**U.S. SECURITIES ANDEXCHANGE COMMISSION**

**Washington, D.C.   20549**

 

**FORM 40-F**

 

**ANNUAL REPORT PURSUANT TOSECTION 13(a) OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

For the fiscal year ended **December 31,2004**

 

Commission File No.: **0-30718**

 

**SIERRA WIRELESS, INC.**

(Exact name of Registrant as specified in its charter)

 

**Canada**

(Jurisdiction of incorporation or organization)

 

**13811 Wireless Way, Richmond**

**British Columbia, Canada  V6V 3A4**

**(604) 231-1100**

(Address and telephone number of principal executiveoffices)

 

**Davis Wright Tremaine LLP1300 SW Fifth Avenue, 24th FloorPortland, OR  97201**

(Agent for service in the United States)

 

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

 

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

 

**Common Shares**

(Title of Class)

 

Name of exchange on which securities are registered:

**Toronto Stock Exchange, The Nasdaq StockMarket**

 

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

 

Indicate by check mark the informationfiled with this Form:

 

ý  Annual  Information Form    ý  Audited Annual FinancialStatements

 

Indicate the number of outstanding sharesof each of the issuer’s classes of capital common stock as of the close of theperiod covered by the annual report:

 

**25,357,231 Common Shares without par value asat December 31, 2004**

 

Indicate by check mark whether the Registrant, by filing theinformation contained in this Form, is also thereby furnishing the informationto the Commission pursuant to Rule 12g3-2(b) under the *SecuritiesExchange Act of 1934*, If “yes”, is marked, indicate the filingnumber assigned to the Registrant in connection with such Rule.  o  Yes     82-           ý No

 

Indicate by check mark whether the Registrant:  (1) has filed all reports required to befiled by Section 13 or 15(d) of the *Securities Exchange Act of1934* during the preceding 12 months (or for such shorter period thatthe Registrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.    Yes  ý      No o

 

 

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**INCORPORATION BY REFERENCE**

 

The Registrant’s Annual Information Form and the Registrant’s financialstatements for the year ended December 31, 2004 are attached hereto as AppendixA and Appendix B, respectively, and are incorporated by reference herein.

 

**UNDERTAKING**

 

The Registrant undertakes to make available, in person or by telephone,representatives to respond to inquiries made by the Commission staff, and tofurnish promptly, when requested to do so by the Commission staff, informationrelating to: the securities registered pursuant to Form 40-F; the securities inrelation to which the obligation to file an annual report on Form 40-F arises;or transactions in said securities.

 

**SIGNATURES**

 

Pursuant to the requirements of the *Securities Exchange Act of1934*, as amended, the Registrant certifies that it meets all of therequirements for filing on Form 40-F and has duly caused this annual report tobe signed on its behalf by the undersigned, thereto duly authorized.

 

 
| ** **           | **SIERRA WIRELESS, INC.**             |
|----------------------|---------------------------------------|
|                 | *(Registrant)*                        |
|                 |                                  |
|                 |                                  |
|                 | “David G. McLennan”         |   |
|                 | David G. McLennan,                    |
|                 | Chief Financial Officer and Secretary |
|                 |
|                 |
| Date: March 24, 2005 |

 

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Annual Information Form****March 24, 2005

 

**TABLE OF CONTENTS**

 
| FORWARD-LOOKING STATEMENTS                      |   |
|-------------------------------------------------|--------|
|                                            |   |
| CORPORATE  STRUCTURE                            |   |
|                                            |   |
| GENERAL DEVELOPMENT  OF THE BUSINESS            |   |
|                                            |   |
| General                                         |   |
| Three Year History                              |   |
| Industry  Background and Future Trends          |   |
|                                            |   |
| NARRATIVE  DESCRIPTION OF THE BUSINESS          |   |
|                                            |   |
| Our Solution                                    |   |
| Our Products                                    |   |
| Product Development                             |   |
| Distribution                                    |   |
| Marketing                                       |   |
| Manufacturing                                   |   |
| Employees                                       |   |
| Competition                                     |   |
| Intellectual Property                           |   |
| Governmental Regulation                         |   |
| Additional  Information Concerning Our Business |   |
|                                            |   |
| DIVIDENDS                                       |   |
|                                            |   |
| DESCRIPTION OF CAPITAL  STRUCTURE               |   |
|                                            |   |
| MARKET FOR SECURITIES                           |   |
|                                            |   |
| DIRECTORS AND OFFICERS                          |   |
|                                            |   |
| CODE OF BUSINESS  CONDUCT AND ETHICS            |   |
|                                            |   |
| AUDIT COMMITTEE                                 |   |
|                                            |   |
| DISCLOSURE CONTROLS  AND PROCEDURES             |   |
|                                            |   |
| LEGAL PROCEEDINGS                               |   |
|                                            |   |
| REGISTRAR AND TRANSFER  AGENT                   |   |
|                                            |   |
| MATERIAL CONTRACTS                              |   |
|                                            |   |
| EXPERTS                                         |   |
|                                            |   |
| ADDITIONAL INFORMATION                          |   |

 

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## ***FORWARD-LOOKING STATEMENTS***

## *** ***

Certain statements contained in this AnnualInformation Form, or incorporated by reference herein, that are not based onhistorical facts are “forward-looking statements” and are prospective.  These statements appear in a number ofdifferent places in this Annual Information Form and can be identified by wordssuch as “estimates”, “projects”, “expects”, “intends”, “believes”, “plans”, ortheir negatives or other comparable words. Forward-looking statements include statements regarding the outlook forour future operations, plans and timing for the introduction or enhancement ofour services and products, statements about future market conditions, supplyconditions, end customer demand conditions, channel inventory and sell through,revenue, gross margin, operating expenses, profits, forecasts of future costsand expenditures, the outcome of legal proceedings, and other expectations,intentions and plans that are not historical fact.  Such forward-looking statements are subjectto risks, uncertainties and other factors that could cause actual results todiffer materially from future results expressed or implied by suchforward-looking statements.  Many ofthese factors are beyond the control of the Company.  Consequently, all forward-looking statementsmade in this Annual Information Form, or the documents incorporated byreference herein, are qualified by this cautionary statement and there can beno assurance that actual results or developments anticipated by the Companywill be realized.

 

## ***CORPORATESTRUCTURE***

## *** ***

Unless the context otherwise indicates,references to “we”, “our”, “us”, “the Company” or “Sierra Wireless” in thisAnnual Information Form means Sierra Wireless, Inc. and its subsidiaries.

 

Sierra Wireless was incorporated under the *Canada Business Corporations Act* on May 31, 1993.  The Articles of Sierra Wireless were amendedby a Certificate of Amendment issued March 29, 1999 to remove the privatecompany provisions and restrictions on share transfer.  The Articles of the Company were furtheramended by Certificates of Amendment issued May 13, 1999 and May 14, 1999 to:(i) re-designate and change all existing common shares in the capital of theCompany to new common shares in the capital of the Company (the “Common Shares”);(ii) change the rights attached to all preference shares in the capital of theCompany (the “Preference Shares”) and to remove each existing series ofPreference Shares; and (iii) consolidate the Common Shares on the basis of onepost-consolidation Common Share for 1.5 pre-consolidation Common Shares.

 

The Company’s registered and records officeis located at Suite 2600, Three Bentall Centre, 595 Burrard Street, Vancouver,British Columbia, Canada, V7X 1L3 and its head office and principal place ofbusiness is located at 13811 Wireless Way, Richmond, British Columbia, Canada,V6V 3A4.

 

The following table lists subsidiaries ofSierra Wireless and their jurisdictions of incorporation or organization.  All such entities are 100% owned, directly orindirectly, by Sierra Wireless.

 
| **Name**                                | ** ** | **Jurisdiction  of Incorporation or Organization** |
|-----------------------------------------|------------|----------------------------------------------------|
| ** **                              | ** ** | ** **                                         |
| Sierra  Wireless America, Inc.          |       | Delaware,  U.S.A.                                  |
|                                    |       |                                               |
| Sierra  Wireless (UK) Limited           |       | United  Kingdom                                    |
|                                    |       |                                               |
| Sierra  Wireless (Asia-Pacific) Limited |       | Hong Kong                                          |

 

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## ***GENERAL DEVELOPMENT OF THE BUSINESS***

## *** ***

### **General**

###  

We provide highlydifferentiated wireless solutions worldwide. We develop and market a broad range of products that include wirelessmodems for portable computers, embedded modules for original equipmentmanufacturers, or OEMs, rugged vehicle-mounted connectivity solutions andmobile phones.  Our products permit usersto access wireless data and voice networks using notebook computers, personaldigital assistants, or PDAs, vehicle-based systems and mobile phones.

 

Wireless datacommunications is an expanding market positioned at the convergence of wirelesscommunications, portable computing and the Internet, each of which we believerepresents a growing market.  Ourproducts are based on open standards, including the Internet protocol, andoperate on the networks of major wireless communications service providers.

 

Our products areprimarily used by businesses and government organizations to enable theiremployees to access a wide range of wireless data applications including theInternet, e-mail, messaging, corporate intranet access, remote database inquiryand computer-aided dispatch.  We sell ourproducts primarily through indirect channels, including wireless operators,resellers and OEMs.

 

We sell our products worldwide, withemphasis on the North American, European and Asia-Pacific regions.

 

Following our considerable revenue andearnings growth in 2004, we expect a significant reduction in our businessearly in 2005.  During the first quarter,we expect that our business will be negatively affected by:

 

•                  The reduction in our embedded modulebusiness volumes as a result of the completion of CDMA module shipments topalmOne for their Treo 600 Smartphone by the end of 2004;

 

•                  Channel inventory at some of our channelpartners that is already sufficient to meet near term customer demand; and

 

•                  The near term impact of increasedcompetition in EVDO and EDGE PC cards, including an expected loss of near termmarket share at Verizon Wireless.

 

During 2005, we expect to increase ourresearch and development efforts to ensure that we are well-positioned with newproducts that will take advantage of market opportunities associated with thedeployment of 3G networks.  See “OurProducts” for discussion of specific product development initiatives.

 

### **Three Year History**

###  

***Fiscal2004***

 

•                  We began commercial shipments of six newproducts – the Voq professional phone, the Sierra Wireless AirCard 580 for CDMA1X EVDO networks, the AirCard 555R for CDMA networks in Asia, the MP555 forCDMA 1X, the MP775 for EDGE networks and the AirCard 775 For EDGE networks.

 

2

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•                  We announced distribution agreements forour CDMA embedded modules with Premier Wireless Solutions and for our CDMA PCcards with Tirumala Seven Hills Pvt Ltd in India and Beijing Putian TailiTelecom in China.  We also announcedsupply agreements with Audiovox Communications Corporation for additionalsupply of our PC5220 1X EVDO PC card and with Symbol Technologies and Verifone forour EM3420 CDMA 1X embedded modules.

