatility and cyclical
nature of revenue generally associated with the commodity-oriented segments of
the semiconductor industry.

Full custom semiconductor products rely on an original design and a unique
interface. Such products take longer to design, but generally remain as a key
component in the end product for the duration of its life cycle. Semi-custom
products are proprietary products that have been altered to meet the specific
requirements of individual customers. However, because semi-custom products are
used in end products that tend to turn over quickly, semi-custom designs may be
replaced with the next generation of end products. Commodity products are "pin
for pin" replacements that sell primarily on the basis of performance,
availability and price. Mitel's products are mostly proprietary and custom.
Accordingly, management believes that once designed into a customer's product,
Mitel's products form an integral part of the customer's system and are
difficult to replace, as replacement would require some redesign of the system.
A portion of Mitel Semiconductor's product output is supplied to the BCS
business unit for incorporation into the Company's systems products. The revenue
from these products is excluded from the calculation of Mitel's consolidated
revenue and the revenue of the Semiconductor unit.

Mitel Semiconductor has a diverse and established customer base in a wide
spectrum of end markets. Mitel's semiconductor business unit serves over 3,300
customers, including leading manufacturers in the telecommunications, medical
and media sectors.

WIRED COMMUNICATION COMPONENTS

Mitel has established a line of analog and digital switching integrated
circuit products that provide a high capacity for switching voice and data. This
product line has recently been extended to include two new high-bandwidth
digital switch products to meet the needs of the rapidly growing computer and
multimedia communications market. Common applications for these IC products are
PBXs, central offices and digital loop carriers.

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Mitel is a supplier of dual-tone multi-frequency receiver components
("DTMF"), which are used for remote control in high-volume applications such as
facsimile and telephone answering machines. Mitel also manufactures products in
the calling line identification market, including its continuous-phase-
frequency-shift-key receivers that support special services such as calling
party identification. Management believes that Mitel has strengthened its
position in this market with the introduction of a second generation product,
one of the first in the industry that supports industry standards in North
America, Europe and the United Kingdom. Mitel targets these products to both the
telephony and CTI markets.

Mitel also manufactures high speed transport devices used to interface
communication systems to a wide area network, thereby significantly improving
performance and integration levels. Mitel is currently introducing a new line of
such devices.

Development programs now underway build upon Mitel's existing expertise in
switching, transmission and terminal equipment to provide related functions in
the emerging market segments of ATM and wireless telephony. ATM serves computer
communication and multimedia needs, and wireless telephony extends the
applicability of digital telephone components into cordless and cellular
markets.

Mitel also manufactures hybrid integrated circuits which permit the
packaging of different technologies required by today's advanced computer
systems and range in complexity from a simple collection of passive components
to an extremely complex subsystem module. Mitel supplies these products as
either standard circuits or as customized circuits designed for, and supplied
to, a specific customer. In most cases, the hybrid component either
incorporates, or is designed to work alongside, other Mitel components, thereby
increasing the overall value of the solution to the customer. Some common
applications for thin-film hybrid microcircuits are in PBXs, central office
switches, multiplexers and set top boxes.

Mitel provides a range of ethernet LAN components and is developing a new
line of components for the emerging fast ethernet and gigabit ethernet LAN
markets.

WIRELESS COMMUNICATION COMPONENTS

Mitel's recent acquisition of Plessey strengthens its position as a
supplier of communications ICs. Mitel supplies RF integrated circuits for
wireless applications based on analog standards. The Company has recently
introduced products for the latest Global System for Mobile Communications,
Personal Communication Systems ("PCS"), and Code Division Multiple Access
("CDMA") digital standards used in basestations and handsets. Mitel is also a
supplier of digital tuners used in set top boxes in satellite and cable
applications and is developing components for terrestrial applications.

ASIC SYSTEMS

Mitel's advanced CMOS process is the basis of a "System-On-A-Chip" digital
ASIC family of products for communications and computing applications. In
addition to ICs for communications systems, Mitel is also a leading supplier of
analog ASICs for medical applications (such as pacemakers and hearing aids) and
space applications (such as radiation hardened CMOS based on the Company's
Silicon on Sapphire ("SOS") technologies). Mitel's expertise in low power and
high reliability IC design has enabled the Company to provide the long battery
life and product performance required by these applications.

Management believes that Mitel is a major supplier of pacemaker ASICs and
CMOS-based hearing aid ASICs. Mitel also offers these innovative technologies
for low frequency wireless applications such as wireless headsets and electronic
tags.

OPTOELECTRONIC COMPONENTS

Mitel is a leading supplier of Light Emitting Diodes ("LED"), PIN diodes,
photodetectors and duplex devices. These devices, which are built using gallium
arsenide and indium phosphide technologies, allow Mitel to offer products to
drive fiber optic cable in applications such as data networks including fiber
channel, fiber distributed data interface and ATM. Mitel's optoelectronic
components include a Vertical Cavity Surface Emitting Laser ("VCSEL") to address
such applications as gigabit ethernet, as well as PIN/Pre-amp combo devices in
which the pre-amplifier is mounted inside the same package as the photodetector,
thereby improving performance and reducing assembly cost to the end-user. Mitel
is also a supplier of advanced optical and channel devices for optical disk
drives and in the emerging digital versatile disk market.

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POWER AND AUTOMOTIVE

The Company designs, manufactures and markets several non-communications
products at its facility located in Lincoln, U.K. Applications for these
products include principally Power and Automotive. This business unit is
currently under strategic review.

The Conventional Power product line includes a full range of products
including bipolar transistors, thyristors and gate turn-off thyristors. These
products operate in high power ranges over 100 kWs and are used in industrial,
rail traction, aerospace and electric utility applications. The principal
geographic markets for such products are in the U.K., France and North America.
The Company has developed a set of insulated gate bipolar transistor power
products to match the migration of the market from conventional power. These
products are designed to operate at high power and low power ranges. Smart power
products are integrated circuit microprocessor peripherals for power switch
control of motor drives used in air conditioners, white goods, compressors,
pumps and fans.

Automotive products are based on the Company's core competency in radio
frequency microwave design and manufacture of board level systems. There are
three generic product groups: (i) transponders, which operate at 900MHz and are
used in road tolling applications; (ii) short range proximity sensors, which
operate at 2.5 GHz and are used in car alarms; and (iii) long range scanning
systems, which operate at 77GHz and are developed for automatic cruise control
systems.

FOUNDRY OPERATIONS

Mitel's foundry operations offer specialty technology manufacturing to
customer specifications. By building on the Company's mixed-signal integrated
circuit manufacturing expertise, Mitel can offer unique features that are not
widely available and address niche markets, such as those for low and
high-voltage processes, double-poly technology, high precision resistors and
charged coupled devices.

The Custom Wafer Foundry business serves a growing base of customers both
in the United States and Europe by performing sub-contract manufacturing of
silicon wafers. Mitel views the business as a means of enhancing its
manufacturing facilities to perform at near or full capacity with a diversified
set of applications and hedging against market trends in any one segment. Mitel
intends to increase the foundry business in Bromont, Quebec, Canada and in the
newly acquired Plymouth, U.K. facility to ensure world-class manufacturing
operations.

BUSINESS COMMUNICATIONS SYSTEMS

The Company's business communications systems are primarily customer
premises-based communications systems that are used in networks that enable
businesses to communicate within and between locations. Management believes that
future growth opportunities for BCS should be available in both developed and
developing countries, but that a significant portion of any such growth
opportunities is likely to be derived from the sale of communications systems in
the United States and the United Kingdom. The Company intends to focus its
marketing, development and sales efforts on PBX and peripheral products, open
systems, applications, systems integration, public switching and alternate
network and remote access products. Mitel's BCS and related service revenue grew
by 20% in Fiscal 1998 and by 4% in Fiscal 1997, and accounted for 64%, 68% and
79% of the Company's total revenue in Fiscal 1998, 1997 and 1996, respectively.

PBX AND PERIPHERAL PRODUCTS

Mitel's PBX systems, usually located on the customer's premises, permit a
number of local telephones or computer terminals to communicate with each other,
with or without use of the public telephone network. Mitel's PBX products are
divided into categories adapted to the particular business size and
configuration of the end user. Over the past 20 years, Mitel's PBX products have
evolved from analog products to the current digital family of products. The
Company's current line of LIGHT products and related peripherals permit the
communication of voice and data information over conventional twisted-pair
telephone wires or optical fiber. Mitel's larger products provide networking
capabilities to link up to hundreds of locations.

Although Mitel no longer manufactures new analog PBX equipment, the
Company continues to support its existing analog PBXs by offering a complete
line of remanufactured equipment that performs to specifications at the latest
revision level.

Mitel's top-of-the-line family of SX-2000 products utilizes digital
switching technology to provide advanced voice and data capabilities for
businesses requiring flexibility to configure a system that meets specific user
needs. The SX-2000 and its

7








networking protocols are designed to bring fully-integrated voice and data
capabilities to the desktop over single twisted-pair wiring. To support networks
utilizing these products, Mitel offers OPS Manager, an off-board computer
software application that is closely integrated with the SX-2000 to perform
network management from a central location.

The SX-200 line of digital products provides small and medium size
customers in North America with advanced telephone features typically found in
larger systems such as the SX-2000. The current members of the SX-200 product
line provide interface to a wide variety of user peripheral devices. In Fiscal
1997, Mitel introduced the SX200ML, a smaller but fully functional SX- 200 that
is aimed at the 40 to 60 line-size business market. In Fiscal 1998, Mitel
introduced the next generation SX-200, the SX-200 EL, which is directed at the
50 to 250 line-size business market.

As a result of the acquisition of the business of TSc, Mitel provides ISDN
business products, including the iMAGINATION key system product line, to the
small-to-medium enterprise market in Europe.

Some of Mitel's PBX systems can be configured with optional feature
enhancements such as automatic call distribution and automated attendant
functionality, message center and hotel/motel applications and powerful private
network protocols in both digital and analog versions.

The SUPERSET 400 series of digital business telephones and dataset
products are designed for operation with Mitel PBXs. The sets provide various
functionality such as feature access through fixed programmable buttons and
visual prompt soft keys and, with the MILINK Data Module, integrated
simultaneous voice and data on a single pair of wires.

A new line of digital telephones designed for operation on the SX-200 and
SX-2000 products was released in April 1998. The SS4000 phones continue the
evolution of the Company's peripheral devices by introducing new features to the
desktop such as full duplex hands-free speaker phone capability and touch
sensitive soft keys.

OPEN COMMUNICATIONS SYSTEMS

With the convergence of data and voice infrastructures, Mitel is focused
on developing convergent solutions for the business enterprise. Management
expects that this converged infrastructure should provide customers with
significant efficiency improvements in the future. Customers are seeking to
improve their current voice systems while leveraging the advantages of open
computing platforms and operating systems. Mitel supports the advance of
convergence of communications technologies. The Company works with a number of
industry forums and industry-leading partners in the voice and data
communications field to advance the convergence of computing and
telecommunications technologies.

Mitel's most recent product offerings in the open communications systems
market are the SX-2000 for Windows NT and OPS Manager for Windows NT with
Directory Services Support. The SX-2000 for Windows NT takes Mitel's
SX-2000 software and moves it into the open computing environment of a Windows
NT pentium server. This allows businesses to integrate their PBX with other
NT-based applications in a seamless manner, thereby eliminating the need for
separate interface between those systems. The introduction of Directory Services
support seeks to address the needs of business organizations attempting to
maintain a large number of electronic systems and databases. Directory Services
support is implemented through an industry standard protocol called Lightweight
Directory Access Protocol, which integrates voice switching with the main
directory server and permits moves, additions or changes to be made in a central
location and propagated to all other databases.

Mitel's MediaPath Server is a LAN-based communications system serving
small businesses and workgroups of up to 96 users. It consists of software and
telecommunications boards loaded on a standard pentium- or alpha-based LAN
server running on the Microsoft Windows NT operating system and Microsoft
BackOffice. This single-platform architecture leverages the power of computing
to deliver easy-to-use telephony features such as MediaPath Phone (Windows-based
phone application), MediaPath Attendant (Windows-based operator console) and
MediaPath Auto-Attendant. MediaPath delivers an IT-centric "office-in-a-box"
solution for small offices that are deploying data applications such as file and
print servers, Exchange, E-mail and specific vertical market applications in a
Microsoft environment. Mitel MediaPath provides additional "voice-enabling"
technology to create converged solutions for such customers.

The Mitel Global Developers Network program seeks to attract leading
third-party developers to deliver productivity- enhancing business applications
for MediaPath such as unified messaging, remote telephony assistant, customer
help desk and vertically-targeted applications.

8








Another open system developed by the Company, NeVaDa (Networked Voice and
Data), unifies all functional levels of an organization's LAN and local voice
network on a single broadband infrastructure that supports converged network
management and call control, computer telephony and multimedia functions. By
converging the two most business critical communication networks, NeVaDa
delivers benefits to both users and the organization as a whole, facilitates the
convergence of wide area access and wiring infrastructure, makes network
management simpler, enhances network performance, allows organizations to
leverage existing voice and computing investments and enables integrated
multimedia applications.

In Fiscal 1997, the Company established a new CTI product that is a
computer attached telephone. Mitel's first commercial product, named MITEL
Personal Assistant, is targeted at the lucrative small office/home office
market, primarily in the U.S. Management believes that the Mitel Personal
Assistant is an innovative product that blends the accessibility and reliability
of the familiar telephone with the productivity features available through the
PC to provide innovative benefits for the home office. Mitel Personal Assistant
uses RS232 (serial port) and the new Universal Serial Bus standard, which
provides high-bandwidth, hot-plug-and-play connectivity between the telephone
and the PC to deliver the functionality and ease-of-use demanded in the target
market. Mitel expects to launch the second generation product in the summer of
calendar 1998.

APPLICATIONS

Mitel develops applications software and interfaces that add value to the
PBX at the desktop and workgroup level and take advantage of the convergence of
computing and telecommunications technologies.

Mitel's major application is a suite of call center products. Mitel
addresses the call center market with software applications for three distinct
areas: (i) call distribution, i.e., intelligently routing calls to agents, (ii)
agent automation, i.e., tying network intelligence like calling line ID to a
database of information that provides agents with a screen of information on the
calling customer and (iii) call management, i.e., performing functions such as
measuring the performance targets of agents, forecasting staff and forecasting
call traffic.

With the recent acquisition of the CPE Division of Centigram, Mitel has
enhanced its offering of voice messaging products. Management believes that
voice messaging has become a critical part of PBX sales such that customers view
it as a PBX feature. The continued success of voice messaging will depend on
both a tighter integration of the application to the switch as well as continued
enhancements to some of the newer developing technologies like unified
messaging, which is the integration of voicemail, E-mail and fax mail.

SYSTEMS INTEGRATION

In North America and the United Kingdom, Mitel offers end users systems
integration services to configure, install and service a full array of PBX and
communication products, including non-Mitel products.

In North America, this service is provided by Mitel Telecommunications
Systems, Inc. which focuses on providing systems integration services in the top
25 metropolitan areas for national and regional accounts, as well as to large
single site accounts.

In the United Kingdom, the Mitel Solutions Division provides systems
integration services to several key market segments for medium-to-large
businesses.

PUBLIC SWITCHING

The Public Switching business unit designs, markets and sells the GX5000
product line. The GX5000 platform is a compact, sophisticated switching system
capable of undertaking numerous applications. Among its most common applications
are digital end office replacements for U.S. independent telephone companies,
digital network overlay services for networks in developing countries, rural
public switched telephone network services, satellite communications gateways
and provision of a carrier network integrated front end for voice processing
systems.

During Fiscal 1999, management expects the Company to add new capabilities
to the GX5000 platform to respond to the needs of independent telephone
companies for additional services, including ISDN and asymmetric digital
subscriber line ("ADSL") services.

With changes in the regulatory environment, management anticipates that
the Competitive Local Exchange Carriers ("CLECs") should emerge as potential
customers for the GX5000 product line. CLECs bundle communications, information

9








technology and certain entertainment services for all of the users in a
particular service area such as an apartment complex or housing development.
These services generally are offered at lower long term costs to such users,
since the CLECs negotiate more favorable rates with alternate network access
providers than could be obtained by individual users. Mitel believes that a
compact system like the GX5000 is an ideal central office product for such an
environment.

ALTERNATE NETWORK AND REMOTE ACCESS

The Alternate Network Access product group designs, markets and sells the
SMART-1 call controller or automatic dialer family of products for the analog
and digital voice communications and fax markets. Management believes that the
explosion of the Internet has created a new opportunity for its alternate
network access products. The Company has developed a new product variant which
attaches to fax machines and routes long distance fax calls off the traditional
telephone networks into the Internet networks through Internet service
providers, thereby reducing long distance costs and providing substantial cost
savings on fax calls to the end user.

The Remote Access product group designs, markets and sells remote access
products and technology under the brand name Gandalf. Such products facilitate
high volume data and voice communications between corporate office, local
branches, teleworkers and agents in the field. Gandalf's technology capabilities
are strongest in the areas of modular design, integration of voice and data,
remote telephony and data compression and encryption.

SALES, MARKETING AND DISTRIBUTION

SEMICONDUCTORS

The principal customers for Mitel's semiconductors are customer premise
and network communication equipment manufacturers. Mitel's semiconductor
products are also marketed to data communications suppliers as the integration
of computing and telecommunications continues. Mitel sells its products in over
100 countries, through a network of 50 independent representatives and
distributors and through a dynamic direct sales force. Representatives generally
have strong relationships with and interact directly with end customers. These
representatives assist with the design of customer solutions incorporating Mitel
products, which are then supplied through distributors. The direct sales force
is comprised of major account teams which target specific large customers for
both custom wafer design and standard product deliveries.

The primary markets for Mitel Semiconductor products are growing and
technologically-evolving industries. The medical devices, computer network
server and telecommunications equipment industries represent major end markets
for Mitel Semiconductor. Management believes that these industries should
provide revenue growth opportunities to Mitel during Fiscal 1999. In addition,
Mitel Semiconductor's revenue stability has been supported by various factors
which have continued to drive demand for telecommunications equipment and
infrastructure. In particular, deregulation of telecommunications services
worldwide has allowed new operators and service providers to be licensed, most
of which need new equipment and facilities. The emergence of these new operators
has, in turn, intensified the competitive environment, frequently forcing
existing operators and service providers to accelerate their capital spending
plans. The low penetration of telephone service in emerging countries is also a
strong driver for wireless as well as wired communications, which management
believes increases demand for the Company's integrated circuits for
communications applications.

The Company believes that one of its competitive advantages is the
expertise of its applications groups, which are located in central locations in
the United Kingdom, the United States, Canada, Brazil and Singapore to serve the
customer bases in Europe, North America, South America and the Far East,
respectively. The applications groups assist OEMs in designing their next
generation products using Mitel components. Mitel has a strong record of design
wins and of attracting customers' solicitation of design ideas. The design win
cycle starts when a potential customer approaches Mitel to develop a
semiconductor for a new product which meets certain specifications. Once Mitel's
design is selected for a product, Mitel generally is assured of providing the
semiconductor for the product until the product is no longer manufactured. The
average life cycle of the end-products to which Mitel supplies microelectronic
components is between three and five years. The recent additions to the
semiconductor product lines through the purchase of Plessey have been integrated
into Mitel's sales channels worldwide.

NORTH AMERICA

Mitel's semiconductor products (other than ASICs and foundry services) are
sold through representatives of manufacturers and distributors and,
increasingly, directly to OEMs. Mitel's sales representatives, who deal directly
with the end customer,

10








assist with the design of systems incorporating Mitel products. These products
are then supplied through distributors. To enhance sales, major account teams
target specific large customers for standard product deliveries. Design centers
(strategically located close to the customer base in Scotts Valley, San Jose,
Irvine and San Diego, California for West Coast customers and in Kanata,
Ontario, Canada for East Coast customers) provide ASIC services. Foundry
services are provided from a sales office in Tempe, Arizona, with technical
support from Bromont, Quebec, Canada.

EUROPE

Sales of Mitel semiconductor components in Europe have been coordinated
primarily through independent distributors which perform the dual function of
sales representative and distributor. Mitel's strategic accounts are supported
directly through its own sales force. Together with its distributors, Mitel has
implemented a major account program, the focus of which is the development of
multinational accounts. Management believes that the European market is similar
to the North American market in that customer premise and network communications
equipment segments utilize both hybrid and integrated circuit products. ASIC
products are sold directly to customers due to the custom and highly technical
nature of the devices. Mitel's optoelectronic products are supplied both through
distributors and directly to end customers.

OTHER MARKETS

The Asia-Pacific area is a major geographical market for Mitel
semiconductor products, with China, Korea, Japan and Australia being the largest
markets. Mitel's semiconductor products are also sold in Hong Kong, Thailand,
Taiwan, New Zealand, Singapore, Malaysia, and the Philippines and the Company is
actively expanding into the Indonesian, Indian, Mexican and Brazilian
marketplaces.

Mitel maintains regional sales offices in Japan, Singapore and Brazil for
semiconductor products. Over 90% of sales in these areas are achieved through
representatives and distributors. The sales offices provide a service linking
customers, local representatives and applications support groups intended to
assist OEMs in designing products with Mitel components. Management believes
that such activities provide a technology exchange that helps increase Mitel's
sales, while at the same time helping to develop the local economy. As is the
case in North America and Europe, Mitel provides ASIC design services locally
through the design centers in Tokyo, Taiwan and Korea.

BUSINESS COMMUNICATIONS SYSTEMS

Mitel targets its BCS products and services principally to businesses
requiring communications systems on their premises. Management believes that
Mitel is a major supplier of PBX systems and peripherals to small and medium
sized businesses, which management believes is one of the fastest growing
business communications systems segments in the principal markets served by the
Company.

NORTH AMERICA

In the United States, Mitel sells most of its PBX systems (excluding its
top-of-the-line SX-2000 system) through wholesale distributors of telephony
equipment. The distributors, in turn, sell to independent telephone companies
and to interconnect companies. Mitel products are also sold to the U.S. federal,
state and local governments. Typically, the North American indirect selling
channel focuses on the medium-size enterprise market, with a strong penetration
into the lodging, government, manufacturing and healthcare industries. In
addition to the above distribution channels, Mitel sells products to end
customers through its subsidiary, MTS, primarily in the top 25 metropolitan
statistical areas as determined by the United States Department of Commerce. MTS
is a nationwide sales and service operation that sells integrated communications
systems, applications and peripherals to national and regional accounts, as well
as to large single site accounts.

Mitel has established an "Elite Dealer" program in the United States for
the Company's top 130 dealers. Elite Dealers are provided exclusive access to
some of Mitel's newest products (e.g., the SX-2000 LIGHT and other specialized
applications), as well as a non-exclusive right to distribute the rest of the
Company's PBX products. All other dealers, which number approximately 400, are
classified as Mitel Dealers. Mitel Dealers sell the balance of the Company's PBX
product line. Mitel has also developed a new sales channel through
computer-telephony value-added resellers ("VARs") that is focused on data-
centric dealers involved in server based telephony.

In Canada, Mitel sells its SX-200 LIGHT and SX-50 PBX products to the
Canadian telephone operating companies, which in turn sell such products to end
users. Mitel also sells its complete range of PBX equipment, including the
SX-2000, to

11








independent interconnect companies in Canada, which in turn sell to end users.
The interconnect companies operate under an Elite Dealer support program similar
to that established in the United States. The dealers sell, install and provide
service throughout Canada, marketing Mitel products on a non-exclusive basis.
Mitel also sells the SX-2000 line of PBX systems to end users in Canada through
MTS.

Mitel sells its alternate network access products in North America through
selected distributors, which in turn sell such products to carriers and
alternate carriers. The carrier market addressed by these alternate network
access products is highly influenced by regulation and impacted by the
consolidation of common carriers.

Remote access products are sold primarily through selected data-centric
VARs. Public switching systems are sold directly to independent telephone
companies in the United States. Mitel distributes the balance of its BCS product
line through selected VARs and OEM customers.

EUROPE

Mitel markets its BCS products under distribution agreements in several
countries in Europe. The most significant European market, in terms of revenue,
is the United Kingdom. In the United Kingdom, Mitel sells its communications
equipment primarily through a direct sales organization (Mitel Solutions
Division) to end customers, but also indirectly through selected distributors
and dealers. In the United Kingdom, Mitel serves principally large corporate
customers with specific strengths in the high-end lodging, utilities, financial
services and publishing industries. In order to extend Mitel's distribution
access to smaller, regional companies, in Fiscal 1996, Mitel entered into a
distribution agreement for the SX-2000 LIGHT with Bailey Telecom Limited, a
leading independent telecommunications service provider and distributor of voice
and data CPE in the United Kingdom.

The acquisition of the Gandalf product line resulted in improved
distribution channels throughout Europe during Fiscal 1998. The Gandalf product
line has allowed Mitel to gain access to a number of post, telephone and
telegraph companies in Europe.

Mitel sells its SMART-1 line of alternate network access products directly
to key accounts in the United Kingdom. Such products are also sold through
distributors to other customers in the United Kingdom and, increasingly, in
continental Europe as the carrier markets are deregulated.

OTHER MARKETS

Mitel markets its communication products directly and under distribution
agreements in China and other Asia-Pacific countries, the Middle East, Africa,
South and Central America, Mexico and the Caribbean. The most significant of
these markets is the Asia-Pacific market, including China. Mitel maintains an
Asia-Pacific regional office in Hong Kong through its subsidiary, Mitel (Far
East) Limited ("MFEL"), focusing on sales, service and research and development
for China and the Asia-Pacific area.

In order to address the needs of the Chinese market, in March 1994 Mitel
acquired a 50% interest in Tianchi-Mitel Telecommunications Corporation
(formerly known as Tianchi Telecommunications Corporation), one of only seven
PBX manufacturers then licensed to utilize foreign technology in China. This
joint venture, which has a term of 30 years, manufactures, distributes and
services Mitel's digital PBX systems. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."

COMPETITION

SEMICONDUCTORS

Competition in the semiconductor market is intense, with new entrants and
ever increasing functionality due to integration and a focus on end product cost
reduction. The market for Mitel's semiconductor products is characterized by
rapid technological change and evolving standards. Many of Mitel's competitors
and potential competitors have greater financial, technological, manufacturing,
marketing and personnel resources than the Company. To minimize the effects of
competition, Mitel Semiconductor produces very few commodity semiconductor
products and focuses instead on non-commodity, specialized products that are
proprietary in design and are often designed for a specific application or
customer. The commodity products are used to stabilize production volumes in the
plants by regulating price and lead time. Mitel Semiconductor primarily designs

12








and markets proprietary products for the communication segment that are sold to
many customers in the wired, wireless, ASIC and optoelectronic segments of the
communications market. Competition is principally based on design expertise,
product availability, service and support, and management believes that Mitel's
sales channels and applications support compare favorably to those of its
competitors. Mitel also competes by offering a focus on intellectual property in
communications systems and a high level of system integration capabilities.

Within the wired segment, Dallas Semiconductor Corporation, Level One
Communications Inc., PMC-Sierra Inc. and Rockwell Semiconductor Systems
("Rockwell") are the main competitors in North America for Mitel's semiconductor
products. The principal competition for the semiconductor business in Europe
comes from SGS-Thomson Microelectronics, Inc. ("SGS-Thomson") and California
MicroDevices Corp. for analog components and from Siemens AG ("Siemens") for
digital components. Competitive pressure in other regions, most notably the
Asia-Pacific area, comes from most of the large semiconductor manufacturers.

In the wireless segment, system integration and global standards are the
main driving forces. The principal competitors include Philips International
BV, Rockwell, Harris Corporation and Lucent Technologies Inc. ("Lucent").

The Mitel Semiconductor ASIC line competes in two broad areas, analog ASIC
and digital ASIC products. For analog ASIC products, global competitors are
Austria Mikro Systeme International AG in Austria and Orbit Semiconductor Inc.
in North America. For digital ASICs, the main competitors leverage their CMOS
process technology IE0.25 and 0.18 micron. The principal competitors include
Texas Instruments Inc., LSI Logic Corporation ("LSI") and Toshiba Corporation.

In the optoelectronic segment, competitors in the LED and PIN diode
business sectors include Hewlett Packard Company, Honeywell Inc. ("Honeywell"),
Epitaxx Inc. and AMP Inc. in North America and Siemens in Europe. Currently,
Honeywell is the only known competitor for VCSEL products. LSI and Samsung
Electronics Co. Ltd. are the main competitors in the optical mass storage area.

BUSINESS COMMUNICATIONS SYSTEMS

The market for Mitel's BCS products is characterized by rapid
technological change, evolving standards and regulatory developments. Many of
the Company's competitors and potential competitors have greater financial,
technological, manufacturing, marketing and personnel resources than the
Company. The principal factors of competition in the market sectors addressed by
Mitel include product performance, price, reliability, ease of expansion and
enhancement, future product strategy and support of evolving networking and
computer telephony open standards. Management believes that Mitel's target
customers also regard the ease with which they can do business with their
suppliers as an increasingly important factor in the selection process.

In addition to Mitel, the major suppliers of PBX equipment include
Northern Telecom Limited ("Nortel"), Lucent, Siemens, NEC America Inc. ("NEC")
and Fujitsu America, Inc. Management believes that Mitel compares favorably with
respect to the foregoing factors against its competitors, some of which are
larger and have more resources than Mitel. Mitel has been a significant supplier
to the under-100 line segment of the market in North America since the early
1980s. In this segment, Mitel competes with hybrid key systems manufacturers and
other manufacturers of used and new PBX products.

The Company's basic PBX hardware business has experienced and expects to
continue to experience a price-driven competitive phase, typical of a commodity
product, as equipment replacement cycles continue to slow down. However, Mitel
has attempted to provide its PBX customers with an "intelligent evolution" from
digital to broadband technology by designing communications systems building
blocks that are modular and easily upgraded.

According to Phillips InfoTech, based on calendar 1997 market research, as
of December 31, 1997, Mitel held approximately 8.3% of the total United States
PBX market and was placed fifth overall in market share. Lucent, with
approximately 29.8%, and Nortel, with approximately 30.6%, are the dominant
suppliers in the United States.

Mitel's prime competitor in Canada in the PBX market is Nortel, which
enjoys a dominant supplier position with many of the Canadian telephone
companies through the Stentor Alliance, a long distance network of nine regional
telephone companies. As of December 31, 1997, Mitel held approximately 19.7% of
the total Canadian PBX line market, according to estimates provided by Phillips
InfoTech, based on calendar 1997 market research.

13








In the Asia-Pacific PBX market, most major communications equipment
suppliers have a presence and competition is intense. Management believes that
Mitel compares favorably to the competition in terms of price, product
performance and after-sale service provided by its appointed local distributors.

Leading communications equipment suppliers to the European PBX market
include Alcatel Alsthom Compagnie ("Alcatel"), Siemens, Robert Bosch GmbH,
Telefonaktiebolaget LM Ericsson ("LM Ericsson"), Phillips Electronics NV and
Nortel. In the United Kingdom market, Mitel's main competitors are Nortel,
selling through British Telecommunications plc, Siemens/GPT Limited and LM
Ericsson.

For alternate network access products, competition varies by market and by
application (voice or fax), while the worldwide long distance calling market is
in transition as a result of deregulation and consolidation of carriers.

Mitel's prime competition in the remote access market is primarily
internetworking companies such as Cisco Systems Inc. ("Cisco") and Ascend
Communications, Inc. ("Ascend"). While Cisco and Ascend continue to lead in
their respective markets, Mitel has created its own niche with internetworking
products designed to meet the new and emerging voice/data convergence market
particularly for advanced compression and encryption technologies. Management
believes the combination of the Company's strengths in data and voice
communications positions Mitel as one of the leaders in this emerging market.

The U.S. rural central office market is dominated by two suppliers: Nortel
and Siemens Stromberg Carlson. The switching market is sensitive to new
technology evolution. Internationally, the rural central office market is
dominated by large, multinational corporations, such as Alcatel, Siemens, LM
Ericsson, Nortel, NEC and Lucent. Most suppliers generally offer equipment with
comparable technical functionality. The principal competitive factor for success
in the international market is based on the strength of the financial assistance
package associated with the projects, a factor which has limited and may
continue to limit Mitel's international opportunities in the central office
market.

MANUFACTURING

SEMICONDUCTORS

The Company manufactures its semiconductor products in six manufacturing
facilities in Canada, the United Kingdom and Sweden. The selection of the
manufacturing sites for semiconductors generally is dependent on the type of
semiconductor to be manufactured and the required process and technology.

The Bromont manufacturing facility in Canada uses CMOS technology for
digital and mixed-signal products. Two production lines are maintained at the
Bromont facility. The first line is a 150 mm line capable of 0.5 micron but
currently operating 0.8 micron up to 4.0 micron processes. In addition, the
Bromont facility has a 100 mm line capable of 1.2 to 9.0 micron processes. Most
of Bromont's wafer production is probed and tested at the Company's facility in
Kanata, Ontario, Canada, with some low volumes probed in Bromont.

Thick-film hybrid microcircuits are manufactured at the Company's facility
in Caldicot, Wales, United Kingdom. The Company's manufacturing facility in
Plymouth, U.K. possesses leading-edge CMOS technology for digital and
mixed-signal products. Plymouth's 200 mm production line is capable of 0.6 and
0.35 micron processes and its 150 mm production line is capable of 0.8 micron
processes and above. The Swindon, U.K. manufacturing facility uses bipolar
technology for RF applications. The facility's 100 mm production line is being
converted to produce 150 mm wafers, which is expected to be completed in the
fall of calendar 1998. The Lincoln, U.K. manufacturing facility produces 38 mm
wafers for power-related products and the facility's 100 mm production line for
ICs, using CMOS, Silicon-on-Sapphire and quartz technologies, is capable of 1.0
micron to 5.0 micron processes.

The Jarfalla, Sweden manufacturing facility uses CMOS technologies
(digital and mixed-signal) to produce ASICs. Jarfalla's 100 mm line is capable
of 1.2 micron up to 2.0 micron processes. Optoelectronic components are also
produced at the Jarfalla facility using gallium arsenide processes.

All of Mitel's semiconductor manufacturing facilities and their quality
management systems are certified to the strict standards established by the
International Standards Organization of Geneva, Switzerland (the "ISO").

14








BUSINESS COMMUNICATIONS SYSTEMS

Mitel BCS products are manufactured in Canada, the United States and the
United Kingdom. Mitel's manufacturing operations in all locations are
concentrated on quality, cost and delivery, with special attention paid to
constant process improvement. All of Mitel's BCS manufacturing facilities and
their quality management systems are certified to the strict standards
established by the ISO.

The Company continues to invest in manufacturing related technologies that
aim to improve production yields, productivity and overall product quality.

Mitel purchases substantially all of the parts and components for assembly
of its systems products from a large number of suppliers through a coordinated
world-wide sourcing process. Mitel also obtains certain of the semiconductors
required in its BCS manufacturing from Mitel Semiconductor. Mitel's suppliers
are subject to audit by the Company on a regular basis and are required to meet
the Company's strict standards with regard to cost, quality and delivery
performance. The highest level of achievement against these standards results in
the attainment of "Certified Supplier" status by those involved in this program.
No single supplier accounts for more than 10% of the Company's total purchases,
and to date, Mitel has not experienced any significant manufacturing delays
relating to the availability of material.

RESEARCH AND DEVELOPMENT

During Fiscal 1998, gross R&D expenses, including depreciation related to
R&D, totaled $92.4 million, compared to $61.5 million during Fiscal 1997, and
$46.6 million during Fiscal 1996. During Fiscal 1998, the Company qualified for
funding related to eligible R&D expenditures as described in Note 14 of the
notes to the consolidated financial statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations appearing elsewhere in
this Annual Report on Form 10-K.

SEMICONDUCTORS

Mitel's current Semiconductor R&D programs are primarily directed at
developing intellectual property in the areas of IC process development,
communications ICs, optoelectronic components, ASIC design libraries, System
Level Integration ("SLI" or "System-On-A-Chip") and high power semiconductors.

Mitel's process development efforts are focused on mixed signal processes
and yield improvements in both Mitel's CMOS and bipolar processes.
Communications R&D programs include development of intellectual property in the
areas of ATM, analog line cards, network timing functions, Wide Area Network or
WAN chips, switching and voice processing functions, wireless areas of CDMA,
paging, wireless LANs and set top box communications chips. Optoelectronics R&D
activity is focused on enhancing Mitel's market position in VCSELs and array
VCSELs for LAN applications in addition to development of optoelectronic
integrated circuits or OEICs. Mitel's ASIC unit continues to invest in the
development of digital libraries for advanced deep sub-micron CMOS designs as
well as increased design capacity. Analog ASIC development continues to focus on
low power, high reliability advances for medical and space applications. Mitel
continues to invest in the development of SLI techniques to improve time to
market for both digital and mixed signal applications. Mitel's power unit is
concentrating its efforts in insulated gate bipolar transistor devices, the next
generation power products.

Mitel maintains standard product design centers in Kanata, Ontario,
Canada; Jarfalla, Sweden; San Diego and Scotts Valley, California in the United
States; Caldicot, Swindon, Lincoln, Oldham and Boreumwood in the United Kingdom;
and Aix-en-Provence in France. In addition, Mitel maintains process development
centers in each of its manufacturing facilities.

BUSINESS COMMUNICATIONS SYSTEMS

Mitel's current BCS R&D programs fall into the following areas: continuing
support for its installed base of PBX customers, remote access customers and
existing distribution channels in terms of new functionality and problem
resolution; transitioning the existing PBX and sets platforms from their current
proprietary architectures, as well as the Company's XpressWay and XpressConnect
remote access products, to a single range of high volume, cost-optimized
products and components built around open computing technologies such as PCI,
cPCI and USB; developing new generation convergence technology solutions and
enabling technologies based on TAPI/CSTAPI, JTAPI standards ranging from PC
boards, connection control software to complete Windows/NT-based PC server
platforms that provide integrated PBX and unified messaging functions to small
businesses; in conjunction with data network companies, pioneering new data
compression and encryption

15








algorithms to enhance network performance and security over low speed remote
access networks and the deployment of real-time voice across data networks
applying new technologies to work over broadband ATM and switched ethernet LANs;
continuing support of the GX5000 small central office and developing advanced
alternate network access products for ISDN remote access; and improving Mitel's
manufacturing processes.

PROPRIETARY RIGHTS

The Company owns many patents and has made numerous applications for
patents relating to communications and semiconductor and optoelectronic
technologies, including patents and applications for patents relating to its
business communications product line. Management believes that the ownership of
patents is an important factor permitting the exploitation of Mitel's inventions
and providing protection for its patentable technology in the sectors referred
to above.

The "MITEL" trademark and the MITEL corporate logo are registered in
Canada and the United States and have been registered in certain other countries
where Mitel conducts business. Most of the Company's other trademarks are
registered, or applications for registration have been filed, in various
countries where management has determined such registration to be advisable.
Management believes that the Company's trademarks are valuable assets and
generally applies for registration of a mark in countries where its assessment
of potential business related to the sale of products or services associated
with such mark justifies such action. The Company also owns rights to a number
of intellectual property rights for which registration has not been pursued. In
addition to applying for statutory protection for certain intellectual property
rights, the Company takes various measures to protect such rights, including
maintaining internal security programs and requiring certain provisions in
contracts.

As is the case with many companies in the communications industry, it is
necessary or desirable from time to time for the Company to obtain licenses from
other companies relating to technology for Mitel's products and processes. No
current license is considered by management to be material.

GOVERNMENT REGULATION

PBXs are considered customer premise equipment. Although the CPE market in
the United States is not regulated, certain developments, which are described
below, have changed the United States telecommunications market. On February 1,
1996, the United States Congress passed the Telecommunications Act of 1996.
Management believes that the legislation will continue to accelerate the
convergence of the communications, information and entertainment industries
while intensifying competition within those industries. This legislation removes
the line of business restrictions on the Regional Bell Operating Companies
("RBOCs") and allows the RBOCs to enter the manufacturing sector at the time
they are allowed into long distance markets. For the first three years, any
manufacturing by an RBOC must be conducted through a separate affiliate and
procurement from the subsidiary must be on a non-discriminatory basis. While it
is not improbable that an RBOC will eventually meet the minimum criteria for
entry into the long distance market and thereby become eligible to begin
manufacturing, it appears unlikely, at this time, that the majority of RBOCs
will commence both such activities in Fiscal 1999.

Although there can be no assurance, management does not expect that such
legislation will have a material adverse effect on the Company's results of
operations in Fiscal 1999, in light of the existing competitive conditions in
the United States market and the significant conditions required to be satisfied
by the RBOCs under such legislation before they can commence manufacturing.

The second development is a proposed regulation by the U.S. Federal
Communications Commission ("FCC") which will impose certain enhanced "911"
application requirements on CPE manufacturers. Certain states have already
imposed such requirements and the Federal government is poised to do likewise.
The FCC is presently circulating a proposed settlement that, if adopted, would
be favorable to CPE manufacturers, including Mitel, with regard to these
proposed regulations. The benefits to Mitel from the settlement would result
principally from the availability of certain exemptions with respect to lower
line sizes as well as positive grandfathering provisions.

The FCC also imposes installation and equipment standards for CPE and
requires that all CPE marketed in the United States be registered with it and
comply with these standards. The Company believes that it is currently in
compliance with these requirements in all material respects.

16








The United States government promulgated regulations during Fiscal 1998,
which will come into effect on November 1, 1998, regarding accessibility of
telecommunications equipment and customer premises equipment, pursuant to
Section 255 of the Telecommunications Act of 1996. Although there can be no
assurance, such regulations were anticipated by Mitel and management believes
that compliance with such regulations should not have a material adverse effect
on the results of Mitel's operations in Fiscal 1999.

The Company cannot now anticipate what impact such legislation and
regulations may have on the results of its operations beyond Fiscal 1999 or what
further regulatory changes will occur in the communications equipment market and
the competitive environment as a consequence of actions by the legislature, the
FCC or the courts.

The Canadian Radio-television and Telecommunications Commission ("CRTC")
is the regulatory agency in Canada governing most of the telecommunications
industry. Currently, the CPE market in Canada is an unregulated market and
Canadian carriers do not need CRTC approved tariffs in order to sell terminal
equipment.

The liberalization of access to telecommunications networks and
competition in telecommunications services in the European Union has proceeded
at a steady pace through initiatives of the Member States, as well as through
deregulation initiatives of the European Commission. The deregulatory process
has increased competition and opened markets for telecommunications vendors
throughout Europe.

Mitel's Semiconductor business unit is neither directly nor significantly
affected by current government regulation or policy, although there can be no
assurance that future regulatory changes will not affect the Company's business,
financial condition or results of operations.

EMPLOYEES

At May 29, 1998, Mitel employed approximately 6,537 persons. As at March
27, 1998, Mitel employed approximately 6,335 persons compared to approximately
4,095 persons at the end of Fiscal 1997, approximately 3,867 at the end of
Fiscal 1996 and approximately 3,561 at the end of Fiscal 1995. Approximately 35%
of the Company's employees are located in Canada, 13% in the United States, 45%
in the United Kingdom, and 7% throughout the other locations in which Mitel
operates. Mitel considers its relationship with its employees to be excellent.

Certain of the Company's employees are covered by collective bargaining
agreements or are members of a labor union. In the United States, approximately
200 service technicians employed by MTS are unionized, substantially all of whom
are represented by the International Brotherhood of Electrical Workers ("IBEW").
The Communications Workers of America ("CWA") represents two of such service
technicians in New York City. MTS completed its most recent labor negotiations
with the IBEW and CWA in October and December, 1997, respectively. The Company's
agreements with such unions expire between September and November, 2000. The
terms and conditions of such agreements, which management considers to be
competitive in the industry, provide for cost-of-living wage increases on a
periodic basis throughout the three year term plus area wage differentials where
appropriate. Management considers the Company's relationship with the unions in
the United States to be good. There are no pending grievances at this time and
any past disputes were considered not material.

In the United Kingdom, approximately 656 employees of Mitel Semiconductor
Limited (formerly Plessey) are unionized. The unions representing the employees
include the Amalgamated Electrical and Engineering Union, the Manufacturing
Science and Finance Union and the Transport and General Workers Union.
Negotiations are held annually in July. Management considers the Company's
relationship with the unions in the United Kingdom to be good.

In Sweden, approximately 400 employees are represented by three unions.
The Metall Industriarbetarforbundet union represents approximately 30 production
employees; the Svenska Industriarbetarforbundet union represents approximately
180 office professional employees; and the Civilingenjorsforbundet union
represents approximately 60 other professional or "white collar, university
educated" employees. It is common practice in Sweden for the national unions to
negotiate minimum standards with the employer association, supplemented by
additional terms negotiated by the local branches. Each of the agreements is for
a term of three years. Management considers the Company's relationship with the
unions in Sweden to be good.