 

•                  We announced the availability of the PC3300and the MP 555 GPS rugged wireless modem on the Sprint Nationwide PCS Network.

 

•                  We announced the availability of the SierraWireless AirCard 775 and the MP 775 GPS rugged wireless modem on the CingularWireless EDGE network.  We also announcedthe availability of the Sierra Wireless AirCard 750 for customers in the UnitedKingdom and in India.

 

•                  We signed a distribution agreement withOnda Communication Spa for our EDGE/GPRS N775 PC card.

 

•                  We announced the commercial availability ofthe Voq professional phone in the Netherlands, Belgium, Luxembourg, Turkey,Austria, Germany, Switzerland, the Nordics, the United Kingdom, Italy, Franceand Spain.

 

•                  In North America, the Voq professionalphone is available from Brightpoint, Cellstar, members of Intel’s ProductDealer Program, Insight, MobilePlanet, RCS Computer Experience and USA.NET.

 

***Fiscal2003***

 

•                  On August 12, 2003, we announced thecompletion of our acquisition of AirPrime, Inc. (“AirPrime”), a privately-heldsupplier of high-speed wireless data communications products. Under the termsof the acquisition, we issued 3,708,521 of our common shares to theshareholders of AirPrime.  Theacquisition provided us with additional knowledge and expertise in CDMAtechnology as well as a staff of over 70 research and development, engineering,product marketing, manufacturing and technical sales professionals and enabledus to offer a broader product line of wireless data communications products toa wider range of customers and also strengthens our engineering team to developnew products.

 

•                  In October 2003, we announced plans tointroduce our Voq line of professional wireless cellular phones and value-addedsoftware to deliver a converged mobile telephony and e-mail solution, commonlyreferred to as a Smartphone, targeted at business users.  Our new Voq phones are based on MicrosoftWindows MobileTM software for Smartphones and feature both a familiar cellularphone keypad and a unique flip-open QWERTY thumbpad.  The first Voq-branded phone was madecommercially available in the second quarter of 2004 in certain countries.

 

•                  In November 2003, we completed a new issueand secondary offering of 4,600,000 Common Shares, resulting in net proceeds of$67,400,000. Of the 4,600,000 Common Shares sold under this offering, 4,442,222Common Shares were offered by the Company and 157,778 were offered by certainshareholders of the Company.

 

•                  We developed products for the new andexpanding CDMA 1xEV-DO networks.  Our PC5220 PC Card for the Verizon Wireless CDMA 1xEV-DO network started commerciallyshipping in the third quarter of 2003. Our second CDMA 1xEV-DO product, the Sierra Wireless AirCard 580, beganshipping commercially in the first quarter of 2004.

 

3

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•                  We transferred global fulfillment andcertain CDMA product manufacturing to Flextronics.  By using their fully integrated supply chainservices, we have reduced product costs, improved alignment with ourinternational customer base and achieved operating efficiencies andscalability.

 

***Fiscal2002***

 

•                  We received regulatory approvals for theAirCard 750 in Europe and China.

 

•                  We began commercial volume shipments offive new products – the Sierra Wireless AirCard 710 and AirCard 750 for use onGSM/GPRS networks and the AirCard 550, the AirCard 555 and the SB555 embeddedmodule for use on the CDMA2000 1X networks.

 

•                  In Europe, we developed carrier channelrelationships with Vodafone and Orange in the UK, KPN Mobile in theNetherlands, Telia in Sweden and Telefonica in Spain.

 

•                  In the Asia-Pacific region we launched theAirCard 750 with Hutchison Telecom in Hong Kong, StarHub in Singapore and AISin Thailand.  We also launched theAirCard 555 with China Unicom in China, Telstra in Australia and Telecom NewZealand.

 

•                  We were the first wireless data modemprovider to supply CDMA2000 1X PC Card modems to four leading North AmericanCDMA carriers:  Bell Mobility, SprintPCS, TELUS Mobility and Verizon Wireless.

 

•                  Sales growth was constrained by theslowdown in enterprise spending and by overall conditions affecting thewireless communications industry.  Wereduced operating expenses and asset levels as a result of our assessment ofcurrent and visible demand. Restructuring and other costs amounted to $37,707,000.

 

### **Industry Background andFuture Trends**

###  

***WirelessData Growth***

 

The wireless communications industryprovides fixed and mobile voice and data communications.  According to the Cellular TelecommunicationsIndustry Association, the wireless data market continues to experience rapidgrowth. Research firm Gartner forecasts that by 2007, mobile data connectionsin North America will reach 143 million connections, from 64 million in 2004.Other regions are experiencing rapid data growth as well. For example inWestern Europe, mobile data connections are expected to reach 182 million in2007, from 84 million in 2004. Newer generation technologies such as EnhancedData over GPRS Evolution (EDGE), CDMA 1x EV-DO, Universal MobileTelecommunications System (UMTS), and upcoming UMTS with High Speed DownlinkPacket Access (HSDPA) upgrades, are expected to support much of this growth.

 

To date, demand for wireless data has comeprimarily from corporations, public organizations and individuals seeking toimprove customer service and productivity. Increased coverage, significant technological improvements to wirelessdata networks, devices and software, and price reductions for datacommunications have also contributed to growth in the wireless datacommunications industry. The ability to meet the demand for anytime, anyplacecommunications is made possible by the convergence of trends in portablecomputing, the growth of the Internet, and wireless communications.  Gartner forecasts that by 2007, 65% ofFortune 2000 companies will support wireless wide-area wireless data access.

 

4

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*Portable Computing.*Mobile PCs**arenow mainstream. Many business professionals utilize laptops as their primarycomputing device giving them the mobility required to work anywhere.  Smaller handheld computers or PDAs continueto be popular, as are newer mobile phones that offer more advancedcapabilities, such as access to personal information, Internet and e-mail.  These include devices based on the Palm andMicrosoft Windows platforms.  Mobile PCsand Mobile Phones continue to be the leading devices that are accessingwireless data. The worldwide Smartphone market is forecast to experiencesignificant growth over the next few years. The research firm ARCChart forecasts worldwide shipments of Smartphonesto experience 90% compounded annual growth and to reach 272 million units by2008.

 

*The Internet. *The Internet has become an indispensabletool for many business professionals, and the volume of Internet traffic hasgrown rapidly as new applications and e-commerce have become widelyadopted.  Wireline telecommunicationscarriers continue to make significant investments in Internet protocol-basednetworks to handle the expected growth in the volume of data traffic.

 

*Wireless Communications. *While wireline communications networks werehistorically dominated by voice traffic, data now comprises more than half ofthe traffic on these networks. A similar evolution is now occurring on wirelessnetworks as wireless service providers address the growing demand for growingdata communications with additional technical and commercial offerings.

 

***Existingand Emerging Cellular and PCS Technology Standards***

 

Data communications over cellular networksare currently being transmitted with various digital technologies, such as CDMA2000 1X, CDMA2000 1X EVDO, Global System for Mobile (GSM), Generalized PacketRadio Service (GPRS), EDGE and UMTS.

 

CDMA is a digital technology thatsignificantly improves the capacity and quality of both voice and datacommunications and supports a broader range of applications, including voice,wireless Internet and multimedia. Initially, second generation CDMA offered increased data ratecapabilities of 14.4 kbps.  In 2001,North American CDMA carriers, including Sprint PCS and Verizon Wireless, begandeploying a 2.5G CDMA solution called CDMA2000 1X.  Other CDMA carriers undertook similar effortsin Asia, Latin America and the Middle East. CDMA2000 1X supports faster wireless data transfers, typically rangingfrom 40 to 60 kbps, with a top nominal speed as currently deployed of 153 kbps.

 

Leading GSM carriers in North America,Europe and Asia also began shifting from first generation technology to 2G GPRSin 2001. Like 2G CDMA, GPRS improves the capacity and quality of datacommunications and supports a broader range of applications including voice,wireless Internet and multimedia. GPRS offers data speed capabilities rangingfrom 20 to 40 kbps with a top nominal speed of 56kbps.

 

Third generation, or 3G, systems, have beendeveloped and launched, to replace and/or complement second generation and 2.5Gdigital cellular systems. In 2003, AT&T Wireless and Cingular began rollingout their EDGE networks in the U.S. EDGE offers significant increases in datarates ranging from 100 to 130 kbps, with burst speeds up to 200 kbps. Inaddition, a further 49 networks in 35 countries currently offer EDGE serviceswith many more planned deployments. In 2004, UMTS rollouts, especially inEurope, have allowed GSM operators to offer average data speeds of 220-320 kbpsto their customers. The first networks are expected to upgrade their UMTSnetworks to High Speed Downlink Packet Access (HSDPA), which increases speedsto 500-800 kbps, at the end of 2005.  In2004, deployments or expansions of EV-DO service, the next generation (3G) CDMAtechnology were underway with Verizon Wireless and other carriers. Sprint alsoannounced that it would start rolling out the same technology in 2005. EV-DOsupports wireless data speeds, typically ranging from 300 to 500 kbps, anexperience similar to wired broadband connections.

 

5

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We expect thatfuture deployment of commercial service will further increase this awarenessand expand the market for wireless data products and services.

 

## ***NARRATIVE DESCRIPTION OF THE BUSINESS***

## *** ***

### **Our Solution**

###  

We provide highly differentiated wirelesssolutions worldwide.  We develop andmarket a broad range of products that include wireless data modems for portablecomputers, embedded modules for wireless applications of OEMs, ruggedvehicle-mounted modems and mobile phones. Our products permit users to access wireless data and voicecommunications networks using notebook computers, PDAs, vehicle-based systemsor mobile phones.

 

### **Our Products**

###  

Our current product line of wireless solutionsincludes wide area wireless PC cards, embedded modules that are built into OEMs’computers and other devices, vehicle-mounted modems and enabling software.  In addition, we have a number of new productsunder development.