17








BACKLOG

Mitel's order backlog as at March 27, 1998 was $279.5 million compared to
$135.1 million at March 28, 1997. Management expects that most of the Company's
current backlog will be filled within the current fiscal year. Backlog is not
necessarily a sales outlook for the month, quarter or year, as orders are
frequently booked and shipped within the same fiscal month.

FORWARD-LOOKING STATEMENTS AND RISK FACTORS

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

Such risks, uncertainties and assumptions include, among others, the
following: increasing price and product/service competition by foreign and
domestic competitors, including new entrants; rapid technological developments
and changes; the ability to continue to introduce competitive new products on a
timely, cost-effective basis; delays in product development; the mix of
products/services; changes in environmental and other domestic and foreign
governmental regulations; protection and validity of patent and other
intellectual property rights; import protection and regulation; industry
competition; industry capacity and other industry trends; the ability of the
Company to attract and retain key employees; demographic changes and other
factors referenced in this Form 10-K. The above factors are representative of
the risks, uncertainties and assumptions that could affect the outcome of the
forward-looking statements. In addition, such statements could be affected by
general industry and market conditions and growth rates, general domestic and
international economic conditions including interest rate and currency exchange
rate fluctuations and other risks, uncertainties and assumptions, including the
following:

FOREIGN EXCHANGE AND INTEREST RATE EXPOSURE AND CONCENTRATION OF CREDIT RISK

Because substantial portions of the Company's sales, costs of sales and
other expenses are denominated in U.S. dollars, U.K. pounds sterling and several
other currencies, the Company's results of operations are subject to the effects
of exchange rate fluctuations of those currencies relative to the Canadian
dollar. Changes in currency exchange rates may also affect the relative prices
at which the Company and its competition sell their products in the same
markets. The Company uses financial instruments, principally forward exchange
contracts, in its management of foreign currency exposures on estimated net
foreign currency cash requirements and on certain significant transactions,
generally over the ensuing 12 to 18 months. All foreign exchange contracts are
marked to market and the resulting gains and losses are deferred and included in
the measurement of the related transactions when they occur. These contracts
primarily require the Company to purchase and sell certain foreign currencies
with or for Canadian dollars at contractual rates.

A substantial amount of the Company's long-term debt is subject to
variable interest rates. The Company uses interest rate swap contracts to manage
the interest rate risk. Payments and receipts under interest rate swap contracts
are recognized as adjustments to interest expense on a basis that matches them
with the related fluctuations in the interest receipts and payments under
floating financial assets and liabilities.

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

18








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

TECHNOLOGICAL CHANGES; NECESSITY TO DEVELOP AND INTRODUCE NEW PRODUCTS

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

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

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

COMPETITION

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

ENVIRONMENTAL REGULATORS

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

19








REGULATORY REQUIREMENTS

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

In the United States, regulatory policies are likely to have a significant
impact on the competitive environment in which the Company operates. The
Telecommunications Act of 1996 and associated regulatory developments will
eliminate or modify many regulatory restrictions in the telecommunications
market. Deregulation may facilitate the increasingly competitive offerings by
communications services providers. In addition, RBOCs are now permitted to
manufacture and sell telecommunications equipment under certain conditions.
Given the substantial resources and large customer base of the RBOCs, the
Company could face competition from these companies should they satisfy these
conditions and elect to manufacture networking products. See
"Business--Competition" and "--Governmental Regulation."

SIGNIFICANT INTERNATIONAL OPERATIONS

Approximately 94% of the Company's sales in Fiscal 1998 were derived from
sales in markets outside Canada and 48% outside North America. The Company
expects sales from foreign markets to continue to represent a significant
portion of total sales. The Company operates six manufacturing facilities as
well as sales and technical support service centers in Europe and Asia. Certain
risks are inherent in international operations, including exposure to currency
exchange rate fluctuations, political and economic conditions, unexpected
changes in regulatory requirements, exposure to different legal standards,
particularly with respect to intellectual property, future import and export
restrictions, difficulties in staffing and managing operations, difficulties in
collecting receivables and potentially adverse tax consequences. There can be no
assurance that the above factors will not have a material adverse effect on the
Company's business, financial condition and results of operations.

YEAR 2000

What is commonly referred to as the "Year 2000 problem" is the result of
computer programs being written using two digits rather than four to define the
applicable year. Any of the Company's computer systems and products that have
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a system failure or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices or engage in similar normal
business activities. The Company relies on its systems, applications and devices
in operating and monitoring all major aspects of its business, including
financial systems, customer services, infrastructure, embedded computer chips,
networks and telecommunications equipment and end products. Management has
formed a Year 2000 Compliance Project and Program Office to establish and ensure
Mitel's compliance with what is commonly known as the "Year 2000 problem." In
addition, consultants were engaged to assist with a comprehensive review of the
Company's state of readiness and to assist with any necessary remedial plans for
the Year 2000 date change. This review encompassed supporting information
technology systems, product lines and business supply chain systems and
infrastructures. Management presently believes that with modifications to the
Company's existing software and conversions to new software, the Year 2000
problem can be mitigated. However, if such modifications and conversions are not
made, or are not completed on a timely basis, the Year 2000 problem could have a
material adverse effect on the Company's business, financial condition and
results of operations. Management further believes that the cost of either
repairing or replacing certain business systems to ensure business continuance
beyond Year 2000 should not have a significant impact on the business, financial
condition and results of operations. The Company also relies, directly and
indirectly, on external systems of business enterprises such as customers,
suppliers, creditors and financial organizations, and of governmental entities,
both domestic and international, for accurate exchange of data. Even if the
internal systems of the Company are not materially affected by the Year 2000
problem, the Company could be affected through disruptions in the operation of
the enterprises with which the Company interacts. Other than seeking
representations and assurances, the Company has not made an assessment as to
whether any of its customers, suppliers or service providers will be affected by
the date change. The Company's business, financial condition and results of
operations may be adversely affected should the Company customers', suppliers'
or service providers' efforts to address the Year 2000 problem prove to be
inadequate. Despite the Company's efforts to address the Year 2000 impact on its
internal systems and business operations, there can be no assurance that such
impact will not result in a material disruption of its business or have a
material adverse effect on the Company's business, financial condition and
results of operations.

20








DEPENDENCE ON KEY PERSONNEL

The Company's future success depends to a significant extent on the
continued service of its key technical and management personnel and on its
ability to continue to attract and retain qualified employees, particularly
those highly skilled design, process and test engineers involved in the
development of mixed signal products and processes. The competition for such
personnel is intense. The loss of the services of the Company's employees or the
Company's failure to attract, retain and motivate qualified personnel could have
a material adverse effect on the Company's business, financial condition or
results of operations. The Company does not have any employment agreements with
its employees other than its President and Chief Executive.

INTELLECTUAL PROPERTY PROTECTION

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

INTELLECTUAL PROPERTY CLAIMS

The segment of the telecommunications market that includes the Company's
products has been characterized by extensive litigation regarding patents and
other intellectual property rights. As is common in the telecommunications
industry, the Company has been in the past and may in the future be notified of
claims that its products or services are subject to patents or other proprietary
rights of third parties. Although the Company attempts to ensure that its
products and processes do not infringe such third-party patents or proprietary
rights, there can be no assurance that infringement or invalidity claims (or
claims for indemnification resulting from infringement claims) will not be
asserted or prosecuted against the Company. Periodically, the Company negotiates
with third parties to establish patent license or cross-license agreements, and
the Company is currently in such negotiations. There can be no assurance that
current or future negotiations will result in the Company obtaining a license on
satisfactory terms or at all. Moreover, license agreements with third parties
may not include all intellectual property rights that may be issued to or owned
by the licensors, and thus future disputes with these companies are possible. In
the event an intellectual property dispute is not settled through a license,
litigation could result. Any litigation or interference proceedings could result
in substantial expense to the Company and significant diversion of effort by the
Company's technical and managerial personnel. An adverse determination in such
litigation or proceeding could prevent the Company from making, using or selling
certain of its products and subject the Company to damage assessments, all of
which could have a material adverse effect on the Company's business, financial
condition and results of operations.

21








ACQUISITIONS

Since 1996, the Company has made strategic acquisitions. In the future,
the Company may make further strategic acquisitions and investments or enter
into joint ventures or strategic alliances with other companies. Such
transactions entail many risks, including the following: inability to integrate
successfully such companies' personnel and businesses; inability to realize
anticipated synergies, economies of scale or other value associated with such
transactions; diversion of management's attention and disruption of the
Company's ongoing business; inability to retain key technical and managerial
personnel; inability to establish and maintain uniform standards, controls,
procedures and policies; and impairment of relationships with employees and
customers as a result of the integration of new personnel. In addition, future
acquisitions or investments by the Company may result in the issuance of
additional equity or debt securities, significant borrowings, significant
one-time write-offs and the creation of goodwill or other intangible assets.
Failure to avoid these or other risks associated with such business
combinations, investments, joint ventures or strategic alliances could have a
material adverse effect on the Company's business, financial condition and
results of operations.

OTHER FACTORS

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

ITEM 2. PROPERTIES

Mitel owns and operates two facilities in Canada: one in Bromont, Quebec,
Canada, totaling 107,000 square feet ("sf"), used for semiconductor
manufacturing and one in Kanata, Ontario, Canada, totaling 641,000 sf. The
Kanata facility consists of four interconnected buildings: one building totaling
160,000 sf used for manufacturing and three buildings totaling 481,000 sf used
for administration, R&D, integrated circuit design and testing. Mitel also
leases a 45,500 sf building in Kanata, Ontario, Canada, that is used for R&D.

The Company occupies 62,000 sf of leased space in Ogdensburg, New York,
United States, that is used for manufacturing.

The Company leases and operates 64 regional facilities, totaling 297,600
sf, primarily dedicated to sales and distribution, service, warehousing and
customer training. A geographical breakdown of these facilities is as follows:
Canada, nine locations totaling 26,000 sf; United States, 41 locations totaling
205,000 sf; United Kingdom, nine locations totaling 48,000 sf; Germany, one
location totaling 600 sf; Japan, one location totaling 1,000 sf; Hong Kong, two
locations totaling 12,400 sf ; and Singapore, one location totaling 4,600 sf.

The Company owns and operates four facilities in the United Kingdom: one
in Portskewett, Wales, United Kingdom, totaling 279,000 sf, that is used for
hybrid ICs and systems manufacturing and administration; one in Swindon totaling
168,000 sf used for wafer fabrication, design, sales and administration; one in
Lincoln totaling 181,000 sf used for wafer fabrication, test and design; and one
in Plymouth totaling 200,000 sf used for wafer fabrication and design. The
Company also owns a 333,000 sf building in Jarfalla, Sweden, that is used for
semiconductor manufacturing, R&D and administration.

Mitel also leases five facilities in the United Kingdom totaling 146,000
sf used primarily for design and administration and a further 14 facilities
worldwide totaling 107,700 sf: six in the United States totaling 78,000 sf used
for design, sales and administration; two in France totaling 13,300 sf; one in
Italy totaling 2,300 sf; one in Germany totaling 5,300 sf; one in Japan totaling
3,000 sf; one in Singapore totaling 1,600 sf; one in Korea totaling 2,100 sf;
and one in Taiwan totaling 1,500 sf. Several of these leased facilities are
currently in the process of being closed and their operations transferred to
other Mitel offices due to identified redundancies.

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

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

ITEM 3. LEGAL PROCEEDINGS

Mitel is a defendant in a number of lawsuits and party to a number of
other proceedings that have arisen in the normal course of its business. In the
opinion of the Company's in-house legal counsel, any monetary liability or
financial impact of

22








such lawsuits and proceedings to which Mitel might be subject after final
adjudication would not be material to the consolidated financial position of the
Company or the results of its operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

23







PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

COMMON SHARE INFORMATION

PRINCIPAL MARKETS

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

Toronto Stock Exchange

(Canadian Dollars)

1998 1997
--------------------- ---------------------
High Low High Low
--------------------- ---------------------

1st Quarter $ 8.2000 $ 6.6000 $10.0000 $ 8.3000
2nd Quarter $10.9500 $ 7.1000 $ 9.6000 $ 7.7500
3rd Quarter $13.0000 $10.0000 $ 9.6500 $ 8.5000
4th Quarter $19.2000 $10.5500 $10.8500 $ 6.7500


New York Stock Exchange

(U.S. Dollars)

1998 1997
--------------------- ---------------------
High Low High Low
--------------------- ---------------------

1st Quarter $ 6.0000 $ 4.7500 $ 7.3750 $ 6.1250
2nd Quarter $ 7.9375 $ 5.1875 $ 6.8750 $ 5.7500
3rd Quarter $ 9.3125 $ 7.1250 $ 7.2500 $ 6.2500
4th Quarter $13.5000 $ 7.3125 $ 8.1250 $ 4.6250


SHAREHOLDERS

There were 5,101 common shareholders of record as at May 7, 1998.

DIVIDEND POLICY

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

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

Pursuant to the terms of the credit agreement described in Note 9 of the
notes to the consolidated financial statements, the Company is required to
maintain a minimum net worth, thereby limiting the amount of dividends that
could be paid out. The

24





dividend on the Preferred Shares--R&D Series does not violate this covenant.
Since the Company does not anticipate any dividends on its common shares, the
covenant is not expected to have an impact on the dividend policy.

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

ITEM 6. SELECTED FINANCIAL DATA

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

The following table is derived from the consolidated financial statements
included elsewhere in this Form 10-K, which have been prepared in accordance
with accounting principles generally accepted in Canada (Canadian GAAP). These
principles also conform, in all material respects, with accounting principles
generally accepted in the United States (U.S. GAAP), and the requirements of the
Untied States Securities and Exchange Commission ("SEC"), except as more fully
described in Note 22 of the notes to the consolidated financial statements.



Fiscal Year Ended March
(at the end of fiscal year for balance sheet data)
-----------------------------------------------------------------
CANADIAN GAAP 1998 1997 1996 1995 1994
-----------------------------------------------------------------

Income Statement Data:
Revenue $ 888.5 $695.5 $576.4 $589.4 $496.4
Gross margin percentage 51% 50% 49% 45% 44%
Gross research and development expense 92.4 61.5 46.5 44.9 37.1
Operating income 124.4 51.4 57.7 28.3 22.0
Net income 91.9 38.0 51.0 31.8 20.7
Net income per common share 0.82 0.32 0.45 0.27 0.16
Weighted average common shares outstanding 107.8 107.3 105.9 105.6 105.1

Balance Sheet Data:
Working capital $ 245.9 $206.3 $210.3 $208.4 $174.2
Total assets 1,237.7 584.8 517.1 440.6 376.4
Current portion of long-term debt 40.3 14.8 11.2 9.0 3.9
Long-term debt 379.6 43.0 39.6 34.5 27.8
Pension liability 12.2 11.3 12.1 - -
Shareholders' equity
(including redeemable preferred shares) 435.5 339.5 302.8 263.0 231.7





Fiscal Year Ended March
(at the end of fiscal year for balance sheet data)
-----------------------------------------------------------------
U.S. GAAP AND SEC REQUIREMENTS 1998 1997 1996 1995 1994
-----------------------------------------------------------------

Income Statement Data:
Net income $ 89.9 $ 41.0 $ 56.9 $ 59.0 $ 18.4
Net income per common share 0.80 0.35 0.51 0.53 0.14
Weighted average common shares outstanding 107.8 107.3 105.9 105.6 105.1


25







Balance Sheet Data:
Working capital $ 263.9 $ 208.4 $ 213.5 $ 205.8 $ 172.4
Total assets 1,235.7 595.0 517.1 440.6 376.4
Current portion of long-term debt 40.3 14.8 11.2 9.0 3.9
Long-term debt 379.6 43.0 39.6 34.5 27.8
Long-term obligation under research
and development contract - - - - 28.1
Pension liability 12.2 11.3 12.1 - -
Redeemable preferred shares 34.4 34.4 34.4 35.8 37.8
Shareholders' equity
Common shares 603.2 599.2 596.5 595.6 595.2
Contributed surplus 2.5 2.5 2.5 2.6 2.7
Deficit (206.2) (292.9) (330.7) (384.3) (439.6)
Translation 5.8 2.5 3.3 10.6 5.7



ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

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

Mitel's revenue reached a record high in Fiscal 1998 due to strong
performances in each of the core businesses and recent acquisitions. Total
revenue grew by 28% to $888.5 in Fiscal 1998 from $695.5 in Fiscal 1997. By
business group, Semiconductor revenue grew by 46% and Business Communications
Systems revenue was up 20% from the previous year. The Semiconductor growth rate
was mainly attributable to increased shipments of integrated and hybrid circuits
and to the consolidation of Plessey which was acquired on February 12, 1998. The
BCS revenue growth was driven by higher sales volumes of PBX systems, telephone
sets and new convergent systems and by increased service revenue.

The Company reported record net income of $91.9, or $0.82 per share, for
the year ended March 27, 1998, an improvement of $53.9, or $0.50 per share, over
Fiscal 1997. Fiscal 1997 net income was $38.0, or $0.32 per share, after
deducting a fourth quarter restructuring and other charge of $13.0, or $0.12 per
share. Primary drivers behind the improvement were the higher sales volumes and
lower expenses as a percentage of sales resulting from actions taken to focus
operations and improve the sales channels. Net income also benefitted from an
accrual for investment tax credits ("ITCs") amounting to $18.0, or $0.17 per
share, which relate to ITCs expected to be realized in the foreseeable future.
There was no such corresponding item or amount in Fiscal 1997. Fiscal 1998
earnings per share were reduced by $0.04 per share, after interest and tax, due
to the consolidation of Plessey which was acquired mid-way through the fourth
quarter. Net income for the three fiscal years ended March 27, 1998, March 28,
1997 and March 29, 1996 as determined by U.S. accounting principles is detailed
in Note 22 to the consolidated financial statements.

During Fiscal 1998, the Company completed two acquisitions as well as two
others shortly after its Fiscal 1998 year-end. On February 12, 1998, the Company
acquired all of the capital stock of four affiliated entities, which together
with their respective subsidiaries comprise Plessey, from The General Electric
Company plc for U.S.$225.0 in cash. Plessey is an international semiconductor
company focused primarily on telecommunications and media applications.
Management believes the combined semiconductor business will rank Mitel among
the major networking and telecommunications semiconductor companies in the world
with a diverse product offering and advanced technology expertise along with the
ability to produce bipolar, Complementary Metal Oxide Semiconductor (CMOS) and
optoelectronic components. The BCS portfolio was strengthened on August 8, 1997
with the acquisition of the assets and remote access technology business of
Gandalf for $21.6 in cash. Gandalf's products facilitate, in a cost-effective
manner, high volume data and voice communications between the corporate office,
local branches, teleworkers and agents in the field. In addition, on May 8,
1998, the Company acquired the Customer Premises Equipment Business Unit of
Centigram for U.S.$22.0 in cash. Certain working capital assets related to that
business were also purchased by Mitel for U.S.$4.8 in cash. The acquisition will
complement Mitel's BCS communications portfolio with voice messaging solutions
to meet increasing customer demand for voicemail and unified messaging
solutions. On May 19, 1998, the Company acquired the products, technology,
research and development facilities and sales and marketing organization of
Glasgow-based TSc for $8.0 in cash. The acquisition enhances Mitel's product
portfolio with ISDN business

26





products for the small-to-medium enterprise market. TSc was formed in February,
1996 following a management buy-out of the former Philips Business
Communications Systems plant in Scotland. TSc was in receivership at the time of
the acquisition.

The following discussion and analysis explains trends in the Company's
financial condition and results of operations for the year ended March 27, 1998
compared with the two previous fiscal years, and is intended to help
shareholders and other readers understand the dynamics of the Company's business
and the key factors underlying its financial results. Certain statements in this
management's discussion and analysis constitute forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties, and
other factors which may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from any future
results, performance, or achievements expressed or implied by such
forward-looking statements. Such risks, uncertainties and assumptions include,
among others, the following: general economic and business conditions;
demographic changes; import protection and regulation; rapid technology
development and changes; timing of product introductions; the mix of products
and services; industry competition, industry capacity and other industry trends;
and the ability of the Company to attract and retain key employees. The
consolidated financial statements, notes to the consolidated financial
statements and supplementary information constitute an integral part of and
should be read in conjunction with this management's discussion and analysis.
Readers may wish to make reference to the glossary of terms contained in Annex A
of this Annual Report on Form 10-K to assist in their understanding of this
discussion.

RESULTS OF OPERATIONS

Mitel's business is global and comprises the design, manufacture and sale
of semiconductors, subsystems and systems to world markets in the communications
industries. These products and related services include integrated circuits for
wired and wireless applications, applications-specific integrated circuits,
optoelectronic devices and custom silicon wafers; voice communications systems;
networked voice and data systems, CTI systems and applications;
telephony-enabled servers; public switching systems; and alternate network and
remote access products.

The Company sells its products through both direct and indirect channels
of distribution. Factors affecting the choice of distribution, among others,
include: end-customer type, the level of product complexity and integration
requirements, the stage of product introduction, geographic presence, location
of markets and volume levels.

REVENUE

Revenue during the last three fiscal years, based on the geographic
location of Mitel's customers, was distributed as follows:

Fiscal Year Ended March
-------------------------------
1998 1997 1996
------ ------ ------
United States $404.1 $312.6 $271.7
Europe $293.7 $228.8 $173.1
Other Regions $137.0 $104.1 $ 85.4
Canada $ 53.7 $ 50.0 $ 46.2

$888.5 $695.5 $576.4

For the year ended March 27, 1998, the net movement in exchange rates from
Fiscal 1997 favorably impacted total revenue by 3% ($19.4) primarily as a result
of changes in the U.K. pound sterling and U.S. dollar exchange rates. Fiscal
1997 revenue was favorably impacted by 0.3% ($2.3) as a result of changes in the
U.S. dollar and U.K. pound sterling exchange rates.

SEMICONDUCTORS

Semiconductors comprise integrated circuits for wired and wireless
applications, ASICs, optoelectronic devices and custom silicon wafers. As a
percentage of total revenue, semiconductors accounted for 36%, 32% and 21%,
respectively, in Fiscal 1998, Fiscal 1997 and Fiscal 1996.

27






Fiscal Year Ended March
-------------------------------
1998 1997 1996
------ ------ ------

Semiconductor Revenue $321.7 $221.0 $120.9


Semiconductor revenue in Fiscal 1998 increased by 46% from Fiscal 1997 as
a result of increased demand for the Company's integrated circuits and thick
film hybrid products, primarily in the U.S. and Asia Pacific regions, and the
effects of consolidating recently-acquired Plessey mid-way through the fourth
quarter. Excluding the Plessey acquisition, the increase in Mitel's
semiconductor revenue reflected the world-wide growth in the communications
segment of the semiconductor industry and growth in the market for ASICs,
particularly for medical applications. Technological advances and increasingly
complex end user requirements affecting telecom and datacom networks have
stimulated the demand for Mitel's wired communication components and ASICs.

In recent years, the strong demand in global communications markets caused
Mitel's principal semiconductor operations to reach capacity. The Company took
major steps in Fiscal 1996 to expand its production capacity through both the
acquisition of Mitel Semiconductor AB, formerly ABB Hafo AB, which has a
semiconductor plant in Jarfalla, Sweden, and a major capital expansion program
at its fabrication plant in Bromont, Quebec, Canada. Both initiatives were
necessary to meet the growing demand for Mitel's integrated circuits. The most
significant part of the first phase of the Bromont expansion program, which
increased the volume capacity of the existing 100 mm wafer production, was
completed during the first quarter of Fiscal 1997. The second part of the first
phase, which introduced new 0.8 micron technology, as well as the second phase,
which increased the plant's production capacity by converting to 150 mm wafer
production, was substantially completed in the fourth quarter of Fiscal 1998.
The acquisition of Plessey also provides the Company with significantly more
manufacturing capacity.

Management believes the Plessey acquisition significantly enhances the
Company's operations, technologies and product portfolio. In particular, Plessey
provides a strong customer base and expanded geographic presence, enhanced
research and development capability, expanded manufacturing capabilities and a
diverse and complementary product offering. Plessey brings to Mitel a strong
direct channel relationship with its customers. Technology expertise was
obtained in radio frequency and high-speed transmission for communications
applications; mixed-signal, high-frequency and high-speed transmission for
communications and ASICs markets; and gate-array and reduced instruction set
computer processor technologies. The manufacturing capability principally
includes two semiconductor fabrication facilities, a leading-edge 150 mm bipolar
facility in Swindon, England and a high performance 200 mm CMOS facility in
Plymouth, England, which uses 0.35 micron technology. The product portfolio
encompasses ASIC components, wireless applications and mass optical storage and
networking (fast ethernet) products, complemented by systems level integration
expertise for custom solutions. At the time of the acquisition, the Plessey
group had annualized sales of approximately U.S. $275.0 and was incurring
losses. Management expects that Plessey will have a dilutive effect on the
Company's earnings in the first half of Fiscal 1999.

Fiscal 1997 semiconductor revenue increased over Fiscal 1996 by 83%
primarily as a result of the additional revenue from Mitel Semiconductor AB,
which was acquired at the end of Fiscal 1996, and increased demand for
integrated circuits, wafers and thick film hybrid products in all regions. On
October 23, 1996, the Company sold its non-strategic thermal print head
operation to a German distributor for a nominal amount.

BUSINESS COMMUNICATIONS SYSTEMS

Business Communications Systems comprise PBX and peripheral products, open
communications systems, applications, systems integration, the GX5000 public
switching system and alternate network and remote access products. All of the
Company's service revenue relates to BCS, primarily PBX.

28




Fiscal Year Ended March
-------------------------------
BCS Revenue 1998 1997 1996
------ ------ ------

Products $484.8 $404.0 $383.9
Service $ 82.0 $ 70.5 $ 71.6

$566.8 $474.5 $455.5


Compared to Fiscal 1997, BCS product revenue in Fiscal 1998 increased by
20%, from $404.0 to $484.8, due to higher sales volumes of SX-2000 and SX-200
systems, including the associated pull-through of system sets, incremental sales
of remote access products, new convergence system sales of networked voice and
data products and increased shipments of alternate network access products.

U.S. indirect channel sales benefitted from a strong North American
economy and the successful launch of the SX-200 ML late in the fourth quarter of
Fiscal 1997. The SX-200 ML voice system is aimed at the fast-growing small
business, under- 100 line, market in the United States and other countries. The
SX-200 ML was made available to the Company's U.S. supply houses and dealers and
selected Canadian and Caribbean telephone companies during the first quarter of
Fiscal 1998. U.S. direct channel sales benefitted from strong growth in the
installation of new systems as well as from upgrades in the existing customer
base.

With respect to Europe, sales increased in Fiscal 1998 as a result of
recently deregulated network access services in the U.K., which created a strong
demand by alternate carriers for Mitel's alternate network access products.
European PBX sales also increased on system upgrades sold to the installed base.

BCS sales into the Asia Pacific region continue to be adversely affected
by the ongoing effects of weakened economies and intense price competition in
that region. Management believes this trend will continue for the foreseeable
future without a significant impact on the Company's results of operations.

In proportion to total revenue, BCS service revenue remained steady at
approximately 10% of total revenue. Service revenue grew mainly due to the
managed service business in the U.K., where telecom product-related services are
channeled through outsourcing companies. The program was introduced in the
second half of Fiscal 1997.

Fiscal 1997 BCS revenue increased by 4% to $474.5 from Fiscal 1996's
revenue of $455.5. The revenue growth was due to increased demand for alternate
network access products, improved sales of CTI applications and higher SX-2000
sales through the U.S. indirect channel. European and U.S. markets were
characterized by intense pricing pressures resulting from competitive
conditions, which constrained the rate of revenue growth.

GROSS MARGIN

As a percentage of total revenue, total gross margin was 51% in Fiscal
1998, 50% in Fiscal 1997 and 49% in Fiscal 1996. The product gross margin was
52% in Fiscal 1998, equal to Fiscal 1997 and one percentage point higher than in
Fiscal 1996. The product gross margin remained stable with the positive impact
of higher sales volumes of BCS and semiconductor products offsetting lower
average prices in certain BCS products. The service gross margin improved to 37%
for the year ended March 27, 1998, an improvement of four and one percentage
points over Fiscal 1997 and Fiscal 1996, respectively. The service gross margin
improvement was due to service call efficiencies and better technician
utilization resulting from higher system sales in North America. Fiscal 1996
service gross margin included a benefit from the sale and transfer of certain
U.K. maintenance contracts to Bailey Telecom Limited.

OPERATING EXPENSES

SELLING AND ADMINISTRATIVE

Selling and administrative ("S&A") expenses in Fiscal 1998 were $231.8, or
26% of sales, compared with $208.4, or 30% of sales, in Fiscal 1997. In Fiscal
1996, S&A expenses were $172.2, and also 30% of sales. S&A expenses decreased as
a

29





percentage of sales primarily due to strong revenue growth, spending restraints
applied to marketing programs, higher efficiencies and focus in the sales
channels and reduced corporate overhead costs. The improvement was partially
offset by the effects of consolidating recently-acquired businesses. The Company
acquired the business and assets of Global Village, an ISDN solution provider
based in the United Kingdom, during the fourth quarter of Fiscal 1997. The
technology business of Gandalf was acquired on August 8, 1997, and Plessey was
acquired on February 12, 1998.

Fiscal 1997 S&A expenses increased over Fiscal 1996 primarily due to the
inclusion of the results of operations of Mitel Semiconductor AB. In addition,
higher costs associated with new marketing initiatives and product launches and
increased product support costs contributed to the increase over Fiscal 1996.
The marketing-related costs included increased trade show activity, new
corporate communications material, course development for dealers and
end-customers and an increase in personnel.

RESEARCH AND DEVELOPMENT

Research and Development ("R&D") expenses amounted to $84.5, or 10% of
revenue, for Fiscal 1998. This compares to $56.5 and $42.7, or 8% and 7% of
revenue, in Fiscal 1997 and Fiscal 1996, respectively. These amounts are
exclusive of related R&D amortization and net of Canadian federal government R&D
incentives earned. R&D increased, in part, due to the inclusion of Plessey's
results of operations from February 12, 1998 where R&D as a percentage of sales
was higher than the Company's average and to other increases in Mitel
Semiconductor.


Fiscal Year Ended March
-------------------------------
1998 1997 1996
------ ------ ------

R&D Expense $ 84.5 $ 56.5 $ 42.7


Mitel's R&D program consists of upgrade initiatives for existing products
as well as research and development work in emerging technologies including,
among others, the following: CTI; multimedia components and applications;
networked voice and data; client server telecom; remote access; new ISDN
applications; and microelectronic components for real-time applications in the
communications, media and medical industries.

INVESTMENT TAX CREDITS

The Company earns ITCs in its Canadian operations. ITCs are credits
related to specific qualifying expenditures that are prescribed by Canadian tax
legislation. In Mitel's case, these ITCs relate primarily to research and
development expenses. The ITCs are recorded only when the enterprise has made
the qualifying expenditures, provided there is reasonable assurance that the
benefits will be realized. When the ITCs are not accrued in the year in which
the qualifying expenditures are made because there is no reasonable assurance
that the credits will be realized, such credits are accrued in a subsequent year
when reasonable assurance of realization is first obtained.

The Company separately recorded Canadian ITCs related to prior years' R&D
amounting to $40.3 in Fiscal 1998, $11.7 in Fiscal 1997, and $7.7 in Fiscal
1996. The ITC accrual was comprised of two components in Fiscal 1998. The first
component amounted to $22.3 which related to ITCs that were realized for tax
purposes in the same year. The benefit of recording these ITCs was mostly offset
by a corresponding increase in tax expense to result in an insignificant impact
to net earnings. In the respective comparative periods of Fiscal 1997 and Fiscal
1996, the total ITCs recorded by the Company related to this tax realization
principle. The second component of the Fiscal 1998 accrual amounted to $18.0, or
$0.17 per share, and related to management's assessment that reasonable
assurance exists for accruing the benefit of ITCs expected to be realized for
tax purposes in the foreseeable future. The reasonable assurance is derived from
management's assessment that there is sufficient evidence of profitability in
the near future from operations in which these carryforwards arose.

RESTRUCTURING AND OTHER CHARGES

During the fourth quarter of Fiscal 1997, the Company announced plans to
restructure its BCS operations in light of the competitive conditions in the
market place and the need to curtail certain non-profitable activities. A total
charge of $13.0 was recorded and included a $5.0 write-off of the Company's
investment in Tianchi-Mitel Telecommunications Corporation, the Company's joint
venture in China. The remaining $8.0 was provided for severance costs related to
BCS operations in North

30




America and the United Kingdom. Focus was also placed on streamlining the
distribution channels and reducing corporate expenses. The restructuring also
resulted in the decision to curtail further development of the Company's
RADICALL product due to insufficient sales made to the Regional Bell Operating
Companies and public network operators in the United States.

During the year ended March 27, 1998, restructuring charges amounting to
$6.9 were charged to the provision; actions and charges related to the remaining
provision of $1.1 will be substantially completed during Fiscal 1999.

AMORTIZATION

Amortization increased in Fiscal 1998 to $50.8 from $33.5 in Fiscal 1997
and $19.2 in Fiscal 1996. The increase is due primarily to the semiconductor
capacity expansion capital program in Bromont, replacements and upgrades to the
Company's other manufacturing plants and the inclusion of Plessey's results of
operations from February 12, 1998 to March 27, 1998. The increase in Fiscal 1997
over Fiscal 1996 resulted from the Bromont capital program and the inclusion of
Mitel Semiconductor AB's results of operations.

INVESTMENT AND INTEREST INCOME

Investment and interest income was $5.7 in Fiscal 1998 as compared to $9.6
in Fiscal 1997 and $10.0 in Fiscal 1996. The decrease from the prior year was
due to a gain realized in Fiscal 1997 from the sale of a non-strategic
investment in Esprit Telecom (Jersey) Ltd. Esprit was sold for cash proceeds of
$3.7, representing a total gain of $3.6, or $2.4 after-tax. Interest income was
otherwise flat between Fiscal 1998 and Fiscal 1997 due to stable cash balances,
but less than in Fiscal 1996 due to lower interest rates.

INTEREST EXPENSE

Interest expense was $7.7 for Fiscal 1998 compared to $2.4 and $1.7 for
Fiscal 1997 and Fiscal 1996, respectively. The increase in interest expense over
prior years resulted from an increase in the Company's capital leases and from
interest on the term loan indebtedness incurred by the Company on February 12,
1998 in connection with the Plessey acquisition. Interest expense also includes
the proportionate amortization of capitalized debt issue costs associated with
the term loans. The unamortized balance of $10.6 in debt issue costs is included
in other intangible capital assets on the balance sheet.

INCOME TAXES

Income tax expense for Fiscal 1998 was $30.5 compared to $20.6 and $15.0
for Fiscal 1997 and Fiscal 1996, respectively. Before accounting for the ITCs,
income tax expense for Fiscal 1998 was $8.2 compared to $8.9 and $7.3 in Fiscal
1997 and Fiscal 1996, respectively. The effective income tax rate, before
accounting for the ITCs and as a percentage of pre-tax income, was 8%, 16% and
13% in Fiscal 1998, Fiscal 1997 and Fiscal 1996, respectively. The lower
effective tax rate through Fiscal 1998 was due to a lower U.K. group tax
position, partially offset by higher provincial income taxes in Canada. The
Fiscal 1997 effective tax rate was higher than in Fiscal 1996 due to the sale of
an investment in Esprit.

Management periodically reviews the virtual certainty or reasonable
assurance, as applicable, of realizing the loss and ITC carryforward and timing
difference benefits in the determination of their accounting recognition. Such
review may result in the recording of the accounting benefit for these timing
differences and investment tax credit carryforwards, as the circumstances
warrant, and the recognition of loss carryforwards, as realized. Management
believes there is sufficient evidence of expected profitability from the
Company's Canadian operations in the foreseeable future to provide reasonable
assurance for accruing a future benefit of $18.0 related to ITCs. The accounting
for the ITCs is more fully described in the investment tax credit section of
this management's discussion and analysis.

YEAR 2000

The Year 2000 problem is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer systems and products that have date-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices or engage in similar normal business activities.
Management has formed a Year 2000 Compliance Project and Program Office to
establish and ensure Mitel's compliance with what is commonly known as the "Year
2000 problem." In addition, consultants were engaged to assist with a
comprehensive review of the Company's state of readiness and to assist with any
necessary remedial

31




plans for the Year 2000 date change. This review encompassed supporting
information technology systems, product lines and business supply chain systems
and infrastructure. Management presently believes that with modifications to the
Company's existing software and conversions to new software, the Year 2000
problem can be mitigated. However, if such modifications and conversions are not
made, or are not completed on a timely basis, the Year 2000 problem could have a
material adverse effect on the Company's business, financial condition and
results of operations. Management further believes that the cost of either
repairing or replacing certain business systems to ensure business continuance
beyond Year 2000 should not have a significant impact on the results of
operations. Other than seeking representations and assurances, the Company has
not made an assessment as to whether any of its customers, suppliers or service
providers will be affected by the date change. The Company's business, financial
condition and results of operations may be adversely impacted should the
Company's customers', suppliers' or service providers' efforts to address the
Year 2000 issue prove to be inadequate.

OTHER

The Asia Pacific region encountered unstable local economies and
significant devaluation in its currencies during Fiscal 1998. This region
represented 11% of the Company's revenue for the year ended March 27, 1998 and
10% of revenue in Fiscal 1997. The majority of the Asia Pacific sales relate to
semiconductor operations which have continued to grow in Fiscal 1998. Asia
Pacific receivables, net of reserves, were approximately 1% of the Company's
total assets at March 27, 1998. To the extent the Asia Pacific region grows in
importance to the Company, or the factors affecting the region begin to
adversely affect customers in other geographic locations, the Company's
business, operating results and financial condition could be adversely affected.

Management periodically evaluates the financial and operational
independence of its foreign operations and the resulting accounting
classification of the foreign subsidiaries as self-sustaining enterprises.
Should a foreign subsidiary cease to be classified as self-sustaining, then
translation gains or losses on consolidating the foreign subsidiary's financial
statements would be charged to operating income instead of a separate component
of shareholders' equity.

The Company manages foreign currency risk by protecting the estimated
future currency cash flows of each operating division, and certain significant
transactions, from adverse foreign exchange fluctuations. The Company does not
engage in a trading or speculative hedging program. Interest rate risk is
managed by entering into interest rate swap contracts.

The Company believes that inflation has not had a material impact on
revenues and costs during the last three fiscal years.

BACKLOG

As orders are frequently booked and shipped within the same fiscal month,
order backlog is not necessarily indicative of a sales outlook for the month,
quarter or year. This is most true for the Company's business communications
systems since manufacturing lead times for semiconductor products are generally
longer because of the nature of the production process. At March 27, 1998, order
backlog was $279.5 compared to $135.1 at March 28, 1997. The increase in backlog
was mostly attributable to the acquisition of Plessey in the fourth quarter and
to increased BCS bookings. Most of the backlog is scheduled for delivery in the
next 12 months.


Fiscal Year Ended March
-------------------------------
1998 1997 1996
------ ------ ------

Backlog $279.5 $135.1 $138.8


The decrease in backlog at the end of Fiscal 1997 was mainly due to the
sale of the thermal print head business in the third quarter of that year.

LIQUIDITY AND CAPITAL RESOURCES

The Company had cash and short-term investment balances of $151.7 at March
27, 1998 compared to $143.3 at March 28, 1997. The increase of $8.4 was mainly
due to cash flow provided by operations partially offset by the acquisition of
Gandalf and fixed asset additions during the year. The acquisition of Plessey
was financed by means of senior secured credit facilities. With the
consolidation of Plessey, the Company's balance sheet reflected a significant
increase in total assets from $584.8 at the end of Fiscal 1997 to $1,237.7 at
the end of Fiscal 1998.

32




Cash flow provided by operations amounted to $75.4 during Fiscal 1998
compared to $66.1 in Fiscal 1997. Since March 28, 1997, the Company's working
capital, as reflected in the consolidated statements of cash flows, increased by
$50.2 primarily due to increased accounts receivable on higher fourth quarter
BCS sales and to higher inventory levels necessary to support the growth in the
business. The Company maintains a minimum of critical inventory to ensure
continuity of supply for its manufacturing requirements. Most of the security
supply inventory is carried at the Company's semiconductor plants.

Fixed asset additions were $53.6 during Fiscal 1998. The additions were
primarily related to semiconductor manufacturing capacity and technology
enhancements as well as continuing improvements to the Company's information
technology resources. The Bromont semiconductor capacity expansion program is
comprised of two phases as described earlier in this management's discussion and
analysis. Phase one, which was substantially completed in the second quarter of
Fiscal 1998, cost approximately $8.6. The total cost of phase two is expected to
be $44.2. At the end of Fiscal 1998, approximately $38.8 was spent on the phase
two project. Management expects that Fiscal 1999 capital expenditures will
increase due to normal capital replacement programs and to the effect of
consolidating recently acquired operations for a full fiscal year.

Other capital assets increased in Fiscal 1998 primarily due to the
acquisition of Gandalf on August 8, 1997. Purchased R&D and other intangible
assets totaling $14.9 was recorded for the excess of the purchase price over the
fair value of the assets acquired. The purchased intangible assets will be
amortized over a period of ten years. In addition, other capital assets
increased due to the deferral of debt issue costs of $10.9 which were incurred
with the financing of the Plessey acquisition. These costs will be amortized
over the life of the related debt which ranges from five to six years.

During Fiscal 1998, certain land in Kanata previously held for resale with
a carrying value of $1.5 was reclassified to fixed assets. Management intends to
hold the land to meet future requirements. On June 27, 1997, the Company sold
the Boca Raton facility which was previously held as an asset for resale. The
proceeds from the sale, which amounted to $6.6, were used to retire the Florida
industrial revenue and development bonds of $4.1, for which the facility was
pledged as security.

Total long-term debt, net of repayments, increased by $362.1 from the end
of Fiscal 1997 due to two senior secured term loan facilities used to finance
the Plessey acquisition and which together amounted to U.S.$235.0. In addition,
the Company continued to finance a portion of its fixed asset additions through
capital leases. These increases were partially offset by the repayment of the
Florida industrial revenue bonds on July 3, 1997.

The two term loans, respectively the AXELsSM* Series B loan and the
Tranche A Term Loan, were entered into with a syndicate of banks led by Goldman,
Sachs Credit Partners L.P. as the syndication agent and the Canadian Imperial
Bank of Commerce as the administrative agent. The AXELs Series B loan will be
repaid quarterly on a nominal basis with 95% of the original amount of
U.S.$150.0 due in December 2003. The Tranche A Term Loan will be repaid
quarterly on a graduated basis over five years and matures on February 2003. The
term loans are at a variable interest rate based on the lower of a defined base
rate or the London Inter Bank Offer Rate ("LIBOR") plus a premium. The Company
entered into an interest rate swap prior to year-end to fix the base interest
rate on a portion of each of the term loans. The interest rate swap is
considered to be an effective hedge of the variable interest rates on the term
loans. The Company is subject to certain restrictive covenants and commitments
and is required to maintain certain financial ratios for the purpose of ensuring
the Company's ability to meet its obligations under the credit agreement. The
Company is subject to certain mandatory prepayments in the event of asset sales
(other than inventory), equity offerings and debt issuances, certain insurance
proceeds and defined excess cash flow. Mandatory prepayments range from 75% to
100% of the net cash proceeds and would be paid on a pro-rata basis toward the
senior secured term loans. Management believes the Company is in compliance with
the obligations and restrictive covenants under the credit agreement.

The pension liability of $12.2 relates to the unfunded pension obligation
in Mitel Semiconductor AB. Under applicable Swedish law, companies are not
required to fund the pension obligation, but instead operate on a "pay as you
go" basis. The pension obligation is actuarially determined in accordance with
applicable laws and regulations in Sweden and is fully insured by a Swedish
regulatory agency.

As at March 27, 1998, the Company's capitalization was comprised of 49%
debt, 4% preferred equity, and 47% common equity. This compares to 17% debt, 9%
preferred equity and 74% common equity at the end of Fiscal 1997.

- --------
*AXEL is a registered service mark of Goldman, Sachs & Co.

33




In addition to cash and short-term investment balances of $151.7 as at
March 27, 1998, the Company has an unused revolving credit facility of
approximately $97.3 (U.S.$68.8). In accordance with Company policy, short-term
investment balances are primarily comprised of high-grade money market
instruments with original maturity dates of less than one year.