 

***SierraWireless PC Cards and Embedded Modules***

 

The following tableoutlines our current product offerings for wireless wide area network PC cardsand embedded modules: 

 
| **Product  Type**            | ** ** | **Product  Class** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                    | ** ** | **Products**                                                            | ** ** | **Compatible  Network/Territory**                                                                                                                                                            | ** ** |
|------------------------------|------------|--------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                   | ** ** | ** **         | ** ** | ** **                                                                                                                                                                                                                                                                                                                         | ** ** | ** **                                                              | ** ** | ** **                                                                                                                                                                                   | ** ** |
| ** **                   | ** ** | AirCard 700 Series |       | Wide-area wireless network interface cards, or NICs, providing local  area network, or LAN-like connectivity for computer users on the  GSM/GPRS/EDGE networks. Using these modems, mobile computer users have full  access to e-mail, intranet, corporate applications and full Web browsing  where network service is available. |       | AirCard 750   AirCard 775                                          |       | Tri-band for GSM/GPRS  networks worldwide. Quad-band for EDGE  networks worldwide.                                                                                                      | ** ** |
| ** **                   | ** ** | ** **         | ** ** | ** **                                                                                                                                                                                                                                                                                                                         | ** ** | ** **                                                              | ** ** | ** **                                                                                                                                                                                   | ** ** |
| **Wireless  Network  Cards** | ** ** | AirCard 500 Series |       | Wide-area wireless NICs, providing LAN-like connectivity for computer  users on the CDMA2000 1X and CDMA EVDO networks                                                                                                                                                                                                             |       | AirCard 550   AirCard 555    AirCard 555R    AirCard 580 |       | Single-band for Sprint PCS  CDMA2000 1X PCS  networks.  Dual-band North American  cellular and PCS networks.  Dual-band CDMA 1X for  China networks.  Dual-band CDMA2000 1X  EV-DO networks. | ** ** |
| ** **                   | ** ** | ** **         | ** ** | ** **                                                                                                                                                                                                                                                                                                                         | ** ** | ** **                                                              | ** ** | ** **                                                                                                                                                                                   | ** ** |
| ** **                   | ** ** | PC 5200 Series     |       | Wide-area wireless modem card, providing users with access at broadband  speeds from notebook computers to corporate applications, e-mail and the  Internet.                                                                                                                                                                       |       | PC 5220                                                                 |       | Dual-band CDMA2000 1X  EV-DO networks.                                                                                                                                                       | ** ** |

 

6

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| **Product  Type**    | ** ** | **Product  Class**                                 | ** ** | **Description**                                                                                                                                                                                                                                                | ** ** | **Products**          | ** ** | **Compatible  Network/Territory**                 | ** ** |
|----------------------|------------|----------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|---------------------------------------------------|------------|
| **Embedded Modules** |       | SB Embedded  Modules

 

EM Embedded  Modules |       | Embedded modules deliver wireless data and voice connectivity that OEMs  integrate into products ranging from handheld computers, PDAs, laptops,  Smartphones and mobile terminals, to fixed terminals including industrial  meters, and monitoring equipment. |       | SB555  EM3420  EM5625 |       | CDMA2000 1X.   CDMA2000 1X.   CDMA 1X EV-DO. |       |   |

 

***Sierra Wireless MP Modem Product Line***

 

The Sierra WirelessMP product line consists of a group of rugged, high powered, vehicle-mountedmodems, including the MP750 GPS, MP555 GPS and MP 775 GPS. Generally, theseproducts are mounted in a vehicle and are physically connected to a computer ordata terminal. The Sierra Wireless MP product line is designed to operate inharsh conditions, including extremes of temperature, humidity, vibration andvehicle ignition noise. All four of our MP products come with fully integratedglobal positioning system (or GPS) capability as a standard feature.  The Sierra Wireless MP775 GPS is our newestaddition to the MP product line.  TheMP775 GPS operates on high-speed EDGE, GPRS and GSM networks worldwide.  The MP555 GPS operates on CDMA2000 1Xnetworks and is designed to withstand the same harsh conditions as its MPpredecessors.  The MP750 GPS hascapabilities nearly identical to that of the MP555 GPS and is designed tooperate on GSM/GPRS networks worldwide. The MP775 GPS commenced commercial shipments in 2004, while the MP555GPS and MP750 GPS commenced commercial shipments in 2003.  These three products are intended to provideour existing MP200 GPS customers with a migration path to the latest wirelessnetwork technologies.  Commonapplications for Sierra Wireless MP products include:

 

•                  Police officers looking uplicense plates, checking criminal databases, communicating with the dispatcherand other officers and filing service reports from a patrol car; and

 

•                  Utility field servicetechnicians receiving dispatch instructions, consulting service instructionsand diagrams, filing reports and time sheets.

 

***Sierra Wireless Voq Professional Phone***

 

During 2004, SierraWireless launched the Voq Professional PhoneTM, targeted to the mobile businessprofessionals.  This new class of mobilephone offers a flip-open QWERTY thumbpad and easy-to-use software solutions forbusiness users, including secure, serverless, always-there e-mail. Based on theMicrosoft Windows Mobile platform, the Voq Professional PhoneTM incorporates thebest features of a current mobile phone, a messaging device and a PDA in asingle compelling “phone-first” device.

 

The current product line operates on theglobal GSM/GPRS mobile networks, with twodiscreet models available: the A10 for Europe/Asia Pacific and the A11 for theNorth American market. The Voq product line also includes other hardwareand software innovations for easy information navigation and retrieval, textentry and e-mail that is automatically updated.

 

7

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***Enabling Software***

 

Our line of softwareallows our modems and devices to work with notebook and handheld computers andother devices:

 

•                  *Sierra Wireless Watcher**Software* is a graphical user interface designed for everydayuse with our modems. While the modem is in use, the Watcher program providesongoing information on registration status and signal strength and allows theuser to switch operating modes where applicable. Sierra Wireless Watchersupports all major PC and handheld operating systems;

 

•                  *Sierra Wireless AirCard Manager*is aweb-based software solution for the Sierra Wireless AirCard product line,designed to support enterprise customers that require an automated, seamlessapproach to software installation and end-user configuration; and

 

•                  *Developer’s Central, includingSierra Wireless Software Development Kits*, provide tools andinformation that support developers in their integration of Sierra Wirelessproducts into applications.  Using thesetools, developers can include important modem status information into their ownuser interface.  This level ofintegration supports easy-to-use, complete bundled solutions.

 

***Product Revenue***

 

Our revenue byproduct for the two-year period ended December 31, 2004 is as follows:

 
| **Years ended December 31,** | ** ** | **2003** | ** ** | **2004** | ** ** |
|------------------------------|------------|----------|------------|----------|------------|
| PC Card                      |       | 70       | %          | 59       | %          |
| Embedded modules             |       | 21       |       | 33       |       |
| Mobile                       |       | 6        |       | 5        |       |
| Voq                          |       | —   |       | 1        |       |
| Other                        |       | 3        |       | 2        |       |
|                         |       | 100      | %          | 100      | %          |

 

***Future Products***

 

We continuallyevaluate and develop new products and technologies that will allow us to takeadvantage of the ever expanding and dynamic wireless market.  Emerging wireless standards that are areas ofsignificant new product development interest for us include:

 

•                  UMTS, especially with the HSDPA upgrade, isdesigned to offer transmission of text, digitized voice, video and multimediaat broadband speeds.  Once fullyimplemented, it will allow customers to remain attached to the Internet athigh-speeds while on the move. UMTS/HSDPA is an evolutionary path for GSM, TDMA, GPRS and EDGEnetworks. Our plan is to introduce newproducts during 2005 that support the new HSDPA airlink.  We expect to launch our HSDPA PC card in thesecond half of 2005.

 

•                  EV-DO:  As EV-DOdeployments continue, newer upgrades are being developed to enhance thecapabilities and experience for end-users. New capabilities will allow forimproved video and multimedia transmissions while on the move. CDMA 2000 1XEV-DO Release 0 is an evolutionary path for CDMA IA95 and CDMA 2000 1Xnetworks. EV-DO Release A brings 

 

8

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significant uplink and downlink speedadvantages to EV-DO.  We have establisheda strong leadership position in EV-DO Release 0 PC cards over the past 18months.  We intend to extend ourleadership position by accelerating the introduction of EV-DO Release Acapability and speeds.  We expect tolaunch our EV-DO Release A PC cards in the first half of 2006.

 

•                  Voq Professional Phone productline:  We are developing the nextgeneration Voq platform to take advantage of 3G high speed networks, such asHSDPA.  Our next generation Voq phoneswill bring significant airlink, feature and ID enhancements to the productline.  We expect the first of theseproducts to be available during the first half of 2006.

 

•                  Embedded modules for laptopmanufacturers and other OEMs:  We intendto capitalize on our strong embedded modules experience and track record andmeet the growing demand we expect from laptop manufacturers for embedded 3Gcapability.  We will meet this demand bydeveloping products and services specifically for this category.

 

### **ProductDevelopment**

###  

We have built a reputation in the wirelessdata industry for creating state-of-the-art, high-quality products withinaggressive timeframes. Our development team of approximately 148 staff, locatedin Richmond, BC and in Carlsbad, CA, are skilled in the areas of radiofrequency, hardware, embedded software, windows software and mechanical design.Combined, this team has several hundred person years of experience in thedesign of small form factor wireless data and voice devices. Our productdevelopment team combines leaders with extensive experience in their fields, withyounger graduates from leading universities.

 

We take a “core team”approach to product development.  Ourgoal is develop a “whole” product and to ensure products are managed closelythroughout their entire life cycle. As part of this approach, individuals fromour product development group form product-specific teams with employees fromother functional areas, including product management, operations, technicalsupport and quality.  These teams workclosely to bring new products through the development phase, while balancingthe market requirements of performance, time to market and product cost.Concepts and prototypes are validated by working with lead customers, channelpartners and industry consultants.

 

Products that resultfrom this process are designed and tested to cellular industry standards andintroduced to our high-volume contract manufacturing partners for productionand delivery to our customers. Included in the development effort is thecertification of our products with industry and regulatory standards bodies.

 

A group of seniorengineers develops and monitors our development standards. These standards areapplied across all development projects to ensure uniformity. For example, wehave adopted a core -wireless engine design approach to leverage developmentefforts across multiple different products. This is also intended to help ourcustomers to utilize our different products with minimal additional integrationeffort on their part.

 

Our productdevelopment staff stays current in technology by participating in industrygroups such as the Personal Computer Communications Association (PCCA), theCellular Telecommunications Industry Association (CTIA), the Mobile AdvisoryCouncil (MAC), the USB Forum, the PCI Special Interest Group (PCI-SIG), theEuropean Telecommunications Standards Institute (ETSI), the PCS TypeCertification Review Board (PTCRB), the Third Generation Partnership Project(3GPP), the Third Generation Partnership Project 2 (3GPP2) and theInternational Wireless Packaging Consortium, and through ongoing technicaleducation.  We maintain closerelationships with local universities by hiring co-op students, givinglectures, supporting visiting professorships and

 

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participating in regular informalmeetings with faculty members.

 

### **Distribution**

###  

Our products are usedby a variety of end-users, ranging from sales people and mobile executives, topolice officers and utility workers. We have built a distribution channel thatresponds to the unique purchasing and usage requirements of our customerbase.  Historically, a substantialmajority of our sales have come from North American markets.  As our wireless technology platforms havediversified, we have built sales and distribution teams to focus on developingour business outside of North America. Currently, we have dedicated sales and distribution teams for theEuropean, Asia-Pacific and North American regions.  Our approach to distribution takes advantageof our existing relationships with wireless operators, resellers and OEMs inorder to maximize the productivity of our sales team.