Management believes the Company is in a position to meet all foreseeable
business cash requirements and debt service from its cash balances on hand,
existing financing facilities and cash flow from operations.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

Auditors' Report to the Shareholders
Consolidated Balance Sheets as at March 27, 1998 and March 28, 1997
Consolidated Statements of Income and Retained Earnings for the years
ended March 27, 1998, March 28, 1997 and March 29, 1996
Consolidated Statements of Cash Flows for the years ended March 27, 1998,
March 28, 1997 and March 29, 1996
Notes to the Consolidated Financial Statements

AUDITORS' REPORT

To the Shareholders of Mitel Corporation:

We have audited the consolidated balance sheets of Mitel Corporation as at
March 27, 1998 and March 28, 1997 and the consolidated statements of income and
retained earnings and cash flows for each of the years in the three year period
ended March 27, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at March 27,
1998 and March 28, 1997 and the results of its operations and the changes in its
financial position for each of the years in the three year period ended March
27, 1998 in accordance with accounting principles generally accepted in Canada.

Ottawa, Canada /s/ Ernst & Young
May 7, 1998 Chartered Accountants

34




MITEL CORPORATION

(INCORPORATED UNDER THE LAWS OF CANADA)

CONSOLIDATED BALANCE SHEETS

(IN MILLIONS OF CANADIAN DOLLARS)



March 27, March 28,
1998 1997

ASSETS

Current assets:
Cash and short-term investments (Note 3) $ 151.7 $ 143.3
Accounts receivable (Notes 4 & 20) 288.0 156.7
Inventories (Note 5) 162.2 83.1
Prepaid expenses 19.8 4.2
Investment tax credits recoverable (Note 14) 7.5 -
---------------------------
629.2 387.3

Capital assets:
Fixed assets (Notes 6 & 9) 549.3 183.7
Other assets (Notes 7 & 9) 59.2 13.8
---------------------------

$1,237.7 $ 584.8
===========================

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable and accrued liabilities (Note 8) $ 290.7 $ 124.3
Income and other taxes payable 19.6 15.7
Deferred revenue 32.7 26.2
Current portion of long-term debt (Note 9) 40.3 14.8
---------------------------
383.3 181.0
Long-term debt (Note 9) 379.6 43.0
Pension liability (Note 23) 12.2 11.3
Deferred income taxes 27.1 10.0
---------------------------
802.2 245.3
---------------------------

Commitments and contingencies (Notes 10 & 11)

Shareholders' equity:
Capital stock (Note 12)
Preferred shares 37.2 37.2
Common shares (1998 - 108,394,631; 1997 - 107,414,631) 157.3 153.3
Contributed surplus (Note 12) 32.3 32.3
Retained earnings 202.9 114.2
Translation account (Note 13) 5.8 2.5
---------------------------
435.5 339.5
---------------------------
$ 1,237.7 $ 584.8
===========================


(See accompanying notes to the consolidated financial statements)

35






MITEL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN MILLIONS OF CANADIAN DOLLARS, EXCEPT PER SHARE AMOUNTS)




Years Ended
March 27, March 28, March 29,
1998 1997 1996

Revenue:

Products $806.5 $625.0 $504.8
Service 82.0 70.5 71.6
----------------------------------
888.5 695.5 576.4
----------------------------------
Cost of sales (excluding amortization):

Products 385.9 297.4 246.7
Service 51.4 47.0 45.6
----------------------------------
437.3 344.4 292.3
----------------------------------
Gross margin 451.2 351.1 284.1
----------------------------------

Expenses:
Selling and administrative 231.8 208.4 172.2
Research and development (Note 14) 84.5 56.5 42.7
Investment tax credits related to prior years'
research and development (Note 14) (40.3) (11.7) (7.7)
Restructuring and other charges (Note 15) - 13.0 -
Amortization 50.8 33.5 19.2
----------------------------------
326.8 299.7 226.4
----------------------------------

Operating income 124.4 51.4 57.7

Investment and interest income (Note 16) 5.7 9.6 10.0
Interest expense (Note 9) (7.7) (2.4) (1.7)
----------------------------------

Income before income taxes 122.4 58.6 66.0

Income tax expense (Note 17) 30.5 20.6 15.0
----------------------------------

Net income 91.9 38.0 51.0

Retained earnings, beginning of year 114.2 79.4 31.7
----------------------------------
206.1 117.4 82.7
Dividends on preferred shares 3.2 3.2 3.3
----------------------------------

Retained earnings, end of year $202.9 $114.2 $ 79.4
==================================

Net income attributable to common shareholders
after preferred share dividends $ 88.7 $ 34.8 $ 47.7
==================================

Net income per common share (Note 18):

Basic $ 0.82 $ 0.32 $ 0.45
==================================
Fully diluted $ 0.80 $ 0.32 $ 0.44
==================================

(See accompanying notes to the consolidated financial statements)

36




MITEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS OF CANADIAN DOLLARS)




Years Ended
March 27, March 28, March 29,
1998 1997 1996


CASH PROVIDED BY (USED IN)

Operating activities:
Net income $ 91.9 $ 38.0 $ 51.0
Restructuring and other charges - 5.3 -
Amortization 50.8 33.5 19.2
Investment tax credits (18.0) - -
Loss (gain) on sale of capital assets (0.7) (4.5) 0.2
Deferred income taxes 0.6 (0.2) 0.1
Change in pension liability 1.0 0.6 -
Increase in working capital (Note 25) (50.2) (6.6) (0.1)
----------------------------------

Total 75.4 66.1 70.4
----------------------------------

Investing activities:
Additions to capital assets (59.2) (73.9) (34.5)
Proceeds from disposal of capital assets 7.2 5.0 0.2
Acquisitions (Note 19) (343.8) (5.1) (43.5)
Net change in non-cash balances related to investing activities (0.2) 5.4 1.0
----------------------------------

Total (396.0) (68.6) (76.8)
----------------------------------

Financing activities:
Increase in long-term debt 364.3 40.7 18.2
Repayment of long-term debt (26.7) (34.1) (10.4)
Debt issue costs (10.9) - -
Repurchase and redemption of preferred shares (Note 12) - - (1.5)
Dividends on preferred shares (3.2) (3.2) (3.3)
Issue of common shares (Note 12) 4.0 2.7 0.9
Net change in non-cash balances related to financing activities - 0.8 -
----------------------------------

Total 327.5 6.9 3.9
----------------------------------

Effect of currency translation on cash 1.5 1.6 (1.8)
----------------------------------

Increase (decrease) in cash and short-term investments 8.4 6.0 (4.3)

Cash and short-term investments, beginning of year 143.3 137.3 141.6
----------------------------------

Cash and short-term investments, end of year $151.7 $143.3 $137.3
==================================

(See accompanying notes to the consolidated financial statements)

37





MITEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN MILLIONS OF CANADIAN DOLLARS, EXCEPT PER SHARE AMOUNTS)

1. NATURE OF OPERATIONS

Mitel is an international communications products supplier. The Company's
principal line of business is the manufacture and distribution of
communications microelectronic components, sub-systems and systems, and to
a lesser degree, based on revenue, the Company provides support services
in respect of products sold. The principal markets for the Company's
products are the United States, Europe, Canada and the Asia Pacific
region.

2. ACCOUNTING POLICIES

These consolidated financial statements have been prepared by management
in accordance with accounting principles generally accepted in Canada. A
reconciliation of amounts presented in accordance with United States
accounting principles is detailed in Note 22.

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

(A) FISCAL YEAR END

The Company's fiscal year end is the last Friday in March.

(B) BASIS OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company
and of its wholly-owned subsidiary companies. Investments in associated
companies, except for joint ventures, in which the Company has significant
influence are accounted for by the equity method. Investments in joint
ventures are accounted for by the proportionate consolidation method.

(C) CASH AND SHORT-TERM INVESTMENTS

Cash and short-term investments are valued at the lower of cost or market
value. The Company invests its excess cash in highly liquid low risk debt
instruments with terms of usually not greater than one year.

(D) INVENTORIES

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

(E) CAPITAL ASSETS

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

38





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

Assets Basis Rate
----------------------------------------------------------------------
Buildings Straight-line 4 %
Equipment Declining balance 20 - 30 %
Straight-line 10 - 33.3%
Patents and trademarks Straight-line 10 - 33.3%
Goodwill Straight-line 6.7 - 20 %
Purchased research and
development ("R&D") Straight-line 10 - 20 %
Deferred debt issue costs Straight-line 18 %


(F) FOREIGN CURRENCY TRANSLATION

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

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

(G) DERIVATIVE FINANCIAL INSTRUMENTS

The Company enters into foreign exchange contracts intended to hedge its
estimated net foreign currency cash requirements, and certain significant
transactions, generally over the ensuing twelve to eighteen months. The
Company does not engage in a trading or speculative hedging program. All
foreign exchange contracts are marked to market and the resulting gains
and losses are deferred and included in the measurement of the related
transactions when they occur.

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

(H) REVENUE RECOGNITION

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

(I) INCOME TAXES

Income taxes are accounted for using the deferred tax allocation method
under which the income tax provision is based on the income reported in
the accounts. Investment tax credits ("ITC") are taken into income on the
same basis as the related expenditures are charged to income provided the
Company expects the credits to be realized. Management periodically
reviews the virtual certainty or reasonable assurance, as applicable, of
realizing the loss and ITC carryforward and timing difference benefits in
the determination of their accounting recognition. Such review may result
in the recording of the accounting benefit for these timing differences
and ITC carryforwards, as the circumstances warrant, and the recognition
of loss carryforwards, as realized.

(J) DEVELOPMENT COSTS

The Company interprets the criteria for deferral of development costs on a
very stringent basis under which few, if any, costs qualify for deferment.
In the three years ended March 27, 1998, all development costs, except
development costs purchased in a business combination, were expensed as
incurred. Development costs purchased in a business combination are
capitalized and amortized over the remaining useful life of the technology
to which they relate. Management

39






periodically evaluates the realizability of the purchased development
costs based upon the expected future undiscounted cash flows of the
related assets.

3. CASH AND SHORT-TERM INVESTMENTS

Cash and short-term investments are carried at cost, which approximates
fair value. As at March 27, 1998, the Company had $99.3 (1997 - $116.9)
invested in short-term investments with maturity dates between March 30,
1998 and April 30, 1998 at rates of return extending from 3.78% to 6.875%.

4. ACCOUNTS RECEIVABLE

Included in accounts receivable was an allowance for doubtful accounts of
$10.2 (1997 - $9.8). Also included in accounts receivable was an amount of
$32.5 (1997 - $16.6 ) for unbilled accounts on long-term contracts. The
Company is exposed to normal credit risk from customers. However, the
Company's orientation is global with a large number of diverse customers
to minimize concentrations of credit risk. (See also Note 20.)

5. INVENTORIES

1998 1997
----------------------

Raw materials $ 53.4 $ 29.4
Work-in-process 60.3 26.9
Finished goods 48.5 26.8
----------------------
$162.2 $ 83.1
======================


6. FIXED ASSETS

1998 1997
----------------------
Cost:
Land $ 13.2 $ 6.0
Buildings 173.5 127.6
Equipment 514.4 207.8
Equipment under capital leases 130.1 79.9
----------------------
831.2 421.3
----------------------

Less accumulated amortization:
Buildings 71.0 65.7
Equipment 175.7 148.6
Equipment under capital leases 35.2 23.3
----------------------
281.9 237.6
----------------------
$549.3 $183.7
======================


7. OTHER ASSETS



1998 1997
----------------------
Cost:
Patents, trademarks, and other $ 21.3 $ 10.6
Other intangible assets 27.6 4.7
Investment tax credits recoverable 10.5 -
Assets held for resale - 5.9
Promissory note, at a rate of 10%, due in
March 2011 and against which a first deed
on a property was pledged as security. 10.3 -
----------------------
69.7 21.2
----------------------


3




Less accumulated amortization:
Patents, trademarks, and other 7.2 6.0
Other intangible assets 3.3 1.4
----------------------
10.5 7.4
----------------------
$ 59.2 $ 13.8
======================


- ------------------
(a) On June 27, 1997, the Company sold the Boca Raton facility which was held
as an asset for resale at March 28, 1997. The Company realized a gain and
other income of $1.8.

(b) On August 8, 1997, the Company purchased completed and in-process research
and development (R&D), trademarks and a trade name amounting to $14.9 in
connection with the purchase of the assets and technology of Gandalf
Technologies Inc. (see also Note 19). The purchased intangible assets will
be amortized over a period of ten years.

(c) On February 12, 1998, the Company entered into a credit agreement with a
syndicate of lenders for total debt facilities of U.S. $310.0 (see also
Note 9). The facilities were used to acquire the Plessey Semiconductors
Group ("Plessey") (see also Note 19) as well as to provide a line of
credit for general corporate purposes. The Company incurred $10.9 in
respect of associated debt issue costs. These costs were deferred and will
be amortized over the life of the debt.

(d) The fair value of the promissory note approximates its carrying value.

8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES


1998 1997
----------------------

Trade payables $ 82.2 $ 39.6
Restructuring and other provisions 59.3 12.6
Employee-related payables 36.4 22.8
Other accrued liabilities 112.8 49.3
----------------------
$290.7 $124.3
======================

9. LONG-TERM DEBT



1998 1997
-----------------------------

AXELs Series B, at a variable interest rate based on the lower of a defined base
rate or a successive three month LIBOR rate plus 2.25%; at March 27, 1998 the
effective interest rate was 8.25%, with quarterly installments beginning June
1998 and due December 2003 (1998 - U.S. $150.0; 1997 - U.S. $nil) $211.9 $ -

Tranche A Term Loan, at a variable interest rate based on the lower of a defined
base rate or a successive three month LIBOR rate plus 2.0%; at March 27, 1998
the effective interest rate was 8.00%; with quarterly installments beginning
June 1998 and due February 2003 (1998 - U.S. $85.0; 1997 - U.S. $nil) 119.7 -

Capital leases and other, at rates varying from 3.4% to 12.2% with payment terms
ranging from 3 to 5 years 84.5 51.6

Non-interest bearing 1996 Canada-Quebec government loan, repayable in three equal annual
installments commencing July, 2001 3.8 2.1

Florida industrial revenue and development bonds, at a rate of 8.375%, repaid during Fiscal
1998 (1997 - U.S. $3.0) - 4.1
-----------------------------
419.9 57.8
Less current portion 40.3 14.8
-----------------------------
$379.6 $ 43.0
=============================


41





During Fiscal 1998, the Company entered into a credit agreement in the
amount of U.S. $310.0 with Goldman Sachs Credit Partners L.P. ("GSCP"), as
advisor, arranger, lender, and syndication agent; certain financial institutions
as lenders; and the Canadian Imperial Bank of Commerce ("CIBC"), as lender and
administrative agent for the lenders. The credit agreement provided senior
secured credit facilities consisting of: (i) a 5 year Tranche A Term Loan
amounting to U.S.$85.0; (ii) a 6 year Amortization Extended Term Loan (AXELs)
Series B loan amounting to U.S.$150.0; and (iii) a 5 year revolving credit
facility amounting to U.S.$75.0 that was unused at March 27, 1998, except for
drawn letters of credit amounting to U.S.$6.2, and was otherwise available for
general corporate purposes. The proceeds from the term loans were used to fund
the acquisition of 100% of the capital stock of four affiliated entities which,
together with their respective subsidiaries, comprise Plessey (see also Note
19).

The Company entered into an interest rate swap on March 12, 1998 to fix
the interest on a portion of the AXELs Series B loan and the Tranche A Term Loan
for a notional amount of $224.5 (U.S.$157.0). The base interest rate was fixed
at 5.79% and the contract matures in March 2001. This interest rate swap is
considered to be an effective hedge of the variable interest rate on the term
loans. The Company is exposed to credit risk in the event of non-performance,
but does not anticipate non-performance by the counter party.

To secure the credit agreement obligations, the Company granted to the
lenders a first priority lien on substantially all of its personal property and
certain of its real property, including a pledge of all of the capital stock of
each of its principal subsidiaries. Certain restrictive covenants and financial
ratios required to be maintained are set out for the purpose of measuring the
Company's ability to meet its obligations under the credit agreement. The
Company is subject to certain mandatory prepayments in the event of asset sales
(other than inventory), equity offerings and debt issuances, certain insurance
proceeds, and defined excess cash flow. Mandatory prepayments range from 75% to
100% of the net cash proceeds and would be paid on a pro-rata basis toward the
senior secured term loans. The Company believes it is in compliance with the
obligations and restrictive covenants under the credit agreement.

Future minimum lease payments of the obligations under capital leases
total $95.7 of which $27.5, $23.5, $19.5, $16.3, and $8.9 relate to fiscal years
1999 to 2003 and beyond respectively. Interest costs of $11.7 are included in
the total future lease payments.

Scheduled principal repayments, excluding obligations under capital
leases, during the next five fiscal years are: 1999 - $16.4; 2000 - $24.8;
2001 - $26.2; 2002 - $30.8; 2003 - $84.0. Interest expense related to
long-term debt was $7.6 in Fiscal 1998 (1997 - $2.3; 1996 - $1.7).

The following table presents financial instrument fair value disclosure
where the carrying value of such is different. Fair value was determined by
discounting cash flows of the obligations at 7.0% (1997 - 7.0%), the rate
determined as generally available to the Company on credit facilities at the
fiscal year-end.



1998 1997
-------------------------------------------------

Carrying Fair Carrying Fair
Amount Value Amount Value

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

Capital leases and other $ 84.5 $ 83.8 $ 51.6 $ 52.0

Florida industrial revenue and development bonds $ - $ - $ 4.1 $ 4.3

Non-interest bearing 1996 Canada-Quebec government loan $ 3.8 $ 3.0 $ 2.1 $ 1.5


10. COMMITMENTS

(A) OPERATING LEASES

The future minimum lease payments for operating leases for
which the Company was committed were as follows: 1999 - $19.0;
2000 - $14.6; 2001 - $11.0; 2002 - $5.5; 2003 - $5.1; 2004 and
beyond - $27.9.

42






(B) LETTERS OF CREDIT

The Company had letters of credit outstanding as at March 27,
1998 of approximately $25.2 to secure accounts payable
primarily relating to the purchase of inventory.

(C) CAPITAL EXPENDITURES

Capital expenditure commitments under purchase orders
outstanding at the end of Fiscal 1998 amounted to
approximately $5.9.

11. CONTINGENCIES

The Company is a defendant in a number of lawsuits and party to a
number of other claims or potential claims that have arisen in the
normal course of its business. In the opinion of the Company's legal
counsel, any monetary liability or financial impact of such lawsuits
and claims or potential claims to which the Company might be subject
after final adjudication would not be material to the consolidated
financial position of the Company or the consolidated results of its
operations. (See also Note 14.)

12. CAPITAL STOCK

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

Shares outstanding 1998 1997
--------------------------------

Preferred shares - R&D series 1,616,500 1,616,500
Common shares 108,394,631 107,414,631


(A) PREFERRED SHARES - R&D SERIES

The preferred shares were issued in Fiscal 1984 for gross cash
proceeds of $95.2 of which $51.5 ($23.00 per share) was allocated to
capital stock with the balance being the consideration received for
the sale of tax rights.

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

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

Purchase Obligation - Commencing January 1, 1989, the Company was
required to make reasonable efforts to purchase 22,400 shares in each
calendar quarter at a price not exceeding $25.00 per share plus costs
of purchase, and this obligation has been met. The difference between
the stated capital of the repurchased shares over the consideration
paid for such shares is recorded against contributed surplus.

(B) COMMON SHARES

An analysis of the changes in the number of common shares and the
amount of share capital for the three years ended March 27, 1998 is as
follows:

43







Number Amount
-----------------------------------

Balance, March 31, 1995 105,776,618 $ 149.7
Employee stock option plans 307,876 0.9
-----------------------------------

Balance, March 29, 1996 106,084,494 150.6
Warrants 1,000,000 1.7
Employee stock option plans 330,137 1.0
-----------------------------------

Balance, March 28, 1997 107,414,631 153.3

Employee stock option plans 980,000 4.0
-----------------------------------

Balance, March 27, 1998 108,394,631 $ 157.3
===================================


The warrants exercised in Fiscal 1997 represent all of the warrants
then outstanding to reduce outstanding warrants to nil as at March 27,
1998 (1997 - nil; 1996 - 1,000,000).

(C) DIVIDEND RESTRICTIONS ON COMMON SHARES

The Company may not declare cash dividends on its common shares unless
dividends on the preferred shares have been declared and paid, or set
aside for payment.

Pursuant to the terms of the credit agreement described in Note 9, the
Company is required to maintain a minimum net worth, thereby limiting
the amount of dividends that could be paid out. The preferred shares
dividend does not violate this covenant. No common share dividend is
currently being paid out.

(D) STOCK OPTION PLANS

At the Company's 1991 Annual General Meeting, the shareholders
approved resolutions authorizing stock options for key employees and
non-employee directors. Certain amendments to the plan were approved
by the shareholders at the 1993 and 1995 Annual General Meetings
allowing for 1,000,000 and 2,000,000 additional shares, respectively,
to be made available for grant. The Company has contingently granted
3,123,250 additional shares subject to approval by the shareholders at
the 1998 Annual General Meeting. Available for grant at March 27, 1998
were 243,525 (1997 - 1,113,525; 1996 - 1,779,775) shares. All options
granted have up to maximum ten year terms and become fully exercisable
at the end of four years of continuous employment.

A summary of the Company's stock option activity and related
information for the two years ended March 27, 1998 is as follows:



1998 1997 1996
----------------------------- ---------------------------- -----------------------------
Weighted Weighted Weighted
Average Average Average
Options Exercise Price Options Exercise Price Options Exercise Price
----------------------------- ---------------------------- -----------------------------

Outstanding options:
Balance, beginning of year 3,238,638 $ 5.71 2,902,525 $ 4.54 2,721,551 $ 3.74
Granted 4,237,750 $15.19 713,500 $ 9.23 610,500 $ 7.52
Exercised (980,000) $ 4.12 (330,137) $ 2.95 (307,876) $ 2.97
Cancelled (244,500) $ 7.87 (47,250) $ 6.06 (121,650) $ 5.62
----------------------------- ---------------------------- -----------------------------

Balance, end of year 6,251,888 $12.30 3,238,638 $ 5.71 2,902,525 $ 4.54
============================= ============================ =============================

Exercisable, end of year 1,303,407 $ 5.18 1,580,776 $ 3.75 1,229,775 $ 2.95
============================= ============================ =============================


44








Weighted average fair value
price of options granted
during the year using the
Black-Scholes fair value
option pricing model (See
also Note 22.) $ 8.07 $ 4.54 $ 3.90
=============== =============== ===============


A summary of options outstanding at March 27, 1998 is as follows:



Total Outstanding Total Exercisable
- -------------------------------------------------------------------------------------------------------------------------------
Weighted Average Weighted Average Remaining Weighted Average
Options Exercise Price Exercise Price Contractual Life Options Exercise Price
- -------------------------------------------------------------------------------------------------------------------------------

425,925 $1.10 - $ 2.82 $ 2.01 5 years 425,925 $ 2.01
457,700 $3.90 - $ 5.75 $ 5.12 6 years 345,775 $ 5.11
1,140,513 $6.25 - $ 9.32 $ 8.25 7 years 531,707 $ 7.77
4,227,750 $7.12 - $17.78 $15.21 7 years - -
- ----------- -----------
6,251,888 1,303,407
=========== ===========


13. TRANSLATION ACCOUNT

The following table summarizes changes in the translation account:

1998 1997 1996
-----------------------------

Balance, beginning of year $ 2.5 $ 3.3 $10.6

Increase (decrease):
Movements in exchange rates -
U.K. pound sterling 7.2 5.4 (6.0)
U.S. dollar (2.1) - (1.4)
Swedish krona (1.0) (4.4) -
Other currencies (1.0) - 0.1
Reduction of net investments in subsidiaries 0.2 (1.8) -
-----------------------------

Balance, end of year $ 5.8 $ 2.5 $ 3.3
=============================


14. GOVERNMENT ASSISTANCE AND INVESTMENT TAX CREDITS

During the year, the Company recognized Canadian ITCs of $40.3
(1997 - $11.7; 1996 - $7.7) related to prior years' R&D expenses for
which no accounting benefit was previously recognized. (See also
Note 17.)

The Canadian ITCs were comprised of two components:

1) the recognition of ITCs in Fiscal 1998 for which management
believes there is sufficient evidence of expected
profitability from operations in the foreseeable future to
provide reasonable assurance for accruing a future benefit
related to ITCs, amounting to $18.0; (1997 - $nil;
1996 - $nil).

2) ITCs realized for tax purposes in the amount of $22.3
(1997 - $11.7; 1996 - $7.7). The benefit of recording these
ITCs was mostly offset by a corresponding increase in tax
expense to result in an insignificant impact to net earnings.

45






During the year, the Company also recognized total funding of $0.1
(1997 - $0.2; 1996 - $0.3) related to eligible R&D expenditures
(1998 - $0.1; 1997 - $0.6; 1996 - $1.0) and an additional government
grant of $0.3 which was recorded as a reduction primarily of R&D
expenses in the consolidated statements of income. Contributions of
$5.0 made to the Company in prior years under the Microelectronics
and System Development Program, a federal assistance program, are
contingently repayable if the resulting technology is commercially
successful. The contributions are repayable based on a percentage of
related sales over a period not to exceed ten years and ending on
June 30, 2004. Any amount unpaid at the end of the ten year period
would be forgiven. The total amounts repaid and repayable to
March 27, 1998 were negligible.

15. RESTRUCTURING AND OTHER CHARGES

During the fourth quarter of Fiscal 1997, the Company recorded a
charge of $13.0 comprising $8.0 in respect of a restructuring program
to reduce operating expenses in Business Communications Systems and a
write-off of $5.0 on the investment and related assets in the
Company's joint venture in China. As at March 27, 1998, the balance of
the restructuring provision included in accounts payable and accrued
liabilities amounted to $1.1 (1997 - $7.7). The restructuring program
related to this provision is expected to be completed during Fiscal
1999.

16. INVESTMENT AND INTEREST INCOME

Interest income earned on cash and short-term investments in Fiscal
1998 was $5.7 (1997 - $6.0; 1996 - $10.0). On September 27, 1996, the
Company sold its equity interest in Esprit Telecom (Jersey) Ltd.
(Esprit), a non-strategic holding which was carried at a nominal cost.
The gain on the sale of shares in Esprit was $3.6.

17. INCOME TAXES

Details of income tax expense (recovery) were as follows:

1998 1997 1996
------------------------------------------
Current
Canadian $ 28.8 $ 14.9 $ 9.3
Foreign 1.1 7.0 5.6
Deferred
Foreign 0.6 (1.3) 0.1
------------------------------------------
$ 30.5 $ 20.6 $ 15.0
==========================================


Deferred taxes on income generally result from timing differences
primarily in the recognition of depreciation and amortization and R&D
expenditures for tax and financial reporting purposes.

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



1998 1997 1996
-------------------------------

Expected tax rate 40 % 40% 40%
-------------------------------

Expected tax expense $ 49.0 $ 23.4 $ 26.4
Foreign tax rate differences (1.1) (2.2) (0.8)
Tax effect of losses not recognized 0.7 8.7 2.5
Tax effect of realizing benefit of prior years'

loss carryforwards and timing differences (18.0) (13.9) (15.7)
Corporate minimum taxes 0.7 3.2 2.4
Other (0.8) 1.4 0.2
-------------------------------

Income tax expense $ 30.5 $ 20.6 $ 15.0
===============================


46






Unremitted earnings of subsidiaries subject to withholding taxes will
be indefinitely reinvested with no provision necessary for potential
withholding taxes on repatriation of subsidiary earnings. The income
before income taxes attributable to all foreign operations was $7.4
(1997 - $6.1; 1996 - $15.7).

As at March 27, 1998, the Company had tax loss carryforwards of
approximately $100.0 for which no accounting benefit was recognized
and which are available to reduce future years' income for tax
purposes. These tax loss carryforwards expire as follows: 2002 - $2.8;
2003 - $16.5; 2004 - $7.1; 2005 to 2013 - $73.6. The tax loss
carryforwards relate to operations in the United States, Germany and
Hong Kong. As at March 27, 1998, the Company had Canadian ITC
carryforwards of approximately $45.5, which are available to reduce
future years' income taxes. These ITCs expire during the years from
2000 to 2008. (see also Note 14.) In addition, the Company had timing
differences of approximately $30.0 for which no accounting benefit was
recognized.

18. NET INCOME PER COMMON SHARE

The net income per common share figures were calculated based on net
income after the deduction of preferred share dividends and using the
weighted monthly average number of shares outstanding during the
respective fiscal years (107,775,404 shares in 1998; 107,274,463
shares in 1997; and 105,920,369 shares in 1996). The calculation of
fully diluted earnings per share assumes that, if a dilutive effect is
produced, all outstanding options had been exercised at the later of
the beginning of the fiscal year and the option issue date, and
includes an allowance for imputed earnings net of tax derived from the
investment of funds which would have been received.

19. ACQUISITIONS

(A) On April 16, 1998 and subsequent to Fiscal 1998's year end, the
Company announced that it entered into an agreement to acquire certain
assets of the Customer Premises Equipment (CPE) Business Unit of
Centigram Communications Corporation for cash consideration of
U.S.$22.0. The Company will also purchase receivables and inventories
related to that business for approximately U.S.$4.8 in cash.
Centigram's CPE Business Unit, based in San Jose, California, provides
productivity-enhancing, enterprise-wide messaging solutions to
organizations around the world through a broad network of distributors
and agents. The acquisition is expected to close on or about May 8,
1998. The acquisition will be accounted for by the purchase
accounting method, in which the results of operations are included in
the Company's accounts from the date of acquisition.

(B) On February 12, 1998, the Company and certain of its wholly owned
subsidiaries acquired 100% of the capital stock of four affiliated
entities which, together with their respective subsidiaries, comprise
Plessey for a total cash consideration of $323.6 (U.S. $225.0).
Plessey, headquartered in Swindon, U.K., is an international
semiconductor manufacturer for communications and media applications.
The acquired company will operate as Mitel Semiconductor Limited in
the U.K. and as Mitel Semiconductor Americas Inc. in the U.S. The
acquisition was accounted for by the purchase accounting method. The
purchase transaction is summarized as follows:

Net assets acquired at approximate fair value:

Current assets (including cash of $1.4) $ 134.4
Capital assets 354.3
Other assets 10.5
----------
Total assets 499.2
----------

Current liabilities 143.4
Capital leases 18.3
Deferred income taxes 13.9
----------
Total liabilities 175.6
----------

Total net assets $ 323.6
==========

Cash consideration $ 323.6
==========


47






The allocation to net assets includes incurred liabilities of $10.6 in
respect of acquisition costs, and $45.2 in respect of costs to
integrate the operations of the acquired company with the
Semiconductor division. The integration provision includes severance
costs of $21.9 and costs of $23.3 primarily related to eliminating
other redundancies. The acquisition and integration liabilities were
outstanding as at March 27, 1998.

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



(Unaudited)
1998 1997
Pro Forma Pro Forma
Combined Combined
----------------------------

Revenue $ 1,227.3 $ 1,152.9
========= =========

Net income $ 41.2 $ 34.0
========= =========

Net income attributable to common shareholders
after preferred share dividends $ 38.0 $ 30.8
========= =========

Net income per common share (Note 18):
Basic $ 0.35 $ 0.29
========= =========
Fully diluted $ 0.35 $ 0.28
========= =========


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

(C) On August 8, 1997, the Company acquired certain assets and the remote
access business of Gandalf Technologies Inc. (Gandalf) for cash
consideration of $21.6. The purchase agreement did not include
Gandalf's service business. Gandalf's remote access products and
technology facilitate high volume data and voice communications
between the corporate office, local branches, teleworkers and agents
in the field. Gandalf's operations are based principally in Canada,
the United States, and the United Kingdom. In addition to the cash
consideration, the Company incurred expenses of $0.5 in respect of
acquisition costs and $0.6 in respect of costs to integrate the
operations of the acquired company. As at March 27, 1998, the
integration program was substantially completed.

This acquisition was accounted for by the purchase accounting method.
The purchase price allocation was based on fair values assigned to net
assets as determined by an independent valuation firm using standard
valuation techniques. An amount of $14.9 was allocated to identifiable
intangible assets which include completed and in- process research and
development, trademarks and the tradename. The identifiable intangible
assets will be amortized over ten years. The purchase transaction is
summarized as follows:

Net assets acquired, at approximate fair value:
Current assets $ 7.1
Capital assets 15.6
-----
Total assets 22.7

Current liabilities 1.1
-----

Total net assets $21.6
=====

Cash consideration $21.6
=====

48





Pro Forma financial information for the acquisition as if the business had been
acquired at the beginning of Fiscal 1998 is not presented due to the
insignificant impact on the Company's results of operations.

(D) On January 31, 1997, the Company acquired the business and assets of
Global Village Communication (U.K.) Limited, an ISDN solution provider
based in the United Kingdom, for cash consideration of $5.1. This
acquisition was accounted for by the purchase accounting method. The
difference between the purchase price and the fair value of the
acquired net assets amounted to $3.3, all of which was recorded as
goodwill to be amortized on a straight-line basis over five years. The
purchase transaction is summarized as follows:

Net assets acquired, at approximate fair value:

Current assets $3.1
Capital assets 1.0
Goodwill 3.3
------
Total assets 7.4

Current liabilities 2.3
------

Total net assets $5.1
======

Cash consideration $5.1
======


(E) On March 29, 1996, the Company acquired ABB Hafo AB (subsequently
renamed Mitel Semiconductor AB), a designer, manufacturer and marketer
of custom and application specific integrated circuits and
semiconductor components with operations based in Sweden and the
United States. Mitel Semiconductor AB was acquired for cash
consideration of $44.0, comprised of $24.0 for 100% of the outstanding
common shares and $20.0 for the repayment of all bank loans in the
acquired company. In addition to the cash consideration, the Company
incurred expenses of $1.7 in respect of acquisition costs and $2.0 in
respect of costs to integrate the operations of the acquired company
with the Semiconductor division. As at March 27, 1998, the
integration program was completed. This acquisition was accounted for
by the purchase accounting method. The purchase transaction is
summarized as follows:

Net assets acquired, at approximate fair value:

Current assets (including cash of $0.5) $28.0
Capital assets 48.2
-------
Total assets 76.2
-------

Current liabilities 13.9
Pension liability 12.1
Deferred income taxes 6.2
-------
Total liabilities 32.2
-------

Total net assets $44.0
=======

Cash consideration $44.0
=======


20. RELATED PARTY TRANSACTIONS

During the year ended March 27, 1998, the Company sold to jointly
controlled and significantly influenced enterprises products and
services valued at approximately $2.5 (1997 - $8.1; 1996 - $7.9).

49






Included in accounts receivable as at March 27, 1998 were amounts due
from jointly controlled and significantly influenced enterprises of
$0.4 (1997 - $0.4; 1996 - $1.5).

21. INFORMATION ON GEOGRAPHIC SEGMENTS

The Company operates primarily as a vertically integrated manufacturer
of communications products which is its principal line of business.
Included in total revenue for Canada were export sales amounting to
$275.6 in Fiscal 1998 (1997 - $244.9; 1996 - $197.7). The point of
origin (the location of the selling organization) of revenue and the
location of the assets determine the geographic areas. The following
tables present segmented geographic information:



1998 1997 1996
-------------------------------------

Revenue:
Canada
External customers $ 141.0 $ 113.4 $ 98.6
Transfers between geographic areas 188.3 181.5 145.3
329.3 294.9 243.9
-------------------------------------
United States
External customers 405.7 312.9 271.5
Transfers between geographic areas 20.1 19.4 14.1
425.8 332.3 285.6
-------------------------------------
Europe
External customers 329.0 248.0 183.3
Transfers between geographic areas 58.9 32.4 19.2
387.9 280.4 202.5
-------------------------------------
Other
External customers 12.8 21.2 23.0

Eliminations of transfers between geographic areas (267.3) (233.3) (178.6)
-------------------------------------
Total revenue $ 888.5 $ 695.5 $ 576.4
=====================================


50










1998 1997 1996
-------------------------------------

Operating income:
Canada $ 110.6 $ 53.7 $ 58.8
United States 57.9 35.7 37.8
Europe 57.2 40.9 35.0
Other 2.3 15.7 3.2
Eliminations (8.6) (10.2) (5.0)
-------------------------------------

Segment operating income 219.4 135.8 129.8
Corporate expenses 95.0 84.4 72.1
-------------------------------------

Operating income 124.4 51.4 57.7

Investment and interest income, net of interest expense (2.0) 7.2 8.3
Income tax expense (30.5) (20.6) (15.0)
-------------------------------------

Net income $ 91.9 $ 38.0 $ 51.0
=====================================

Capital asset additions:
Canada $ 28.5 $ 57.1 $ 26.9
United States 3.2 3.5 2.3
Europe 26.6 13.2 4.4
Other 0.9 0.1 0.9
-------------------------------------

Capital asset additions $ 59.2 $ 73.9 $ 34.5
=====================================

Amortization expense:
Canada $ 21.7 $ 17.9 $ 13.4
United States 3.2 2.4 1.6
Europe 25.7 12.9 4.1
Other 0.2 0.3 0.1
-------------------------------------

Amortization expense $ 50.8 $ 33.5 $ 19.2
=====================================

Identifiable assets:
Canada $ 242.0 $ 187.4 $ 136.5
United States 153.9 96.7 82.8
Europe 739.2 194.9 198.1
Other 2.3 6.8 11.5
-------------------------------------

Identifiable assets 1,137.4 485.8 428.9
Corporate assets 100.3 99.0 88.2
-------------------------------------

Total assets $1,237.7 $ 584.8 $ 517.1
=====================================


In line with industry practice, corporate expenses include research and
development, scientific research agreement revenue and general administration
expenses. Interest and income taxes are excluded from the calculation of segment
operating income.

Transfers between areas are made at prices based on the total cost of the
product to the selling location.

51





22. UNITED STATES ACCOUNTING PRINCIPLES

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

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

(B) Under Canadian GAAP, investments in joint ventures are recognized in
the financial statements of the venturer by applying the
proportionate consolidation method of accounting. Under U.S. GAAP,
equity accounting is applied to investments in joint ventures when
preparing the consolidated financial statements of the venturer.

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

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

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

(F) Under Canadian GAAP, for purposes of the statements of cash flows,
cash position includes all short-term investments. Under U.S. GAAP,
cash position includes highly liquid investments with original
maturities of less than three months. In addition, under U.S. GAAP,
non-cash items such as assets acquired under capital lease are
excluded from the statements of cash flows. Under Canadian GAAP, the
gross amount of non-cash items is included in the respective
operating, investing, or financing activities as applicable.

(G) The Company implemented SFAS 109, Accounting for Income Taxes, in
Fiscal 1994 for purposes of reconciliation to U.S. GAAP. As at March
27, 1998, the Company's deferred tax asset, primarily related to the
benefit of realizing investment tax credit and loss carryforwards
and timing differences, net of a valuation allowance of $85.5
(1997 - $123.1), was $42.7 (1997 - $10.2), and deferred tax
liabilities, primarily related to buildings and equipment, were $27.1
(1997 - $9.9). The application of this method also gives rise to
differences in the allocation of consideration with respect to
business combinations which may result in the recognition of deferred
tax balances. Subsequent realization of any unrecognized tax
benefits will be applied to reduce any remaining goodwill or
intangibles of the related acquisitions, before being reported in net
income for U.S. GAAP purposes.

(H) Management has examined the rules applicable to SFAS 119 regarding
the disclosure of derivative financial instruments and the fair value
of financial instruments and has provided the required disclosure in
Notes 7, 9, 22, 23 and 24.

(I) The Company implemented SFAS 128 in Fiscal 1998, regarding earnings
per share for purposes of reconciliation to U.S. GAAP. Under U.S.
GAAP the fully diluted earnings per share is computed in accordance
with the treasury stock method and based on the weighted average
number of common shares and dilutive common share equivalents. The
comparative figures were restated to conform to the adopted
accounting method and presentation.

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

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

52






price of the underlying stock on the date of grant. Accordingly,
under the rules of APB 25, no related compensation expense was
recorded in the Company's results of operations for U.S. GAAP
purposes.

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

(M) Under Canadian GAAP, certain costs relating to the acquirer may be
recognized in the purchase price allocation when accounting for
business combinations. These costs, subject to certain conditions,
qualify where they are a direct substitute for costs that would
otherwise be incurred with respect to the acquired business. Under
U.S. GAAP, only costs relating directly to the acquired business may
be considered in the purchase price allocation.

The following table reconciles the net income as reported on the
consolidated statements of income to the net income that would have been
reported had the financial statements been prepared in accordance with U.S. GAAP
and the requirements of the SEC. The proportionate consolidation method for
joint ventures does not affect the measurement of income or shareholders' equity
and therefore is not addressed in the following table:



1998 1997 1996
----------------------------

Net income in accordance with Canadian GAAP $ 91.9 $ 38.0 $ 51.0

Write-off of acquired in-process R&D (2.7) - -
Amortization of acquired in-process R&D 0.2 - -
Effect of deferral accounting related to foreign exchange contracts 0.4 (7.2) 5.9
Translation of foreign currency denominated debt 6.4 - -
Adjustment to deferred income taxes 6.1 10.2 -
Acquirer's redundancy provisions (12.4) - -
----------------------------
U.S. GAAP and SEC requirements:
Net income for the period 89.9 41.0 56.9
Less: dividends on cumulative preferred shares 3.2 3.2 3.3
----------------------------
Adjusted net income $ 86.7 $ 37.8 $ 53.6
============================
Net income per common share:
Basic $ 0.80 $ 0.35 $ 0.51
============================
Fully diluted $ 0.80 $ 0.35 $ 0.50
============================

Weighted average shares for basic EPS (millions) 107.8 107.3 105.9
Weighted average shares on conversion of stock options (millions) 1.1 1.2 1.2
----------------------------
Adjusted weighted average shares and share equivalents (millions) 108.9 108.5 107.1
============================


The following options were excluded in the computation of diluted
earnings per share because the options' exercise price exceeded the average
market price of the common shares and, therefore, the effect would be
antidilutive: options outstanding for the year ended March 27, 1998 to purchase
3,167,250 (1997 - 647,000; 1996 - 395,500) shares of common stock at an average
exercise price of $17.69 (1997 - $9.31; 1996 - $7.87) per share.

53






Cash flow information presented in conformity in all material respects
with U.S. GAAP:



1998 1997 1996
--------------------------------

Cash provided by (used in)
Operating activities - Canadian GAAP $ 75.4 $ 66.1 $ 70.4
Deferred income taxes 6.1 10.2 -
Change in deferred tax asset (6.1) (10.2) -
--------------------------------
Operating activities - U.S. GAAP 75.4 66.1 70.4
--------------------------------

Investing activities - Canadian GAAP (396.0) (68.6) (76.8)
Change in short-term investments 53.3 (2.9) (6.3)
Additions to capital assets under capital lease 24.6 31.3 16.3
--------------------------------
Investing activities - U.S. GAAP (318.1) (40.2) (66.8)
--------------------------------

Financing activities - Canadian GAAP 327.5 6.9 3.9
Increase in capital leases (24.6) (31.3) (16.3)
--------------------------------
Financing activities - U.S. GAAP 302.9 (24.4) (12.4)
--------------------------------

Increase (decrease) in cash 60.2 1.5 (8.8)
Effect of currency translation on cash flows 1.5 1.6 (1.8)
Cash position, beginning of period 55.5 52.4 63.0
--------------------------------

Cash position, end of period $ 117.2 $ 55.5 $ 52.4
================================

1998 1997
-------------------

Balance sheet items in conformity with U.S. GAAP and SEC requirements:

Cash $ 117.2 $ 55.5
Short-term investments $ 34.5 $ 87.8
Deferred tax assets $ 11.8 $ 6.1
Fixed assets $ 525.1 $ 183.7
Other assets $ 69.6 $ 19.4
Accounts payable and accrued liabilities $ 284.5 $ 128.3
Redeemable preferred shares $ 34.4 $ 34.4
Common shares $ 603.2 $ 599.2
Contributed surplus $ 2.5 $ 2.5
Deficit $(206.2) $(292.9)


In addition, the Financial Accounting Standards Board has issued
Statement of Financial Accounting Standards No. 130 Comprehensive Income (SFAS
130) and No. 131 Disclosures about Segments of an Enterprise and Related
Information (SFAS 131). SFAS 130 and SFAS 131 will be effective for the
Company's March 26, 1999 year end. The Company has not determined the impact, if
any, of these pronouncements on its consolidated financial statements.