 

***Wireless Operators***

 

Wireless operatorsplay two key roles in our distribution strategy.  First, wireless operators are often resellersfor us, purchasing our products and then reselling them to end-usercustomers.  Second, the wireless operatorsales team often works with our sales team to jointly sell wireless solutionsand our equipment to the end-user customer. The wireless operator channel provides us with extended customer reach,while the operators are able to leverage our wireless data expertise to helpsell their products and services.  Wehave invested a great deal of time and resources in cultivating our relationshipswith wireless operators and view these relationships as a critical successfactor.

 

***Resellers***

 

Resellers purchaseour products either directly from us or from a distributor and resell them toend-user customers.  In order to supportresellers who prefer to purchase through a distributor, we have selectivelyformed distribution relationships. Distributors ensure that our products are available to a large number ofresellers that buy products.

 

Resellers generallycombine our products with other elements of an overall solution, such as computerhardware and application software, and deliver a complete solution to theend-user customer. Resellers include computer resellers, wide area networkresellers, application developers, system integrators, wireless Internetservice providers, wireless application service providers and big boxretailers.  This channel provides us withdirect access to markets and users that are often not served by the largewireless operators.

 

***Original Equipment Manufacturers***

 

Original equipmentmanufacturers represent companies that integrate our modem technology intodevices they manufacture and sell to end-user customers through their owndirect sales force and indirect distribution channels.  Our modems have been integrated into a rangeof devices, such as industrial handheld computers, PDAs, Smartphones andnotebook computers.

 

***Direct Sales***

 

A small percentage ofour end-user customers choose to purchase products directly from us.  Typically, these are accounts requiringdirect sales and technical support, or existing customers ordering additionalproducts or accessories.  Direct salesare facilitated through our Web site, inside sales department and regionallyorganized sales team.

 

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***Customer Support***

 

We provide customers,wireless operators and other channel partners with product and technicalsupport in several languages using telephone, e-mail and our Web site. Onlineresources include product documentation, technical specifications, frequentlyasked questions, application notes, troubleshooting notes, troubleshootingtools, and software downloads.

 

### **Marketing**

###  

Our marketing team isresponsible for providing product management, strategic marketing and marketingcommunications for our products on an increasingly global basis.  Members of the product management team playan active role in our core team approach to developing and managing individualproducts through their entire product life cycle.  Emphasis is placed on understanding customerneeds, developing the business case, determining competitive positioning andpricing, and ensuring product completeness, which includes documentation,promotional material and marketing programs.

 

***Strategic Marketing/Marketing Communications***

 

We communicate ourcorporate and product positioning to channels and customers in our globalmarkets in several ways, including:

 

•                  Actively seeking editorial coverage andplacing advertisements in industry, business and trade publications;

 

•                  Throughindustry associations;

 

•                  Bymeeting with opinion leaders and industry analysts; and

 

•                  Participation in targeted conferences andtrade shows.

 

We work with our channel partners to develop programs to encourageend-user adoption.

 

### **Manufacturing**

###  

We outsource most ofour manufacturing services, including parts procurement, kitting, assembly andrepair. We believe that outsourcing allows us to:

 

•                  Focus onour core competencies, including research and development, sales and marketing;

 

•                  Participatein contract manufacturer economies of scale;

 

•                  Accesshigh quality manufacturing resources;

 

•                  Achieverapid production scalability; and

 

•                  Reduce equipment capital costs andequipment obsolescence risk.

 

In addition, weperform certain manufacturing related functions in-house, includingmanufacturing engineering, and development of manufacturing test procedures andfixtures.

 

Our products arecurrently manufactured by Flextronics and Creation Technologies.  We use Flextronics as our primary contractmanufacturer and logistics partner to provide an end-to-end supply chainsolution.  This includes design support,procurement, low cost manufacturing and repair in China and global fulfillmentservices from Memphis, Tennessee.  Byusing its fully integrated supply chain services, we expect to optimize productcosts, improve alignment with our increasingly international customer base andachieve

 

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increased operatingefficiencies and scalability.  We expectthat Creation Technologies in Canada will continue to build our lower unitvolume products.

 

### **Employees**

###  

As of December 31,2004 we had a total of 264 full time employees, 169 of whom are at our headoffice in Richmond, B.C., with the balance being located across the UnitedStates, Canada, the United Kingdom and the Asia-Pacific region. Of the 264employees, 148 are involved in product development, 37 are involved inmanufacturing, 34 are sales and support personnel, 20 are marketing personnel,and 25 are in finance and administration. Employees have access to corporate-fundedongoing training and professional development opportunities, both on-the-joband through outside educational programs. Cash compensation and our employeestock option plan are complemented by internal recognition programs and careeradvancement opportunities. We believe our relationships with our employees aregood.

 

We have entered intonon-disclosure agreements and confidentiality agreements with key managementpersonnel and with substantially all of our employees.

 

### **Competition**

###  

Wireless datatechnologies are converging toward standardizing on a few key cellulartechnologies.  Cellular handsets arebecoming ‘smart’ with increased data functionalities and PDAs are becomingwireless through the integration of embedded wireless modules.  With the advent of new cellular technologiessuch as CDMA 1xEV-DO, EDGE and UMTS, new competitors are emerging.

 

*CDMA:* Sierra Wireless is a market leader in CDMA PC Cards, embeddedmodules and mobile in-vehicle solutions. CDMA competition, both announced and actual, includes Novatel Wireless,Flextronics (acquired GTRAN), Wavecom, Kyocera Wireless, Hitachi, SonyEricsson, AnyData, and BellWave.  SierraWireless maintains its market leadership position in mobile in-vehicle solutionsagainst competitors such as Bluetree Wireless and Enfora.

 

*GSM:*Sierra Wireless is a market leader inGSM/GPRS/EDGE PC cards.  In thesetechnologies, we face competition, both announced and actual, from Option NV,Novatel Wireless, Blue Tree Wireless, and Sony Ericsson.  With the introduction of the Voq professionalphone in the second quarter of 2004, Sierra Wireless expects to compete withSmartphone and wireless PDA suppliers such as Motorola, Nokia, palmOne,Research in Motion, Samsung, Siemens and SonyEricsson, among others.

 

We believe that by focusing on business andgovernment customers and by providing products that are superior in quality,functionality, and value, together with excellent customer service and superiordistribution partner relationships and programs, we will be successful in thelong term.

 

### **IntellectualProperty**

###  

We protect our intellectual propertythrough a combination of patent protection, copyright, trademarks, tradesecrets, licenses, non-disclosure agreements and contractual provisions. Wegenerally enter into a non-disclosure and confidentiality agreement with eachof our employees, consultants and third parties that have access to ourproprietary technology.

 

We currently hold 37 United States patentsand 31 international patents. Additional patent applications are pending. Whenwe consider it to be advantageous, we utilize our intellectual propertyportfolio and access the intellectual property of third parties by enteringinto commercial licenses and cross-licenses.

 

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### **Governmental Regulation**

###  

Our products are subject to certainmandatory regulatory approvals in the United States, Canada and other countriesin which we operate. In the United States, the Federal CommunicationsCommission regulates many aspects of communications devices, includingradiation of electromagnetic energy, biological safety and rules for devices tobe connected to the telephone network. In Canada, similar regulations areadministered by the Ministry of Industry, through Industry Canada.

 

Wireless modems must be approved underthese regulations by either the Federal Communications Commission or IndustryCanada prior to these products being offered for sale. We have obtained allnecessary Federal Communications Commission, Industry Canada and other requiredregulatory approvals for the products we currently sell.

 

### **Additional InformationConcerning Our Business**

###  

Sierra Wireless’s business is not subjectto significant seasonal or cyclical fluctuations.

 

Sierra Wireless’s operations do not have asignificant impact upon the environment. We have not made, and are not required to make, any significant capitalexpenditures to comply with environmental regulations.

 

***RiskFactors***

 

Our business issubject to significant risks and past performance is no guarantee of futureperformance.  Some of the risks we faceare:

 

**We have incurred netlosses in the past and may not sustain profitability.**

 

While we had earnings from operations foreach of the last two years ended December 31, 2004, we have incurred a lossfrom operations in each of the three fiscal years ended December 31, 2002.  As of December 31, 2004, our accumulateddeficit was $46.4 million. While we had net earnings of $24.9 million forthe year ended December 31, 2004, our ability to achieve and maintainprofitability will depend on, among other things, the continued sales of ourcurrent products and the successful development and commercialization of newproducts.

 

We expect losses in Q1 2005.  If we do not return to profitability, we may needto raise additional capital in the future. Additional financing may not beavailable, and even if available may not be on acceptable terms. We may seek toraise additional capital though an offering of common shares, preference sharesor debt, which may result in dilution, and/or the issuance of securities withrights senior to the rights, of the holders of common shares. As a result, ourshare price may decline.

 

**Ourrevenues and earnings may fluctuate from quarter to quarter, which could affectthe market price of our common shares.**

 

Our revenues and earnings may vary fromquarter to quarter as a result of a number of factors, including:

 

•             The timing of releases of our new products;

 

•             The timing of substantial sales orders;

 

•             Design win cycles in our embedded modulebusiness;

 

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•             The amount of inventory held by our channelpartners

 

•             Competition from other market participants;

 

•             Possible seasonal fluctuations in demand;

 

•             Possible cyclical fluctuations related tothe evolution of wireless technologies;

 

•             Possible delays in the manufacture orshipment of current or new products;

 

•             Concentration in our customer base; and

 

•             Possible delays or shortages in componentsupplies.

 

Because our operating expenses aredetermined based on anticipated sales, are generally fixed and are incurredthroughout each fiscal quarter, any of the factors listed above could causesignificant variations in our revenues and earnings in any given quarter.  Therefore, our quarterly results are notnecessarily indicative of our overall business, results of operations andfinancial condition.  However, quarterlyfluctuations in our revenues and earnings may affect the market price of ourcommon shares.

 

**Ifdemand for our current products declines and we are unable to launch successfulnew products, our revenues will decrease.**

 

If themarkets in which we compete fail to grow, or grow more slowly than we currentlyanticipate, or if we are unable to establish markets for our new products, itwould significantly harm our business, results of operations and financialcondition.  In addition, demand for oneor all of our current products could decline as a result of competition,technological change or other factors.

 

**Ifwe are unable to design and develop new products that gain sufficientcommercial acceptance, we may be unable to maintain our market share or torecover our research and development expenses and our revenues could decline.**

 

We depend ondesigning, developing and marketing new products to achieve much of our futuregrowth. Our ability to design, develop and market new products depends on anumber of factors, including, but not limited to the following:

 

•             Our ability to attract and retain skilledtechnical employees;

 

•             The availability of critical componentsfrom third parties;

 

•             Our ability to successfully complete thedevelopment of products in a timely manner; and

 

•             Our ability to manufacture products at anacceptable price and quality.

 

A failure by us, orour suppliers, in any of these areas, or a failure of new products, such as theVoq professional phone, to obtain commercial acceptance, could mean we receiveless revenue than we anticipate and we are unable to recover our research anddevelopment expenses, and could result in a decrease in the market price forour shares.