Pro Forma financial information required by SFAS 123 has been
determined as if the Company had accounted for its employee stock options using
the Black-Scholes fair value option pricing model with the following
weighted-average assumptions for fiscal years 1998, 1997 and 1996:



1998 1997 1996
---------------------------------

Risk-free interest rate 5.30% 5.45% 7.02%
Dividend yield nil nil nil




54








Volatility factor of the expected market price
of the Company's common stock 0.483 0.565 0.593
Weighted-average expected life of the options 6 years 6 years 6 years
U.S. GAAP Pro Forma net income attributable to
common shareholders after preferred dividends $ 84.0 $ 36.6 $ 53.2

U.S. GAAP Pro Forma net income per common share:
Basic $ 0.78 $ 0.34 $ 0.49
Fully diluted $ 0.77 $ 0.34 $ 0.49


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

For purposes of Pro Forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period on a
straight-line basis. (See also Note 12.)

23. PENSION PLANS

The Company maintains several defined contribution and three defined
benefit pension plans for its employees. Pension expense was $6.4 in
Fiscal 1998 (1997 - $4.8; 1996 - $3.3).

(A) Defined Contribution Pension Plans

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

(B) Defined Benefit Pension Plans

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

(i) The first defined benefit plan is contributory and covers
substantially all employees of Mitel Telecom Limited, a wholly
owned subsidiary of the Company, by providing pension benefits
based on length of service and final pensionable earnings.
Employee contributions are based on pensionable earnings.
Actuarial reports in connection with this defined benefit
plan, prepared in April, 1995 and updated to March 28, 1997,
were based on projections of employees' compensation levels to
the time of retirement. These actuarial reports indicate that
the actuarial present value of the accrued pension benefits
and the net assets available to provide for these benefits, at
market value, were as follows:

1998 1997
--------- --------

Pension fund assets $ 60.9 $ 53.5
Accrued pension benefits $ 54.2 $ 48.2


The assumptions used to develop the actuarial present value of the
accrued pension benefits for Fiscal 1998 and Fiscal 1997 were as
follows:

Discount rate 8.5%
Compensation increase rate 6.5%
Investment return assumption 8.5%


55






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

(ii) The second defined benefit plan is contributory and covers
substantially all employees of Mitel Semiconductor Limited, a
wholly owned subsidiary of the Company acquired on February
12, 1998 (see also Note 19). This plan is currently being
administered by The General Electric Company, p.l.c., from
whom the Company acquired Mitel Semiconductor Limited. The
Company will establish a new pension plan and transfer the
employees to this plan once regulatory approvals are
completed.

(iii) The third defined benefit plan covers all employees over the
age of twenty-eight in Sweden and provides pension benefits
based on length of service and final pensionable earnings.
There are no pension fund assets under the plan. The
associated pension liability is calculated each year by the
Pension Registration Institute and is insured in its entirety
by Forsakringsbolaget Pensionsagaranti. The pension liability
of $12.2 (67.9 SEK) (1997 - $11.3 (62.6 SEK)) was actuarially
determined based on the present value of the accrued future
pension benefits and in accordance with applicable laws and
regulations in Sweden.

24. FOREIGN EXCHANGE CONTRACTS

At March 27, 1998, foreign currency contracts to exchange $235.5 in
foreign currency (977.0 Italian Lira, 646.7 Japanese Yen, 96.5 Pounds
Sterling, 32.4 French Francs, 25.0 Swedish Krona, 5.2 U.S. Dollars,
2.7 Deutsche Marks and 2.3 Singapore Dollars) had an unrealized loss
of $9.6. All of the contracts mature before July 31, 1999. The
unrealized loss represents a point-in-time estimate that may not be
relevant in predicting the Company's future earnings or cash flows.
The unrealized loss reflects the estimated amount that the Company
would have been required to pay if forced to settle all outstanding
contracts on March 27, 1998.

Mitel is exposed to credit risk in the event of non-performance, but
does not anticipate non-performance, by any of the counter parties.
Management believes that there is no substantial concentration of
credit risk resulting from the foreign currency forward contracts.

25. CASH FLOW INFORMATION



1998 1997 1996
-----------------------------------------

Net change in non-cash working capital
balances related to operating activities:

Accounts receivable $ (65.6) $ (9.8) $ (7.0)
Inventories (6.3) (11.6) 9.0
Accounts payable and accrued liabilities 28.9 10.3 1.4
Deferred revenue 5.1 2.9 (0.7)
Other (12.3) 1.6 (2.8)
-----------------------------------------
$ (50.2) $ (6.6) $ (0.1)
=========================================


26. UNUSED BANK LINES OF CREDIT

Upon the purchase of Plessey, a new line of credit was granted for
$106.0 (U.S.$75.0), of which up to $28.3 (U.S.$20.0) was available for
letters of credit. At March 27, 1998, $8.7 (U.S.$6.2) in letters of
credit were outstanding against this credit facility, thus the Company
had unused and available demand bank lines of credit amounting to
approximately $97.3 (U.S.$68.8) (1997 - $32.7) at a rate of interest
based on the LIBOR (5.6875%), plus 2%.

27. COMPARATIVE FIGURES

Certain of the 1997 and 1996 comparative figures have been
reclassified so as to conform to the presentation adopted in 1998.

56






ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS

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




Name Age Director Since Positions
- ------------------------ --- ------------------------ --------------------------

Andre Borrel 61 -- Director Nominee
Anthony L. Craig(2) 52 May 16, 1996 Director
Hubert T. Lacroix(1)(3) 42 July 21, 1992 Director
Donald G. McIntyre 50 -- Director Nominee
Dr. John B. Millard(2)(3) 59 February 4, 1993 Director and President and Chief Executive
Officer
Donald W. Paterson(1)(2) 65 May 16, 1996 Director
Dr. Henry Simon(3) 68 July 21, 1992 Director and Chairman
Peter van Cuylenburg 50 March 15, 1996 Director
Jonathan I. Wener(1)(2) 47 July 21, 1992 Director


- ------------------
(1) Member of the Audit Committee (established in accordance with the Canada
Business Corporation Act)
(2) Member of the Compensation and Human Resources Development Committee
(3) Member of the Nominating Committee

Mr. Borrel has been an independent consultant to the semiconductor
industry since 1996. From 1967 to 1996, he served in senior management
positions with Motorola, Inc.

Mr. Craig has been President and Chief Executive Officer of Global
Knowledge Network, a worldwide provider of technology learning services, since
February 1996. From October 1993 to January 1996, he was Vice President, World
Wide Sales Operations of Digital Equipment Corporation and from June 1992 to
June 1993, he was Senior Vice President, International for Oracle Corporation.
Mr. Craig is also a director of Bell Industries.

Mr. Lacroix is, and has been since 1984, a partner with McCarthy
Tetrault (law firm) who practices in the areas of securities, commercial and
corporate law. He is also a director of Michelin Canada Inc., Donohue Inc., ITS
Investments Limited Partnership and Telemedia Inc. and is the chairman of the
securities advisory committee to the Quebec Securities Commission.

Mr. McIntyre joined the Company in 1987 as Vice President, General
Counsel and Secretary and became Vice President, Human Resources, General
Counsel and Secretary in 1991. Mr. McIntyre served as a director of the Company
from 1993 to 1996.

Dr. Millard was appointed President and Chief Executive Officer of the
Company on January 11, 1993. Formerly, Dr. Millard served as Senior Vice
President of Nippon Electric Company America from October 1990 to November 1992.
From 1987 to 1990, Dr. Millard was President of Millard Consulting.

Mr. Paterson has been President of Cavandale Corporation, a strategic
advisor, since September 1988. Mr. Paterson is also Chairman of NewGrowth
Corporation and Utility Corporation and a director of Atlantis Communications
Inc., Telepanel Systems Inc., Microforum Inc. and Imutec Corporation.

Dr. Simon is Chairman, Schroder Ventures Life Sciences Advisers, a
venture capital company advising on investments in the life sciences. From 1994
to 1996, he was Chief Executive Officer of Schroder Ventures Life Sciences
Advisers and, from

57






1987 to 1996, a partner of Schroder Venture Advisers responsible for a venture
capital group in London, United Kingdom. He is chairman of Anagen plc and Shire
Pharmaceuticals plc as well as a director of Chiroscience plc, Laservision
Centers Inc. and Micromass U.K. Ltd. Dr. Simon has been Chairman of the
Company's Board of Directors since July 21, 1994.

Mr. van Cuylenburg has been President, Specialty Storage Products
Group, of Quantum Corporation since September 1996. From January 1996 to August
1996, he was an independent consultant to Xerox Corporation. From July 1993 to
December 1995, he was Executive Vice President of Xerox Corporation and from
April 1992 to May 1993, he was President of Next Computer. From April 1990 to
April 1992, Mr. van Cuylenburg served as a director of Cable & Wireless plc in
London, U.K. Mr. van Cuylenburg is also a director of QAD Inc.

Mr. Wener has been Chairman, Chief Executive Officer and principal
shareholder of Canderel Holdings Ltd., a real estate investment company, since
1983. Mr. Wener is a founding member of the Urban Development Institute of
Quebec. Mr. Wener is also a director of Laurentian Bank of Canada.

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

STATEMENT OF CORPORATE GOVERNANCE PRACTICES

GENERAL

In February 1995, The Toronto Stock Exchange Committee on Corporate
Governance in Canada issued its final report containing a series of guidelines
for effective corporate governance (the "Governance Guidelines"). The Governance
Guidelines, which are not mandatory, deal with the constitution of boards of
directors and board committees, their functions, the effectiveness and education
of board members, their independence from management and other means of ensuring
sound corporate governance. The Toronto Stock Exchange has, in accordance with
the recommendations contained in such report, adopted as a listing requirement
that disclosure be made by each listed company of its corporate governance
system with reference to the Governance Guidelines. In July 1995, The Montreal
Exchange also adopted such listing requirement and issued guidelines similar to
the Governance Guidelines.

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

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

MANDATE OF THE BOARD

The mandate of the Board of Directors is to supervise the management
of the business and affairs of the Company with a view to evaluating, on an
ongoing basis, whether the Company's resources are being managed in a manner
consistent with enhancing shareholder value, ethical considerations and
corporate social responsibility. In order to better fulfill its mandate, the
Board of Directors has formally acknowledged its responsibility for, among other
matters:

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

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

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

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

(v) assessing performance of senior executives;

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

58






(vii) monitoring the efficiency of internal control and management
information systems, and has taken, when necessary, specific measures in respect
of such matters.

COMPOSITION OF THE BOARD AND OF ITS COMMITTEES

The Governance Guidelines recommend that a board of directors be
constituted of a majority of individuals who qualify as "unrelated directors."
The Governance Guidelines define an "unrelated director" as a director who is
independent of management and is free from any interest and any business or
other relationship which could, or could reasonably be perceived to, materially
interfere with the director's ability to act with a view to the best interests
of the Company, other than interests and relationships arising from
shareholding.

The Board of Directors, currently composed of two related directors
out of seven board members, complies with such recommendations. Dr. John B.
Millard, President and Chief Executive Officer, and Hubert T. Lacroix, partner
of the Company's principal legal advisors, are considered to be related to the
Company.

The Governance Guidelines also recommend that a board of directors
should examine its size. The Board of Directors believes that the number of
seven directors, taking into consideration the proposed increase to nine
directors, is currently sufficient and appropriate to effectively conduct
business. The Board of Directors, as presently constituted, brings together a
mix of skills, backgrounds and individual attributes that the Board of Directors
considers appropriate to the stewardship of the Company.

A further Governance Guideline recommends that the Audit Committee be
made up of outside and unrelated directors only. This guideline also states that
other board committees should be comprised of outside directors, a majority of
whom should be unrelated directors. The Company currently has three committees,
being the Audit Committee, the Compensation and Human Resources Development
Committee (the "Compensation Committee") and the Nominating Committee. Certain
of these committees, as presently constituted, do not comply with the Governance
Guideline recommendations. However, for the reasons outlined below, the Board of
Directors has decided not to modify the composition of the committees at this
time. It is the intention of the Board of Directors to reevaluate from time to
time the composition of the various committees.

The three committees of the Board of Directors have been established
with specific mandates and defined authorities with a view to assisting the
Board of Directors in efficiently carrying out its responsibilities. Set out
below is a general description of the committees of the Board and their
respective mandates.

AUDIT COMMITTEE

The mandate of the Audit Committee is to review (i) the annual and
interim financial statements of the Company and certain other public disclosure
documents required by regulatory authorities, (ii) the nature and scope of the
annual audit as proposed by the auditors and management, (iii) with the auditors
and management, the adequacy of the internal accounting control procedures and
systems within the Company and (iv) with management, the risks inherent to the
Company's business and risk management programs, including those related to the
environment and the health and safety of employees, to make recommendations on a
quarterly basis to the Board of Directors with respect thereto.

The Audit Committee is presently composed of three outside directors,
two of whom are unrelated: Donald W. Paterson and Jonathan I. Wener and one of
whom is related: Hubert T. Lacroix. In view of the historical contribution of
Mr. Lacroix, the Board of Directors considered the participation of Mr. Lacroix
in the Audit Committee to be essential and concluded that he should continue to
serve on such committee, on the condition that such committee be always composed
of a majority of unrelated directors.

COMPENSATION COMMITTEE

The mandate of the Compensation Committee is outlined below under
"Report on Executive Compensation." This mandate further includes a review of
the compensation of directors to ensure the compensation realistically reflects
the responsibilities and risk involved in being an effective director. The
Compensation Committee is presently composed of three outside and unrelated
directors: Anthony L. Craig, Donald W. Paterson and Jonathan I. Wener.

59






NOMINATING COMMITTEE

The mandate of the Nominating Committee is to seek out and review
potential additional Board of Director candidates as submitted by search
consultants retained by the Company, to evaluate the structure, responsibility
and composition of committees of the Board of Directors and to make
recommendations to the Board of Directors with respect thereto. The Nominating
Committee is presently composed of two outside directors, one of whom is
unrelated: Dr. Henry Simon and one of whom is related: Hubert T. Lacroix, and
one inside and related director: Dr. John B. Millard. In view of the historical
contribution of Mr. Lacroix and the contribution to the Company of Dr. Millard,
the Board of Directors considered the participation of Mr. Lacroix and Dr.
Millard in the Nominating Committee to be essential and concluded that they
should continue to serve on such committee.

INDEPENDENCE FROM MANAGEMENT

The Governance Guidelines state that the independence of a board is
most simply achieved by appointing a chair who is not a member of management.
The Chairman of the Board is separate from management and ensures that the Board
can function independently of management.

OTHER

The Board of Directors considers that orienting and educating new
directors is an important element of ensuring responsible corporate governance.
By ensuring that Board members are properly informed of the business of the
Company, the Board considers that it complies with the Governance Guidelines.

A singular position description has been adopted for each
non-executive member of the Board of Directors. The Board of Directors also
reviews and approves the annual corporate objectives of the Chief Executive
Officer.

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

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

EXECUTIVE OFFICERS

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




Name Age Positions
- ------------------------------- --- --------------------------------------

Jean-Jacques Carrier 47 Vice President of Finance and Chief Financial Officer
Kirk K. Mandy 42 Vice President and General Manager, Business
Communications Systems
Francois Cordeau 40 Vice President and General Manager, Mitel Semiconductor
Shirley J. Mears 43 Vice President, Treasurer


Mr. Carrier was appointed Vice President of Finance and Chief
Financial Officer for the Company in September 1993. Prior to that date, he was
Senior Vice President, Finance and Chief Financial Officer for Sherritt Inc.
from 1991 to 1993, a Canadian public company based in Alberta. From 1976 to
1991, Mr. Carrier held a number of senior positions with Consolidated-Bathurst
Inc.

Mr. Mandy was appointed Vice President and General Manager, Business
Communications Systems in January 1997. Prior to that date, he was Vice
President and General Manager, Semiconductor Division from November 1992 to
December 1996. Mr. Mandy served as Vice President, Research and Development from
February 1991 to November 1992, as Vice President, Product Development from
August 1990 to January 1991 and Vice President, Technical Planning from May 1990
to July 1990. Mr. Mandy joined the Company in 1984.

60






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

ITEM 11. EXECUTIVE COMPENSATION

The aggregate compensation paid by the Company to its directors and
executive officers for services rendered during Fiscal 1998 was $2,428,642. This
amount includes salary, bonuses, car allowances and other perquisites and
excludes the amount set out below for pension, retirement and similar benefits
paid to executive officers.

The aggregate amount set aside or accrued by the Company and its
subsidiaries during Fiscal 1998 for the provision of pension, retirement and
similar benefits to the directors, executive officers and three former executive
officers of the Company as a group was $312,517, excluding adjustments for
market value fluctuations related to the current year and previous year accruals
which totaled $92,239 for the above executive officers.

SUMMARY COMPENSATION TABLE

The following table sets forth compensation information for the three
fiscal years ended March 27, 1998, March 28, 1997, and March 29, 1996 for the
Chief Executive Officer and the four other most highly compensated executive
officers of the Company (collectively, the "Named Executive Officers").



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

Dr. John B. Millard 1998 513,646 596,000 -- 50,000 2,643,193
President and Chief Executive Officer 1997 508,136 125,000 -- 100,000 82,867
1996 479,466 250,000 -- 100,000 74,629

Kirk K. Mandy 1998 289,206 270,000 -- 100,000 47,458
Vice President and General Manager, Business Communications 1997 238,836 150,000 -- 55,000 40,224
Systems 1996 189,378 135,000 -- 20,000 102,682

Jean-Jacques Carrier 1998 254,916 307,500 -- 80,000 40,901
Vice President of Finance and Chief Financial Officer 1997 248,019 57,500 -- 30,000 39,690
1996 236,220 115,000 -- 30,000 37,789

Donald G. McIntyre 1998 196,778 229,700 -- 75,000 58,763
Vice President, Human Resources, General Counsel and Secretary 1997 190,944 37,500 -- 25,000 113,691
1996 181,776 75,000 -- 25,000 52,522

Francois Cordeau 1998 207,189 185,625 -- 125,000 42,083
Vice President and General Manager, Mitel Semiconductor 1997 249,954(3) 66,032 87,365 10,000 9,100
1996 84,966 36,260 55,730 5,000 4,009


- ------------------
(1) Perquisites and personal benefits did not exceed the lesser of $50,000 and
10% of the salary and bonus for each of the Named Executive Officers.
(2) "All Other Compensation" includes contributions made and accrued by the
Company to a defined contribution pension plan, excluding adjustments for
market value fluctuations related to the current year and previous year
accruals which totaled $87,124 for the Named Executive Officers. It also
includes amounts for the exercise of stock options based on the excess of
the market price of the common shares on the date of exercise over the
exercise price thereof.
(3) Mr. Cordeau was compensated under an expatriate contract while in Sweden
during 1997.

EMPLOYEE SHARE OWNERSHIP PLAN

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

61






1991 STOCK OPTION PLAN FOR KEY EMPLOYEES AND NON-EMPLOYEE DIRECTORS

The 1991 Stock Option Plan for Key Employees and Non-Employee Directors
(the "Option Plan") provides for the granting of non-transferable options to
purchase common shares to key employees and non-employee directors of the
Company and its subsidiaries, as determined from time to time by the
Compensation Committee. The Option Plan was approved by the shareholders of the
Company at the 1991 Annual and Special Meeting of Shareholders and certain
amendments were approved by the shareholders at the 1993 and 1995 Annual and
Special Meetings of Shareholders. Further minor amendments were made to the
Option Plan by the Board of Directors on March 12, 1998.

All options granted under the Option Plan must be exercised within a
maximum of ten years following the date of grant or such other shorter time or
times as may be determined by the Compensation Committee at the time of grant.
Under the terms of the Option Plan, up to 25% of the common shares in respect of
each option may be purchased after one year from the date of grant, up to 50%
after two years from the date of grant, up to 75% after three years from the
date of grant and up to 100% after four years from the date of grant or at such
other time or times as may be determined by the Compensation Committee at the
time of grant.

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

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

The Option Plan also provides that, in the event of the termination of an
employee's employment for any reason other than cause or death, the employee's
options may be exercised, to the extent the options are exercisable as of the
termination date, within 30 days following the date the employee's employment is
terminated; provided, however, that the Board of Directors of the Company may,
in its discretion, amend the terms of any option to permit the employee to
exercise such options as if such employee's employment had not been terminated,
for up to a maximum of three years following the date of termination of the
employee's employment (but in no event after the expiration date of such
option). In the event the employee's employment has been terminated for cause,
the employee's options may be exercised only during the next business day
following the date of personal delivery of a written notice by the Company to
the employee confirming such termination.

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

Under the terms of the Option Plan, the maximum number of common shares as
to which options may be granted is 5,800,000 (representing approximately 5% of
the common shares outstanding as of May 29, 1998). The Board of Directors has
approved a further 10,200,000 common shares to be available for grant, for a
total of 16,000,000 common shares (representing approximately 15% of the common
shares outstanding as of May 29, 1998), subject to shareholder approval at the
next annual and special meeting of shareholders to be held on July 23, 1998. As
of May 29, 1998, the closing price of the common shares of the Company on The
Toronto Stock Exchange was $22.80 and therefore the total market value as of
such date of the 6,271,463 shares (excluding 2,492,262 common shares as to which
options have been previously exercised) that are or may be subject to options
pursuant to the Option Plan was $142,989,356.

During Fiscal 1998, the Company granted options to purchase up to
4,237,750 common shares to 905 employees and six non-employee directors of the
Company at an average exercise price of $15.19 per share, of which options for
417,500 common shares were granted to six executive officers at an average
exercise price of $13.42 per share. During Fiscal 1998, three

62






executive officers and two former executive officers of the Company exercised
options to purchase 428,225 common shares having an aggregate net value (being
the market value less the exercise price on the date of the exercise) of
$4,248,853 as of such date.

As at May 29, 1998, there were outstanding under the Option Plan options
for an aggregate of 6,271,463 common shares at prices ranging from $1.10 to
$19.96 per share and expiring at various dates through 2007. Of such options,
options for an aggregate of 1,296,250 common shares were held by six executive
officers, one of whom is a director of the Company.

STOCK OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth certain information regarding options
granted to the Named Executive Officers under the Option Plan during Fiscal
1998.