 

**Theloss of any of our material customers could adversely affect our revenue andprofitability, and therefore shareholder value.**

 

We depend on a smallnumber of customers for a significant portion of our revenues.  In the last three fiscal years, there havebeen four different customers that individually accounted for more than 10% ofour revenues.  In the twelve months endedDecember 31, 2004, two customers individually accounted for more than 10% ofour revenue and in the aggregate these two customers represented 51% of ourrevenue.  If any of these customersreduce their business with us or suffer from business 

 

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failure, our revenues and profitabilitycould decline, perhaps materially. Shipments of our CDMA embedded modules to palmOne were completed in thefourth quarter of 2004 and we have no visibility on future revenue from thiscustomer.  As a result of channelinventory and increased competition, our business with Verizon Wireless isexpected to be significantly lower than the previous quarter.

 

**Wemay not be able to continue to design products that meet our customer needsand, as a result, our revenue and profitability may decrease.**

 

We develop productsto meet our customers’ requirements but,particularly with original equipment manufacturers, current design wins do notguarantee future design wins.  If we areunable or choose not to meet our customers’ future needs, we may not win theirfuture business and our revenue and profitability may decrease.

 

**Wedepend on a few third parties to manufacture our products and supply keycomponents. If they do not manufacture our products properly or cannot meet ourneeds in a timely manner, we may be unable to fulfill our product deliveryobligations and our costs may increase, and our revenue and margins coulddecrease.**

 

We outsource asubstantial part of the manufacture of our productsto third parties and depend heavily on the ability of these manufacturers tomeet our needs in a timely and satisfactory manner. Some components used by usmay only be available from a small number of suppliers, in some cases from onlyone supplier.  We currently rely on two manufacturers,either of which may terminate the manufacturing contract with us at the end ofany contract year. Our reliance on third party manufacturers and supplierssubjects us to a number of risks, including the following:

 

•             The absence of guaranteed manufacturingcapacity;

 

•             Reduced control over delivery schedules,production yields and costs; and

 

•             Inability to control the amount of time andresources devoted to the manufacture of our products.

 

If we are unable tosuccessfully manage any of these risks or to locate alternative or additionalmanufacturers or suppliers in a timely and cost-effective manner, we may not beable to deliver products in a timely manner. In addition, our results ofoperations could be harmed by increased costs, reduced revenues and reducedmargins.

 

**Wedo not have fixed-term employment agreements with our key personnel and theloss of any key personnel may harm our ability to compete effectively.**

 

None of our officers or other key employeeshas entered into a fixed-term employment agreement.  Our success depends in large part on theabilities and experience of our executive officers and other keyemployees.  Competition for highlyskilled management, technical, research and development and other key employeesis intense in the wireless communications industry.  We may not be able to retain our current keyemployees or attract and retain additional key employees as needed.  The loss of key employees could disrupt ouroperations and impair our ability to compete effectively.

 

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**Wemay have difficulty responding to changing technology, industry standards andcustomer preferences, which could cause us to be unable to recover our researchand development expenses and lose revenues.**

 

The wireless industryis characterized by rapid technological change.  Our success will depend in part on ourability to develop products that keep pace with the continuing changes intechnology, evolving industry standards and changing customer and end-userpreferences and requirements. Our products embody complex technology that maynot meet those standards, changes and preferences. In addition, wirelesscommunications service providers require that wireless data systems deployed ontheir networks comply with their own standards, which may differ from thestandards of other providers. We may be unable to successfully address thesedevelopments in a timely basis or at all. Our failure to respond quickly andcost-effectively to new developments through the development of new products orenhancements to existing products could cause us to be unable to recoversignificant research and development expenses and reduce our revenues.

 

**Competitionfrom new or established wireless communication companies or from those withgreater resources may prevent us from increasing or maintaining our marketshare and could result in price reductions and reduced revenues.**

 

The wireless industryis intensely competitive and subject to rapidtechnological change. We expect competition to intensify. More established and largercompanies with greater financial, technical and marketing resources sellproducts that compete with ours.  We alsomay introduce new products that will put us in direct competition with majornew competitors.  Existing or futurecompetitors may be able to respond more quickly to technological developmentsand changes or may independently develop and patent technologies and productsthat are superior to ours or achieve greater acceptance due to factors such asmore favorable pricing or more efficient sales channels. If we are unable tocompete effectively with our competitors’ pricing strategies, technologicaladvances and other initiatives, our market share and revenues may be reduced.

 

**Wedepend on third parties to offer wireless data and voice communicationsservices for our products to operate.**

 

Our products can onlybe used over wireless data and voice networksoperated by third parties.  In addition,our future growth depends, in part, on the successful deployment of nextgeneration wireless data and voice networks by third parties for which we aredeveloping products.  If these networkoperators cease to offer effective and reliable service, or fail to markettheir services effectively, sales of our products will decline and our revenueswill decrease.

 

**Acquisitions of companies or technologies may result indisruptions to our business or may not achieve the anticipated benefits.**

 

As part ofour business strategy, we may acquire additional assets and businessesprincipally relating to or complementary to our current operations.  Any acquisitions and/or mergers by us will beaccompanied by the risks commonly encountered in acquisitions ofcompanies.  These risks include, amongother things:

 

•             Exposure to unknown liabilities of acquiredcompanies, including unknown litigation related to acts or omissions of ouracquired company and/or its directors and officers prior to the acquisition;

 

•             Higher than anticipated acquisition costsand expenses;

 

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•             Effects of costs and expenses of acquiringand integrating new businesses on our operating results and financialcondition;

 

•             The difficulty and expense of integratingthe operations and personnel of the companies;

 

•             Disruption of our ongoing business;

 

•             Diversion of management’s time andattention away from our remaining business during the integration process;

 

•             Failure to maximize our financial andstrategic position by the successful incorporation of acquired technology;

 

•             The inability to implement uniformstandards, controls, procedures and policies;

 

•             The loss of key employees and customers asa result of changes in management;

 

•             The incurrence of amortization expenses;and

 

•             Possible dilution to our shareholders.

 

In addition, geographic distances may makeintegration of businesses more difficult. We may not be successful in overcoming these risks or any other problemsencountered in connection with any acquisitions.  If realized, these risks could reduceshareholder value.

 

**Otherscould claim that we infringe on their intellectual property rights, which mayresult in substantial costs, diversion of resources and management attentionand harm to our reputation.**

 

It is possible thatother parties may claim that we have violated their intellectual propertyrights. Rights to intellectual property can be difficult to verify. Competitorscould assert, for example, that former employees of theirs whom we have hiredhave misappropriated their proprietary information for our benefit. Asuccessful infringement claim against us could damage us in the following ways:

 

•             We may be liable for damages and litigationcosts, including attorneys’ fees;

 

•             We may be prohibited from further use ofthe intellectual property;

 

•             We may have to license the intellectualproperty, incurring licensing fees; and

 

•             We may have to develop a non-infringingalternative, which could be costly and delay or result in the loss of sales.

 

Regardless of theoutcome, an infringement claim could result in substantial costs, diversion ofresources and management attention and harm to our reputation.

 

**We are subject to certain alleged class actionlawsuits, which if decided against us, could require us to pay substantialjudgments, settlements or other penalties.**

 

In addition tobeing subject to litigation in the ordinary course of business, we arecurrently, and may in the future be, subject to class actions and othersecurities litigation and investigations. Subsequent to our January 26, 2005 announcement of our forward lookingfinancial guidance for Q1 2005, numerous class action complaints have beenfiled against the Company and certain officers of the Company.  We expect that this litigation will be timeconsuming, expensive and distracting from the conduct of our dailybusiness.   We are unable at this time toestimate what our ultimate liability in these matters may be, if any, however,it is possible that we will be required to pay substantial judgments,settlements or other penalties and incur expenses that could have a material adverseeffect on our operating results, liquidity or financial position.  Expenses incurred in connection with theselawsuits, which include substantial fees of lawyers and other professionaladvisors and our obligations to indemnify officers and directors who may beparties to such actions, could adversely affect our cash position.

 

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**Ifwe are successful in the design and development of our new products, and thereis commercial acceptance of our existing or new products, others may claim thatwe infringe on their intellectual property rights, which may result insubstantial costs, diversion of resources and management attention and harm ourreputation.**

 

**Misappropriationof our intellectual property could place us at a competitive disadvantage.**

 

Our intellectualproperty is important to our success. We rely on a combination of patentprotection, copyrights, trademarks, trade secrets, licenses, non-disclosureagreements and other contractual agreements to protect our intellectualproperty. Third parties may attempt to copy aspects of our products andtechnology or obtain information we regard as proprietary without ourauthorization. If we are unable to protect our intellectual property againstunauthorized use by others it could have an adverse effect on our competitiveposition.

 

Our strategies todeter misappropriation could be inadequate due to the following risks:

 

•             Non-recognitionof the proprietary nature or inadequate protection of our methodologies in theUnited States, Canada or foreign countries;

 

•             Undetected misappropriation of ourintellectual property;

 

•             The substantial legal and other costs ofprotecting and enforcing our rights in our intellectual property; and

 

•             Development of similar technologies by ourcompetitors.

 

In addition, we couldbe required to spend significant funds and our managerial resources could bediverted in order to defend our rights, which could disrupt our operations.

 

**Asour business expands internationally, we will be exposed to additional risksrelating to international operations.**

 

Our expansion into international operationsexposes us to additional risks unique to such international markets, includingthe following:

 

•             Increased credit management risks andgreater difficulties in collecting accounts receivable;

 

•             Unexpected changes in regulatoryrequirements, wireless communications standards, exchange rates, tradingpolicies, tariffs and other barriers;

 

•            Uncertaintiesof laws and enforcement relating to the protection of intellectual property;

 

•            Languagebarriers; and

 

•            Potential adverse tax consequences.

 

Furthermore, if we are unable to furtherdevelop distribution channels in Europe and the Asia-Pacific region we may notbe able to grow our international operations and our ability to increase ourrevenue will be negatively impacted.

 

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**Governmentregulation could result in increased costs and inability to sell our products.**

 

Our products aresubject to certain mandatory regulatory approvals in the United States, Canada and other countries in which we operate. Inthe United States, the Federal Communications Commission regulates many aspectsof communications devices. In Canada, similar regulations are administered bythe Ministry of Industry, through Industry Canada. Although we have obtainedall the necessary Federal Communications Commission, Industry Canada and otherrequired approvals for the products we currently sell, we may not obtainapprovals for future products on a timely basis, or at all. In addition,regulatory requirements may change or we may not be able to obtain regulatoryapprovals from countries other than the United States and Canada in which wemay desire to sell products in the future.