OPTION GRANTS DURING FISCAL 1998



Market Value of
% of Total Securities Underlying
Securities Options Granted Exercise or Options/SARS on the
Under Options to Employees Base Price Date of Grant
Name Granted (#) in Fiscal 1998 ($/Security) ($/Security) Expiration Date
----------- ------------- --------------- ------------ --------------------- ---------------

Dr. John B. Millard 50,000 (1) 9.48 7.20 May 22, 2007

Kirk K. Mandy 50,000 (1) 9.48 7.20 May 22, 2007
50,000(2) (1) 17.78 17.60 March 12, 2004

Jean-Jacques Carrier 30,000 (1) 9.48 7.20 May 22, 2007
50,000(2) (1) 17.78 17.60 March 12, 2004

Donald G. McIntyre 25,000 (1) 9.48 7.20 May 22, 2007
50,000(2) (1) 17.78 17.60 March 12, 2004

Francois Cordeau 50,000 (1) 7.12 7.20 May 22, 2007
25,000 (1) 11.73 12.75 October 29, 2007
50,000(2) (1) 17.78 17.60 March 12, 2004


- ------------------
(1) Less than 1%.
(2) This grant represents 20,000 stock options granted subject to shareholder
approval and 30,000 stock options granted subject to both shareholder
approval and achievement of certain performance targets established by the
Board of Directors.

YEAR-END OPTION VALUES TABLE

The following table summarizes, for each of the Named Executive Officers,
the aggregate options exercised during Fiscal 1998 and option values at March
27, 1998.

63






AAGGREGATE OPTIONS EXERCISED DURING FISCAL 1998
AND FISCAL YEAR-END OPTION VALUES



Value of Unexercised
Unexercised Options at In-the-Money Options
March 27, 1998 at March 27, 1998
Securities (#) ($)
Acquired On Aggregate Value
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---------- ------------ --------------- ----------- ------------- ----------- -------------

Dr. John B. Millard 242,000 2,577,300 338,000 200,000 4,666,350 1,962,000

Kirk K. Mandy -- -- 53,750 156,250 602,900 1,021,075

Jean-Jacques Carrier -- -- 87,500 122,500 975,725 715,525

Donald G. McIntyre -- -- 45,750 111,250 523,038 611,688

Francois Cordeau 5,750 27,600 1,250 135,500 11,225 852,000



COMPENSATION OF THE PRESIDENT AND CHIEF EXECUTIVE OFFICER

On December 16, 1992, the Company entered into an employment agreement
with Dr. John B. Millard with respect to his employment as President and Chief
Executive Officer. Pursuant to the agreement, as amended, Dr. Millard is
entitled to receive an annual base salary in the amount of $515,000, subject to
annual adjustment, plus an annual discretionary bonus as determined by the Board
of Directors, in addition to customary benefits and an option to purchase
400,000 common shares of the Company at a price of $1.85 per common share under
the Option Plan. Dr. Millard has exercised this option in part to acquire
242,000 common shares, leaving a balance of 158,000 shares which may currently
be acquired upon exercise of such option. The agreement provided for an initial
term of two years commencing January 11, 1993, subject to automatic renewal for
consecutive one-year terms unless the Company or Dr. Millard gives notice in
writing that the agreement will not be renewed at least ninety days prior to the
end of the then current term. On November 10, 1997, the Company entered into an
amending agreement with Dr. Millard which provided that the annual renewal
provision in his employment agreement be amended to provide that the Board of
Directors may give Dr. Millard notice of non-renewal of his employment at any
time and such notice will effectively terminate Dr. Millard's employment on the
last day of the fiscal quarter next following the quarter in which notice is
given. Pursuant to Dr. Millard's employment agreement, he will be entitled to
twelve months' base salary in the event of termination of his employment for
reasons other than resignation, death, legal cause or change of control.

On January 5, 1998, Dr. Millard informed the Board of Directors of his
intention to retire in 1998.

EXECUTIVE COMPENSATION AGREEMENTS

The Company has entered into Compensation Agreements with seven senior
executives (the "Executives"), including some of the Named Executive Officers,
to provide for certain entitlements only in the event of a Take-Over Bid (as
defined) for the Company or the termination of employment of the Executive(s)
resulting from a Change of Control (as defined) of the Company.

The agreements generally provide as follows:

(a) in the event of a Take-Over Bid for the Company, all unvested stock
options held by an Executive would immediately vest and become
exercisable. In the event a Take-Over Bid is not completed, there are
provisions to restore the Company and such Executive, as nearly as
possible, to what would have been the situation had the Take-Over Bid
not occurred; and

(b) in the event of a termination by the Company of an Executive's
employment, other than for Just Cause (as defined), within
twenty-four months following a Change of Control of the Company, the
Executive would receive as compensation: (i) for four Named Executive
Officers - two times the Executive's annual base salary, one year's
bonus

64






calculated as the one year average of the Executive's bonuses for the
previous three fiscal years, the value of eighteen months of Benefits
(as defined) and the immediate vesting of all unvested stock options
then held by the Executive; and (ii) for three other Executives - one
time the Executive's annual base salary, one-half of a year's bonus
calculated as one-half of the one year average of the Executive's
bonuses for the previous three fiscal years, the value of twelve
months of Benefits and the immediate vesting of all unvested stock
options then held by the Executive.

The Compensation Agreements were developed under the direction of the
Compensation Committee in consultation with independent compensation consultants
and independent legal advisers in order to reflect current North American
competitive market practices.

COMPENSATION OF NON-EMPLOYEE DIRECTORS

During Fiscal 1998, each director who was not a salaried officer of the
Company or its subsidiaries received an annual stipend of $10,000 and a
director's fee of $1,250 for attendance at each meeting of the Board of
Directors or any Committee thereof or for each day spent on the affairs of the
Company and was reimbursed for his expenses. In addition, the Chairman of each
Committee of the Board of Directors received an additional annual fee of $6,000.
The Company also pays the Chairman of the Board of Directors, when such person
is not an employee of the Company, an annual stipend of $100,000 (inclusive of
Board and Committee meeting fees) and a per diem of $2,500 for attendance on
Company business to an annual maximum of $50,000. Effective as of May 21, 1998,
the fee for attendance in person at a meeting of the Board of Directors or any
Committee thereof or for a day spent on the affairs of the Company was raised to
$2,000.

The following table summarizes the aggregate unexercised options held by
non-employee directors at May 29, 1998.

OPTION INFORMATION FOR NON-EMPLOYEE DIRECTORS

Unexercised Options at May 29, 1998
Date of Grant Exercisable / Unexercisable
- ----------------------------- -----------------------------------
January 26, 1993 100,000 / --

May 12, 1994 54,000 / --

May 17, 1995 45,000 / 15,000

March 15, 1996 10,000 / 10,000

May 16, 1996 50,000 / 50,000

May 22, 1997 30,000 / 90,000

March 12, 1998 -- / 150,000


DIRECTORS' AND OFFICERS' LIABILITY INSURANCE

As at May 29, 1998, the Company had in force Directors' and Officers'
Liability Insurance policies in the amount of U.S. $25,000,000 for the benefit
of the directors and officers of the Company and its subsidiaries. The total
amount of the premiums paid by the Company for the policies in effect for the
fiscal year ended March 27, 1998 was Cdn. $248,340. No portion of these premiums
was paid by the directors and officers of the Company. The policies provide for
no deductible for any loss in connection with claims against a director or
officer and deductibles of U.S. $500,000 for claims relating to violations of
United States securities laws and U.S. $250,000 for other claims resulting in a
loss for the Company.

INDEBTEDNESS OF OFFICERS, DIRECTORS AND EMPLOYEES

As at May 29, 1998, no officer, director or employee or former officer,
director or employee of the Company or its subsidiaries was indebted to the
Company in connection with the purchase of securities of the Company.

65






As at May 29, 1998, the aggregate amount of outstanding indebtedness to
the Company incurred, other than in connection with the purchase of securities
of the Company and other than routine indebtedness, by all officers, directors,
employees and former officers, directors and employees of the Company or its
subsidiaries amounted to $256,135.

REPORT ON EXECUTIVE COMPENSATION

The Compensation Committee is comprised of three members of the Board of
Directors: Jonathan I. Wener, the Chairman of the Committee, Anthony L. Craig
and Donald W. Paterson.

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

GENERAL PRINCIPLES OF EXECUTIVE COMPENSATION

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

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

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

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

BASE SALARY

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

ANNUAL INCENTIVE COMPENSATION ARRANGEMENTS

The Company's annual incentive plans are intended to incent individuals to
focus on achievement of current year operating income targets and key strategic
performance objectives within each of the business units. Individual target
awards and performance weightings within the plans are dependent on the
individual's ability to influence results. Operating Income targets are set by
the Board of Directors at the commencement of the fiscal year and awards for
business unit and individual performance are only payable if the corporate
operating income is at least 75% of target performance.

LONG-TERM INCENTIVE

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

COMPENSATION OF THE PRESIDENT AND CHIEF EXECUTIVE OFFICER

In January 1993, Dr. John B. Millard was appointed as President and Chief
Executive Officer of the Company. Dr. Millard's compensation was approved by
the Compensation Committee and the Board of Directors after reviewing market
data

66






of the comparator group provided by an independent consultant and taking into
account Dr. Millard's executive knowledge and experience in the
telecommunications industry, his leadership ability and sound business acumen.

The base salary and long-term incentive components of Dr. Millard's
compensation are determined in accordance with the policies applying to all
executive officers of the Company. Dr. Millard's current base salary is
$515,000.

Dr. Millard's annual discretionary bonus is determined, at each fiscal
year end, based on the Compensation Committee's assessment of Dr. Millard's
performance, particularly in improving the Company's profitability and financial
condition. For Fiscal 1998, Dr. Millard earned a bonus of $596,000 based on the
Company's profitability.

The Compensation Committee of the Board of Directors, whose names are set
out below, has approved the issue of this Report on Executive Compensation and
its inclusion in this Annual Report on Form 10-K.

Mr. Anthony L. Craig
Mr. Donald W. Paterson
Mr. Jonathan I. Wener

PERFORMANCE GRAPH

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


[PERFORMANCE GRAPH APPEARS HERE]

MITEL TSE 100
----- -------

March 26, 1993 $100 $100

March 25, 1994 243 128

March 31, 1995 238 126

March 29, 1996 313 149

March 28, 1997 248 181

March 27, 1998 658 239




67







ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information as at May 29, 1998 with respect
to: (1) all shareholders known by the Company to be beneficial owners (which
includes shares over which control or direction is exercised) of more than 5% of
its outstanding common shares; and (2) ownership of common shares and $2.00
Cumulative Redeemable Convertible Preferred Shares, 1983 R&D Series ("R&D
Preferred Shares") by each director and nominee for director, each of the Named
Executive Officers and all executive officers and directors as a group.




Name and Address Class of Shares Amount Beneficially Owned Percent of Class(1)
- ------------------------------------- --------------- ------------------------- -------------------

Knight Bain Seath & Holbrook common 5,704,340 5.3
Capital Management Inc.
1 Toronto Street, Suite 708
Toronto, Ontario M5C 2V6

T.A.L. Investment Counsel Ltd. common 5,421,275 5.0
1000 de la Gauchetiere Street
West, Suite 3100
Montreal, Quebec, H3B 4W5

*Jean-Jacques Carrier common 145,000(2) (7)

*Francois Cordeau common 15,500(2) (7)

Anthony L. Craig common 15,000(2,3) (7)
27421 Country Club Drive
Bonita Bay, Bonita Springs
Florida, U.S.A. 33293

Hubert T. Lacroix common 112,000(2,3) (7)
1170 Peel Street
Montreal, Quebec H3B 4S8

*Kirk K. Mandy common 90,000(2) (7)

*Donald G. McIntyre common 80,000(2) (7)

*Shirley Mears common 24,500(2) (7)

*Dr. John B. Millard common 435,300(2,4) (7)

Donald W. Paterson common 16,000(2,3) (7)
141 Adelaide St. West, Suite 1200
Toronto, Ontario M5H 3L9

Dr. Henry Simon common 136,000(2,3) (7)
1 Telegraph Hill
London, England NW3 7NU

Peter van Cuylenburg common 15,000(2,3) (7)
500 McCarthy Blvd.
Milpitas, CA 95035

Jonathan I. Wener common 192,630(2,3,5) (7)
2000 Peel Street, Suite 900
Montreal, Quebec H3A 2W5

68








12 directors and executive officers as a common 1,276,930(2,3,6) (7)
group.......................................... R&D Preferred -0-


- ------------------
* These officers are located c/o Mitel Corporation, 350 Legget Drive, Kanata,
Ontario, Canada K2K 1X3.

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

(1) Percentage ownership is calculated based upon total shares in the class
outstanding plus shares in the class subject to options currently
exercisable or exercisable within sixty days by the entity or group
indicated.
(2) These holdings include stock options currently exercisable or exercisable
within 60 days by: Mr. Carrier - 115,000; Mr. Cordeau - 15,500; Mr. Craig
- 15,000; Mr. Lacroix - 104,000; Mr. Mandy - 90,000; Mr. McIntyre -
69,500; Ms. Mears - 24,500; Dr. Millard - 413,000; Mr. Paterson - 15,000;
Dr. Simon - 36,000; Mr. van Cuylenburg - 15,000 and Mr. Wener - 104,000.
(3) Does not include stock options granted to non-employee directors which are
not currently exercisable, as follows: Mr. Craig - 50,000; Mr. Lacroix -
55,000; Mr. Paterson - 50,000; Dr. Simon - 55,000; Mr. van Cuylenburg -
50,000, and Mr. Wener - 55,000.
(4) Dr. Millard's holdings exclude 5,500 common shares held by trusts created
for the benefit of his grandchildren as to which he possesses shared
voting and investment power as a trustee.
(5) The holdings of Mr. Wener are held by and registered in the name of
MOI-MEME Holdings Inc. Mr. Wener is the sole shareholder of MOI-MEME
Holdings Inc.
(6) The holdings of one executive officer exclude 400 common shares held of
record by his children, as to which he disclaims beneficial ownership.
(7) Represents less than 1% of the class.

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

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

During the fiscal year ended March 27, 1998, the Company retained the law
firm McCarthy Tetrault, of which Hubert T. Lacroix, a member of the Board of
Directors, is a partner.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

a) The following financial statements and supplementary data are filed as
part of this report under Item 8:

1. CONSOLIDATED FINANCIAL STATEMENTS.



PAGE NUMBER
(WITHIN THE 10-K)

Auditor's Report to the Shareholders 34

Consolidated Balance Sheets at March 27, 1998, March 28, 1997 and March 29, 1996 35

Consolidated Statements of Income and Retained Earnings for the fiscal years ended
March 27, 1998, March 28, 1997 and March 29, 1996 36

Consolidated Statements of Cash Flows for the fiscal years ended
March 27, 1998, March 28, 1997 and March 29, 1996 37

Notes to the Consolidated Financial Statements 38



69






2. FINANCIAL STATEMENT SCHEDULES. The Schedules supporting the consolidated
financial statements which are filed as part of this report are as follows:

Schedule II - Valuation and qualifying accounts

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

3. EXHIBITS

EXHIBIT
NUMBER DESCRIPTION

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

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

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

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

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

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

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

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

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

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

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

10.4 Credit Agreement, dated as of February 12, 1998, between Goldman
Sachs Credit Partners L.P., as advisor, arranger and syndication
agent, Canadian Imperial Bank of Commerce, as administrative
agent, the Lenders listed therein, and Mitel Corporation, as
borrower (incorporated by reference to Exhibit 10.1 to Form 8-K
filed on February 27, 1998)

21 Subsidiaries of the Company 78

70






23 Consent of Ernst & Young 79

24 Power of Attorney (included on the signature page to this 72
Form 10-K)

27 Financial Data Schedule 80

(b) Reports on Form 8-K. The Company filed a Current Report on Form 8-K in
the fourth quarter of the fiscal year ended March 28, 1997. The Report was filed
February 27, 1998 and related to the acquisition of Plessey and the related
financing on February 12, 1998. The Company filed a Form 8-K/A relating to the
same transactions on April 27, 1998.

71






SIGNATURES

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

MITEL CORPORATION

By: /s/ John B. Millard
___________________
(John B. Millard)
President and Chief Executive Officer

Dated: June 23, 1998

POWER OF ATTORNEY

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

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



SIGNATURE TITLE DATE
- --------------------------------------------------- ------------------------------------------ ---------------------------

/s/ Henry Simon Chairman of the Board June 23, 1998
___________________________________________________
(Henry Simon)

/s/ John B. Millard President and Chief Executive Officer June 23, 1998
___________________________________________________
(John B. Millard)

/s/ Anthony L. Craig Director June 23, 1998
___________________________________________________
(Anthony L. Craig)

/s/ Hubert T. Lacroix Director June 23, 1998
___________________________________________________
(Hubert T. Lacroix)

/s/ Donald W. Paterson Director June 23, 1998
___________________________________________________
(Donald W. Paterson)

/s/ Peter van Cuylenburg Director June 23, 1998
___________________________________________________
(Peter van Cuylenburg)

/s/ Jonathan I. Wener Director June 23, 1998
___________________________________________________
(Jonathan I. Wener)

/s/ Jean-Jacques Carrier Vice President of Finance and Chief June 23, 1998
___________________________________________________ Financial Officer
(Jean-Jacques Carrier)

72








SCHEDULE II
MITEL CORPORATION

VALUATION AND QUALIFYING ACCOUNTS
MARCH 27, 1998
(IN MILLIONS OF CANADIAN DOLLARS)



Additions
- -------------------------------------------------------------------------------------------------------------------------------
Balance
Beginning Charged Charged to Balance, End
Description of Period to Expense Other Accounts Deductions of Period
----------- --------- ---------- -------------- ---------- ------------

Allowance for doubtful accounts:

Fiscal 1998 $ 9.8 $ 5.2 $ -- $(4.8) $10.2
Fiscal 1997 5.9 5.8 -- (1.9) 9.8
Fiscal 1996 7.3 1.2 -- (2.6) 5.9

Restructuring and other provisions:

Fiscal 1998 $12.6 0.2 54.5(1) $(8.0) $59.3
Fiscal 1997 3.3 11.7 -- (2.4) 12.6
Fiscal 1996 5.7 2.0 -- (4.4) 3.3


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



73






ANNEX "A"
GLOSSARY OF TERMS

APPLICATION PROGRAMMING INTERFACE (API): A software interface between a
computer program that an individual uses and the interface to network services
or program-to-program communications.

APPLICATION GATEWAY: Part of Mitel's distributed architecture, this
apparatus connects the telephone system with a LAN to permit computers and
telephones to function together.

APPLICATION SPECIFIC INTEGRATED CIRCUIT (ASIC): A chip designed for use on
a particular circuit board or for a very narrow range of use. The digital signal
processor chip on a modem is an ASIC.

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

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

AUTOMATIC CALL DISTRIBUTION (ACD): A telephone exchange system that
optimizes distribution of incoming calls to a service group to increase the
efficiency of the system and the service resources (agents).

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

CALL CENTER: Groups of people, telephones and computers organized to
permit service agents to efficiently answer calls from, or direct calls to,
large numbers of people. Call centers are often identified by a 1-800 number and
make use of ACD technology.

CENTREX: A telephone company service designed to provide PBX-like
features to subscribers.

CLIENT/SERVER: A distributed computing architecture whereby the client is
an application user on a LAN and the server provides access to common
applications and group services for database and file sharing.

CMOS OR COMPLEMENTARY METAL OXIDE SEMICONDUCTOR: A technology for making
integrated circuits known for requiring less electricity.

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

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

FAB: A factory that makes integrated circuit chips.

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

FIBER OPTIC TRANSMISSION: The conversion of electrical signals to light
waves, thereby providing vastly increased capacity compared with copper wire,
i.e., one glass fiber can replace over 10,000 telephone wires. This is the
technology used to interconnect the modules of Mitel's LIGHT PBX systems.

GALLIUM ARSENIDE: A compound semiconductor material made of Gallium and
Arsenic.

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

INDIUM PHOSPHIDE: A compound semiconductor material made of Indium and
Phosphorus.

74






INTEGRATED SERVICES DIGITAL NETWORK (ISDN): An infrastructure designed to
deliver digital service from local or long distance telephone companies so that
computers can be plugged into public networks as easily as are telephones today.

JTAPI or Java telephony API: A set of modularly-designed, application
programming interfaces for Java-based computer telephony applications. JTAPI
offers telephony interface extensions grouped into building-block packages.
Applications written to JTAPI are independent of platforms or phone systems.

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

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

MIDDLEWARE: An intermediate software application layer that links an end
user application to the call control software layer.

MILINK DATE MODULE: A module that allows peripheral data communications to
pass through the multi-line SUPERSET 400 series of telephones to the PBX system.
It converts data signals of RS-232 serial devices such as computers or video
display terminals to high speed asynchronous digital signals (up to 19.2 Kbps)
and allows simultaneous use of the telephone and the RS-232 device.

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

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

PRIVATE BRANCH EXCHANGE (PBX): A "branch" of the telephone company's
central office exchange, usually located on the customer's premises, to provide
connections between the extension telephones within a business as well as
connections to public and private networks outside the business.

QUARTZ TECHNOLOGY: Base material used to produce Surface Acoustic Wave
Filters.

SILICON-ON-SAPPHIRE: A manufacturing process that allows radiation
hardening of silicon in order to permit performance under extreme and harsh
environmental conditions.

SURFACE ACOUSTIC WAVE FILTERS: A product designed to filter noise.

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

SX-200 LIGHT, SX-2000 LIGHT, THE LIGHTS, LIGHT SERIES: All refer to the
modular, fiber-optic related PBX switching systems in Mitel's product portfolio.

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

THYRISTOR: A bistable semiconductor device used for power switching that
comprises three or more junctions that can be switched from the off state to the
on state, or vice versa, such switching occurring within at least one quadrant
of the principal voltage-current characteristic.

TAPI: A Windows Telephony Applications Programming Interface designed by
Microsoft and Intel to stimulate third-party development of telephony
applications that run on Windows-based PCs.

TSAPI: A Telephony Service Application Programming Interface that allows
telephony applications to be designed to interwork with Novell clients and
servers.

UNIVERSAL SERIAL BUS (USB): A new open standard designed to provide low
cost "plug and play" interface between PCs and peripherals. USB brings higher
speed PC-to-peripheral communications, allows for hot attach/detach of
peripherals and provides for the connection of multiple devices to a single
port.

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VCSEL OR VERTICAL CAVITY SURFACE EMITTING LASER: The latest development of
laser light sources used in optical fiber communications at speeds of several
gigabits per second such that all information stored on a PC's hard disk could
be transferred in a few seconds.

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

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SECURITIES AND EXCHANGE COMMISSION

MITEL CORPORATION

ANNUAL REPORT ON FORM 10-K

FOR THE PERIOD ENDING MARCH 27, 1998

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EXHIBITS

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