 

**Fluctuationsin exchange rates between the United States dollar and other currencies,including the Canadian dollar, may affect our operating results.**

 

We are exposed tofluctuations in the exchange rate between the United States dollar and theCanadian dollar through our operations in Canada. To reduce our risk because ofcurrency fluctuations, we purchase inventory, other cost of sales items andmany of our services in United States dollars. If the Canadian dollar risesrelative to the United States dollar, our operating results may be negativelyimpacted. To date, we have not entered into any foreign currency futurescontracts as part of a hedging policy. We have entered into distribution agreements in Europe and the Asia-Pacificregion that are denominated primarily in U.S. dollars.  We expect that as our business expands inEurope and the Asia-Pacific region, we will also be exposed to additionalforeign currency transactions and to the associated currency risk.  To date, we have not entered into any futurescontracts.

 

## ***DIVIDENDS***

## *** ***

Sinceincorporation, we have not paid any dividends on our common shares.  Our current intention is to reinvest earningsto finance the growth of our business. We do not anticipate that we will pay any dividends on our common sharesin the immediate or foreseeable future.

 

## ***DESCRIPTION OF CAPITAL STRUCTURE***

## *** ***

Our authorized capital consists of anunlimited number of common shares, of which, at March 24, 2005, 25,358,194 areissued and outstanding, and an unlimited number of preference shares, issuablein series, of which none are issued and outstanding.  Our board of directors is authorized todetermine the designation, rights and restrictions to be attached to thepreference shares upon issuance.

 

Holders of common shares are entitled toreceive notice of any meeting of shareholders and to attend and vote at thosemeetings, except those meetings at which only the holders of shares of anotherclass or of a particular series are entitled to vote.  Each common share entitles its holder to onevote.  Subject to the rights of theholders of preference shares, the holders of common shares are entitled toreceive on a proportionate basis such dividends as our board of directors maydeclare out of funds legally available therefor.  In the event of the dissolution, liquidation,winding up or other distribution of our assets, the holders of the commonshares are entitled to receive on a proportionate basis all of our assetsremaining after payment of all of our liabilities, subject to the rights of holdersof preference shares.

 

The common shares carry no pre-emptive orconversion rights other than rights granted to holders of common shares underthe Shareholders Rights Plan implemented and ratified by our shareholders onApril 27, 2000 and re-adopted by our shareholders on April 28, 2003.  The Shareholder Rights Plan is designed toencourage the fair treatment of our shareholders in connection with any 

 

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take-over offer for our outstandingcommon shares.  The Shareholder RightsPlan provides our board of directors and shareholders with 45 days, which islonger than provided by applicable laws, to fully consider any unsolicitedtake-over bid without undue pressure, to allow our board of directors, if appropriate,to consider other alternatives to maximize shareholder value and to allowadditional time for competing bids to emerge. If a bid is made to all shareholders, is held open for at least 45 daysand is accepted by shareholders holding more than 50% of the outstanding commonshares, or is otherwise approved by our board of directors, then theShareholder Rights Plan will not affect the rights of shareholders.  Otherwise, all shareholders, except theparties making a take-over bid, will be able to acquire a number of additionalcommon shares equal to 100% of their existing outstanding holdings at half themarket price.  Thus, any party making atake-over bid not permitted by the Shareholder Rights Plan could suffersignificant dilution.  The ShareholderRights Plan will expire, unless it is re-adopted by our shareholders, inaccordance with its terms upon the termination of our 2006 annual meeting ofshareholders.

 

## ***MARKET FOR SECURITIES***

## *** ***

Our common shareshave been listed on The Toronto Stock Exchange in the Province of Ontario,Canada, since May 17, 1999, and currently trade under the symbol “SW”.  Our common shares are co-listed on The NasdaqNational Market under the symbol “SWIR”.

 

Set out below are theprice ranges and volume of common shares of Sierra Wireless, Inc. that tradedon the Toronto Stock Exchange for the year ended December 31, 2004.

 
| **2004**   | ** ** | **Low  Cdn $** | ** ** | **High  Cdn $** | ** ** | **Total Monthly  Volume** | ** ** |
|------------|------------|----------------|------------|-----------------|------------|---------------------------|------------|
| ** ** | ** ** | ** **     | ** ** | ** **      | ** ** | ** **                | ** ** |
| January    |       | 19.95          |       | 36.45           |       | 7,731,700                 |       |
| February   |       | 32.50          |       | 38.50           |       | 5,370,800                 |       |
| March      |       | 36.01          |       | 48.32           |       | 5,869,400                 |       |
| April      |       | 30.25          |       | 61.33           |       | 9,739,400                 |       |
| May        |       | 29.15          |       | 39.20           |       | 6,873,400                 |       |
| June       |       | 35.76          |       | 50.35           |       | 7,458,100                 |       |
| July       |       | 34.25          |       | 50.41           |       | 6,891,500                 |       |
| August     |       | 22.79          |       | 41.68           |       | 7,160,100                 |       |
| September  |       | 20.00          |       | 25.51           |       | 11,104,100                |       |
| October    |       | 18.72          |       | 24.27           |       | 6,300,700                 |       |
| November   |       | 20.52          |       | 24.05           |       | 5,936,500                 |       |
| December   |       | 21.03          |       | 27.20           |       | 6,860,400                 |       |

 

## ***DIRECTORS AND OFFICERS***

## *** ***

The tables set forthbelow list the directors and senior officers of the Company as at March 24,2005, indicating their name, municipalities of residence, their respectivepositions and offices held with the Company, the length of service and theirprincipal occupations within the five preceding years.

 

Each director iselected at our annual meeting of shareholders to serve until the next annualmeeting or until a successor is elected or appointed, unless such directorresigns or is removed earlier.  To theknowledge of Sierra Wireless, the directors and executive officers as a group,beneficially own, directly or indirectly, or exercise control or discretionover, 342,763 common shares, (not 

 

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including common sharesissuable upon the exercise of stock options), representing as of March 24,2005approximately 1.0%****of the issuedand outstanding common shares.

 

### **Directors**

 
| **Name,  Position and  Province or State and  Country of Residence**                                              | ** ** | **Principal Occupation in the  Preceding Five Years(1)**                                                                                                                                                                                                                                                                                                                                                      | ** ** | **Director Since** |
|-------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|
| ** **                                                                                                        | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                    | ** ** | ** **         |
| **David B. Sutcliffe**Chairman, Chief Executive Officer    and  Director  British Columbia, Canada |       | Chairman and Chief Executive Officer of Sierra  Wireless                                                                                                                                                                                                                                                                                                                                                      |       | June 1995          |
| ** **                                                                                                        |       |                                                                                                                                                                                                                                                                                                                                                                                                          |       |               |
| **Gregory D. Aasen**(3)Director  British Columbia, Canada                                                         |       | Vice-President and General Manager, Communication  Products Division of PMC-Sierra from 2004 to present; Chief Operating Officer  of PMC-Sierra from 1997 to 2004 and Chief Technology Officer of PMC-Sierra  from 2003 to 2004.                                                                                                                                                                              |       | December 1997      |
| ** **                                                                                                        |       |                                                                                                                                                                                                                                                                                                                                                                                                          |       |               |
| **S. Jane Rowe**(2)Director  Ontario, Canada                                                                      |       | President and Chief Executive Officer of Roynat  Capital from 2004 to present; Senior Vice President, Global Risk Management  Division of Scotiabank from 2002 to 2004; Managing Director and Co-Head of  Scotia Merchant Capital Corporation from 1997 to 2002                                                                                                                                               |       | March 1998         |
| ** **                                                                                                        |       |                                                                                                                                                                                                                                                                                                                                                                                                          |       |               |
| **Paul G. Cataford**(2)(4)Director  Alberta, Canada                                                               |       | President and Chief Executive Officer of University  Technologies International Inc. from April 2004 to present; Managing Partner  of HorizonOne Asset Management from December 2002 to April 2004; Consultant  from March 2002 to December 2002; Executive Managing Director of BMO Nesbitt  Burns Equity Partners from 2001 to 2002; Managing Director and President of  BCE Capital Inc. from 1997 to 2001 |       | July 1998          |
| ** **                                                                                                        |       |                                                                                                                                                                                                                                                                                                                                                                                                          |       |               |
| **Peter Ciceri**(4)Lead Independent Director  British Columbia, Canada                                            |       | Corporate Director and Management Consultant from 2004  to present; Executive in residence at the Faculty of Commerce and Business  Administration at the University of British Columbia from September 2001 to  2004; President of Rogers Telecom, Inc. from 2000 to 2001; Managing Director  of Compaq Canada Inc. and Vice-President Compaq Computer Corporation (US)  from 1996 to 2000                   |       | February 2000      |

 

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| **Nadir Mohamed**(2)Director  Ontario, Canada        |   | President, Chief Executive Officer and Director of  Rogers Wireless Communications Inc. from 2001 to present; President and Chief  Operating Officer of Rogers Wireless Communications Inc. from 2000 to 2001;  Senior Vice-President, Marketing and Sales of Telus Communications Inc. from  1999 to 2000; President and Chief Operating Officer of BC Tel Mobility from  1997 to 1999 |   | March 2003 |
|------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------|
| ** **                                           |   |                                                                                                                                                                                                                                                                                                                                                                                    |   |       |
| **Charles E. Levine**(3)Director  California, USA    |   | Independent Outside Director of @Road, Somera  Communications, Viisage Technology and Lexar Media; President and Chief  Operating Officer of Sprint PCS from 2000 to 2002; Chief Sales and Marketing  Officer from 1997 to 2000                                                                                                                                                         |   | May 2003   |
| ** **                                           |   |                                                                                                                                                                                                                                                                                                                                                                                    |   |       |
| **Kent Thexton**

Director  British Columbia, Canada |   | Co-Chief Executive Officer of SEVEN Networks, Inc.  from 2004 to present; Chief Data and Marketing Officer of O2 and President of  O2 Online from 2001 to 2004; President of Genie from 2000 to 2001; Sales and  Marketing Director of BT Cellnet from 1998 to 2000                                                                                                                     |   | N/A        |

 

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Notes:

(1)          Theinformation as to “principal occupation” has been furnished by the respectivedirectors.

(2)          Memberof the Audit Committee

(3)          Memberof the Human Resources Committee

(4)          Memberof the Governance and Nominating Committee

 

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### **Executive Officers**

 
| **Name, Position and  Province or State and  Country of Residence**                                                | ** ** | **Principal  Occupation in the Preceding  Five Years(1)**                                                                                                                                                                                                                                                                                                                                                                                       | ** ** | **Length  of Service** |
|--------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|
| ** **                                                                                                         | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                      | ** ** | ** **             |
| **David B. Sutcliffe**  Chairman, Chief Executive Officer and    Director  British Columbia, Canada |       | Chairman and Chief Executive Officer of  the Corporation since May 2001; President and Chief Executive Officer of  the Corporation from May 1995 to May 2001.                                                                                                                                                                                                                                                                    |       | 10 years               |
| ** **                                                                                                         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                            |       |                   |
| **David G. McLennan**  Chief Financial Officer and Secretary  British Columbia, Canada                             |       | Consultant to BCE Emergis** **from September 2002 to January 2003; Chief  Financial Officer of Bell Canada from June 2002 to September 2002;  President and Chief Operating Officer of Bell ExpressVu from November 1999  to June 2002.                                                                                                                                                                      |       | 1 year                 |
| ** **                                                                                                         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                            |       |                   |
| **Jason W. Cohenour**  Chief Operating Officer  Washington, USA                                                    |       | Senior Vice-President, Worldwide Sales of  the Corporation from 2003 to 2004; Senior Vice-President, Distribution of the  Corporation from 2000 to 2003; Vice-President, Sales of the Corporation from  1996 to February 2000.                                                                                                                                                                                                             |       | 9 years                |
| ** **                                                                                                         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                            |       |                   |
| **James B. Kirkpatrick**Chief Technical Officer  California, USA                                                   |       | Senior Vice-President, Engineering of the  Corporation from August 2003 to October 2004; President and Chief  Executive Officer of AirPrime, Inc. from July 2002 to August 2003;  Senior Vice-President, Engineering of AirPrime, Inc. from September 2000  to March 2003; Vice-President of Wireless Technologies of DENSO  International America, Inc. from June 2000 to October 2000. |       | 2 years                |
| ** **                                                                                                         |       |                                                                                                                                                                                                                                                                                                                                                                                                                                            |       |                   |
| **Bill G. Dodson**Senior Vice-President, Operations  British Columbia, Canada                                      |       | Vice-President, Manufacturing and Supply  of the Corporation from 2002 to 2004; Vice-President, Global Operations of  Gateway Computers from 2000 to 2002; Director of Operations of Toshiba  America Information Systems from 1989 to 2000.                                                                                                                                                                                                    |       | 3 years                |

 

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Notes:

(1)          The information as to “principaloccupation” has been furnished by the respective senior officers.

 

## ***CODE OFBUSINESS CONDUCT AND ETHICS***

 

In 2003, theBoard of Directors adopted a Code of Business Conduct and Ethics applying toall directors, officers and employees of the Company to ensure that the Companyconducts its business in accordance with the highest standards of businessconduct and ethics.  There have been noamendments to, or waivers granted from, the Code of Business Conduct and Ethicssince its adoption.

 

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The Code of Business Conduct and Ethics is availableon the Company’s website at www.sierrawireless.com.

 

## ***AUDIT COMMITTEE***

 

**Audit Committee Charter**

 

***Purpose***

 

The audit committee (the “**Committee**”) ofthe Company is appointed by the board of directors (the “**Board**”)of the Company to assist the Board in fulfilling its oversight responsibilitieswith respect to:

 

(i)            theCompany’s systems of internal and disclosure controls regarding finance,accounting and legal compliance;

 

(ii)           theCompany’s auditing, accounting and financial reporting processes generally;

 

(iii)          theCompany’s financial statements and other financial information provided by theCompany to its shareholders, the public and others;

 

(iv)          theCompany’s compliance with legal and regulatory requirements;

 

(v)           theappointment, compensation, independence, oversight, communication with,performance and change of the Company’s external and independent auditors (the “**Auditors**”);

 

(vi)          theCompany’s whistleblower process; and

 

(vii)         thefulfillment of the other responsibilities set forth in the Charter.

 

Consistent with these functions, the Committee will encourage continuousimprovement of, and foster adherence to, the Company’s policies, procedures andpractices at all levels.

 

***Organization***

 

Committee members shall meet the requirements of the Toronto StockExchange, the NASDAQ Exchange, the Securities and Exchange Commission, thesecurities commissions of each of the Provinces of Canada in which the Companyis a reporting issuer and any other regulatory agency that may havejurisdiction over the operations of the Company from time to time.  The Committee will be comprised of three ormore directors as determined by the Board, each of whom shall be an IndependentDirector.  Every Committee member must bea director of the Company.

 

All members of the Committee shall be Financially Literate, and at leastone member of the Committee shall have accounting or related financialmanagement expertise (such person or persons to be designated by the Board as a“financial expert” on the Committee).

 

No member shall be affiliated with the Company or any subsidiary.

 

Committee members shall be appointed by the Board on the recommendationfrom the Governance and Nominating Committee. A chair of the Committee shall be appointed by majority vote of theCommittee.

 

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***Meetings***

 

The Committee shall meet at least four times a year, and more frequentlyas necessary. An agenda shall be prepared and issued by the chair prior to eachmeeting.  A quorum at any meeting shallbe a majority of its members present.

 

The Committee shall require management of the Company (“**Management**”), the Auditors and others to attend meetings andto provide pertinent information, as necessary. As part of its mandate tofoster open communications, the Committee shall meet in separate executivesessions during each of its four regularly scheduled meetings with Managementand the Auditors to discuss any matters that the Committee (or any of thesegroups) believes should be discussed privately.

 

***Responsibilities and Duties***

 

The Committee shall have the sole authority and responsibility torecommend to the Board  the Auditor to benominated for shareholder approval and the compensation of the Auditors.  The Committee shall approve in advance, allaudit engagement fees and terms, and all non-audit services, engagements andfees with the Auditors. The Committee shall consult with Management but shallnot delegate these responsibilities to Management.

 

To fulfill its responsibilities and duties, the Committee shall:

 

*Withrespect to the Auditors:*

 

•                  Be directly responsible for theappointment, compensation and oversight of the work of the Auditors (includingresolution of disagreements between Management and the Auditors regardingfinancial reporting) for the purpose of preparing or issuing an audit report orperforming other audit, review or attest services for the Company.

 

•                  Have the sole authority to review inadvance and pre-approve all non-audit services to be provided to the Company orits subsidiaries by the Auditors, as permitted by applicable governance rules andin particular Section 10A of the Securities Exchange Act of 1934 and, inconnection therewith, to approve all fees and other terms of engagement. TheCommittee shall also review and pre-approve all disclosures required to beincluded in any public filings with respect to non-audit services.  The Committee may delegate to one or moremember the authority to pre-approve non-audit services, provided a report ismade to the Committee at its next scheduled meeting.

 

•                  Have the authority to communicate directlywith the Auditors.

 

•                  Review the performance of the Auditors onat least an annual basis.

 

•                  On an annual basis, review and discuss withthe Auditors all relationships the Auditors have with the Company in order toevaluate the Auditors’ continued independence. The Committee: (i) shallensure that the Auditors submit to the Committee on an annual basis a writtenstatement delineating all relationships and services that may impact theobjectivity and independence of the Auditors; (ii) shall discuss with theAuditors any disclosed relationship or services that may impact the objectivityand independence of the Auditors; and (iii) shall satisfy itself as to theAuditors’ independence.

 

•                  At least annually, obtain and review anannual report from the Auditors describing (i) the Auditors’ internalquality control procedures and (ii) any material issues raised by the mostrecent internal quality control review, or peer review, of the Auditors, or byany inquiry or investigation by governmental or professional authorities,within the preceding five years,

 

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respecting one or more independentaudits carried out by the Auditors, and any steps taken to deal with any suchissues.

 

•                  Confirm that the rotation of the lead auditpartner, or the lead audit partner responsible for reviewing the audit, for theCompany’s Auditors complies with the requirements of the Canadian and USregulatory authorities.

 

•                  Review all reports required to be submittedby the Auditors to the Committee particularly including those required by Section 10Aof the Securities Exchange Act of 1934.

 

•                  Review, based upon the recommendation ofthe Auditors and Management, the scope and plan of the work to be done by theAuditors for each fiscal year.

 

*Withrespect to financial statements:*

 

•                  Review and discuss with Management and theAuditors the Company’s quarterly financial statements (including disclosuresmade in Management’s Discussion and Analysis, as defined in MultilateralInstrument 51-102, and interim earnings press releases) prior to submissionto shareholders, any governmental body, any stock exchange or disclosure to thepublic.

 

•                  Review and discuss with Management and theAuditors the Company’s annual audited financial statements (includingdisclosures made in Management’s Discussion and Analysis and annual earningspress releases) prior to submission to shareholders, any governmental body, anystock exchange or disclosure to the public.

 

•                  Recommend to the Board, if appropriate,that the Company’s annual audited financial statements be included in theCompany’s annual report for filing with appropriate securities regulatoryagencies.

 

•                  Prepare any reports required to be includedin the Company’s annual meeting materials and any other Committee reportsrequired by applicable securities laws or stock exchange listing requirementsor rules.

 

*Withrespect to periodic and annual reviews:*

 

•                  Periodically review separately with each ofManagement and the Auditors (i) any significant disagreement betweenManagement and the Auditors in connection with the preparation of the financialstatements, (ii) any difficulties encountered during the course of theaudit (including any restrictions on the scope of work or access to requiredinformation), and (iii) Management’s response to each.

 

•                  Periodically discuss with the Auditors,without Management being present (i) their judgments about the quality,appropriateness, and acceptability of the Company’s accounting principles andfinancial disclosure practices, as applied in its financial reporting, and (ii) thecompleteness and accuracy of the Company’s financial statements.

 

•                  Consider and approve, if appropriate,significant changes to the Company’s accounting principles and financialdisclosure practices as suggested by the Auditors or Management.  Review with the Auditors and Management, atappropriate intervals, the extent to which any changes or improvements inaccounting or financial practices, as approved by the Committee, have beenimplemented.

 

•                  Review with Management, the Auditors andthe Company’s counsel, as appropriate, any legal, regulatory or compliancematters that could have a significant impact on the Company’s financial statements,including significant changes in

 

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accounting standards or rules aspromulgated by the Canadian Institute of Chartered Accountants, the securitiesregulators having jurisdiction over the Company or other regulatory authoritieswith relevant jurisdiction.

 

•                  Obtain and review an annual report fromManagement relating to the accounting principles used in preparation of theCompany’s financial statements (including those policies for which Managementis required to exercise discretion or judgments regarding the implementationthereof).

 

*Discussionswith Management:*

 

•                  Review and discuss with Management theCompany’s annual and interim earnings press releases (including the use of “proforma” or “adjusted” non-GAAP information), financial information and earningsguidance provided to analysts and rating agencies as well as all other materialpublic disclosure documents such as the Company’s AIF and any prospectuses.

 

•                  Review and discuss with Management allmaterial off-balance sheet transactions, arrangements, obligations (includingcontingent obligations) and other relationships of the Company withunconsolidated entities or other persons, that may have a material current orfuture effect on financial condition, changes in financial condition, resultsof operations, liquidity, capital resources, capital reserves or significantcomponents of revenues or expenses.

 

•                  Inquire about the application of theCompany’s accounting policies and its consistency from period to period, andthe compatibility of these accounting policies with generally acceptedaccounting principles, and (where appropriate) the Company’s provisions forfuture occurrences which may have a material impact on the financial statementsof the Company.

 

•                  Review and discuss with Management (i) theCompany’s major financial risk exposures and the steps Management has taken tomonitor and control such exposures (including Management’s risk assessment andrisk management policies), and (ii) the program that Management hasestablished to monitor compliance with its code of business ethics and conductfor directors, officers and employees.

 

•                  Review and discuss with Management alldisclosures made by the Company concerning any material changes in thefinancial condition or operations of the Company.  The Committee will meet periodically andseparately with the Company’s counsel to review material legal affairs of theCompany and the Company’s compliance with applicable law and listing standards.

 

•                  Obtain explanations from Management forunusual variances in the Company’s annual financial statements from year toyear, and review annually the Auditors’ letter of the recommendations toManagement and Management’s response.

 

•                  Review and discuss with Management anysignificant changes in areas of judgment, assumptions and estimates.

 

*Withrespect to internal controls and disclosure:*

 

•                  In consultation with the Auditors andManagement: (i) review the adequacy of the Company’s internal controlstructure and system, and the procedures designed to ensure compliance withlaws and regulations, (ii) discuss the responsibilities, budget andstaffing needs of the Company’s internal accounting department, and (iii) reviewand consider whether there is any need for the Company to establish an internalaudit department.

 

•                  Establish whistleblowing procedures for (i) thereceipt, retention and treatment of complaints received by the Companyregarding accounting, internal accounting controls or auditing matters, and (ii) theconfidential, anonymous submission

 

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by employees of the Company of concernsregarding questionable accounting or auditing matters.

 

•                  Be satisfied that adequate procedures arein place for the review of the Company’s public disclosure of financialinformation extracted or derived from the Company’s financial statements andperiodically assess the adequacy of those procedures.

 

*Withrespect to reporting obligations:*

 

•                  Ensure that all reporting obligations underPart 5 of Multilateral Instrument 52-110 are fully complied with.

 

*Other:*

 

•                  Review and approve all related-partytransactions.

 

•                  Review and approve the Company’s hiringpolicies regarding partners, employees, and former partners and employees ofthe present and former external auditor of the Company.

 

•                  Review any Management decision to seek asecond opinion from Auditors other than the Company’s regular Auditors withrespect to any significant accounting issue.

 

•                  Review with Management and the Auditors thesufficiency and quality of the financial and accounting personnel of theCompany.

 

•                  Review and reassess the adequacy of thisCharter annually and recommend to the Board any changes the Committee deemsappropriate.

 

•                  Conduct an annual performance evaluation ofCommittee operations.

 

•                  Set and pay the compensation for anyadvisors employed by the Committee.

 

•                  Perform any other activities consistentwith this Charter, the Company’s By-laws and governing law as the Committee orthe Board deems necessary or appropriate.

 

***Access to Records, Advisors and Others***

 

The Committee shall have the authority to engage independent legal,accounting or other advisors to advise the Committee as it determines necessaryto carry out its duties. The Committee may request any officer or employee ofthe Company or the Company’s outside counsel or Auditors to attend a meeting ofthe Committee or to meet with any members of, or advisors to, the Committee.

 

The Committee will have full access to all books, records, facilities andpersonnel of the Company.

 

The Committee shall determine the extent of funding necessary for paymentof compensation to the Auditors for purpose of rendering or issuing the annualaudit report and to any independent legal, accounting and other advisorsretained to advise the Committee.

 

***Definitions***

 

Capitalized terms used in the Charter and not otherwise defined thereinshall have the following meanings:

 

“**Financially Literate**” means the abilityto read and understand a set of financial statements that present a breadth andlevel of complexity of accounting issues that are generally comparable to the breadthand complexity of the issues that can reasonably be

 

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expected to beraised by the Company’s financial statements.

 

“**Independent Director**” means a directorwho does not have a direct or indirect Material Relationship with the Company.

 

“**Material Relationship**” means arelationship which could, in the view of the Board, reasonably interfere withthe exercise of the director’s independent judgment, and includes thosematerial relationships set out in section 1.4 of Multilateral Instrument 52-110.

 

**Composition of the Audit Committee**

 

S. Jane Rowe(Chair), Paul G. Cataford and Nadir Mohamed are the members of the AuditCommittee.  Each of them is anIndependent Director and is Financially Literate.  The Board of Directors has determined that Mr. NadirMohamed is the Audit Committee financial expert.

 

**Relevant Education and Experience**

 

S. Jane Roweis the President and Chief Executive Officer of Roynat Capital, a merchant bankspecializing in innovative long-term capital and business solutions formid-sized companies.  Ms. Rowe hasan extensive background in the banking industry with over 17 years ofexperience with the Scotiabank Group.  Ms. Roweholds a Bachelor of Commerce degree with honours from Memorial University ofNewfoundland and an MBA from York University.

 

Paul G.Cataford is the President and Chief Executive Officer of UniversityTechnologies Inc., a wholly-owned subsidiary of the University of Calgary thatis responsible for the university’s technology commercialization.  Mr. Cataford’s other experience includesconsulting, Managing Director of BMO Nesbitt Burns Equity Parners Inc. from2001 to 2002 and Managing Director and President of BCE Capital Inc. from 1997to 2001.  Mr. Cataford has extensiveknowledge of venture capital investing and technology.  Mr. Cataford  completed a Mechanical Engineering Degree atQueen’s University and an MBA at York University.

 

Nadir Mohamedis the President and Chief Executive Officer at Rogers Wireless CommunicationsInc., a wireless communications service provider that provides a complete rangeof wireless solutions to more than three million customers across Canada.  Mr. Mohamed has been with RogersWireless Communications Inc. since 2000 in increasingly senior roles.  Mr. Mohamed received a Bachelor ofCommerce degree from the University of British Columbia and is a CharteredAccountant.

 

**Reliance on Certain Exemptions**

 

At no time since the commencement of the Company’s most recentlycompletely financial year has the Company relied upon any exemption from MI 52-110provided therein.

 

**Audit Committee Oversight**

 

At no time since the commencement of the Company’s most recentlycompleted financial year was a recommendation of the Committee to nominate orcompensate an external auditor not adopted by the board of directors of theCompany.

 

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**Pre-approval Policies and Procedures**

 

The Committee has the sole authority to review in advance andpre-approve all non-audit services to be provided to the Company or itssubsidiaries by the Auditor, as well as all fees and other terms ofengagement.  The Committee may delegateto one or more members the authority to pre-approve non-audit services,provided a report is made to the Committee at its next scheduled meeting.  All of the audit-related, tax and all otherfees below were pre-approved by the Committee.

 

**Auditor Independence**

 

Sierra Wireless’s Audit Committee is satisfied with the independence ofthe Auditors and that the Auditors are free from conflicts of interest thatcould impair their objectivity in conducting the audit of Sierra Wireless.  The Audit Committee is required to approveall non-audit related services performed by our Auditors, and our Auditors arenot permitted to perform services for us prohibited for an independent auditorunder applicable Canadian and United States regulations, including theSarbanes-Oxley Act.

 

**Auditors’ Fees**

 

In the 2004 and 2003 fiscal years, the fees paid to the Auditors were asfollows:

 
| ** **         | ** ** | **2004** | ** ** | **2003** | ** ** |
|--------------------|------------|----------|------------|----------|------------|
| Audit Fees         |       | $        | 288,000    |     | $          | 462,000 |   |
| Audit-Related Fees |       | 31,000   |       | nil      |       |
| Tax Fees           |       | 205,000  |       | 222,000  |       |
| All Other Fees     |       | nil      |       | nil      |       |
|                    |            |          |            |          |            |  |  |

 

**Audit Fees**

 

Audit fees for 2003 include fees related to our secondary public offeringof 4,600,000 common shares completed in November 2003 and our acquisitionof AirPrime completed in August 2003.

 

**Audit-Related Fees**

 

Audit-related fees for 2004 are primarily for fees related to duediligence services as well as fees related to our Sarbanes-Oxley 404 documentation.

 

**Tax Fees**

 

Tax fees for 2004 and 2003 are primarily for the preparation of ourCanadian and U.S. tax returns, assistance with tax planning and completion oftransfer pricing studies.

 

## ***DISCLOSURECONTROLS AND PROCEDURES***

 

As of the endof the December 31, 2004, the effectiveness of the design and operation ofour disclosure controls and procedures was evaluated.  The principal executive and financialofficers have concluded that the Company’s disclosure controls and proceduresare effective and timely in alerting them to material information required inthe periodic reports to the Securities and Exchange Commission.  In addition, there have been no significantchanges in the internal controls or in other factors known to management thatcould significantly affect the internal controls subsequent to the most recentevaluation.  Management found no factsthat would

 

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require the Company to take any corrective actions with regard tosignificant deficiencies.  The Company isin the process of further evaluation and enhancement of internal controls as aresult of work being completed in connection with Sarbanes-Oxley 404requirements.

 

## ***LEGAL PROCEEDINGS***

 

SierraWireless America, Inc., as successor to AirPrime, Inc., along withother defendants, has been served with the first amended complaint filed September 13,2004 and second amended complaint filed January 3, 2005 (collectively the “Complaint”)of Joshua Cohen and David Beardsley on behalf of themselves and otherssimilarly situated, which was filed in the U.S. District Court for the CentralDistrict of California for alleged violations of federal and state securitieslaws allegedly occurring prior to the time AirPrime, Inc. was acquired bythe Company.  On March 4, 2005, thedefendants filed motions to dismiss the Complaint.  The hearing is expected to occur in May 2005.  We have given notice to our liabilityinsurance carriers and submitted an escrow claim notice under the escrowagreement dated August 12, 2003 relating to the acquisition ofAirPrime.  Both the insurance carrier andthe escrow shareholders are disputing their obligations with respect to thisComplaint.  Although there can be noassurance that an unfavourable outcome of the dispute would not have a materialadverse effect on our operating results, liquidity or financial position, webelieve the claims are without merit and will vigorously defend them.

 

Subsequent to December 31,2004, we became aware of certain alleged securities class action lawsuits filedagainst the Company and certain of our officers in the U.S. District CourtSouthern District of New York and the U.S. District Court Southern District ofCalifornia.  On February 22, 2005,we were served with one of the complaints filed in the Southern District ofCalifornia.  We are assessing thecomplaints and have not yet been required to file our response.  Although there can be no assurance that anunfavourable outcome would not have a material adverse effect on our operatingresults, liquidity or financial position, we believe the claims are withoutmerit and will vigorously defend the lawsuits.

 

On February 8,2005, Sierra Wireless, Inc. was served with the first amended complaint ofMLR, LLC filed in the U.S. District Court for the Northern District of IllinoisEastern Division for alleged patent infringement relating to our line ofprofessional phones.  We have been addedas a defendant in existing civil action No. 04 C 7044 MLR, LLC v. KyoceraWireless Corporation and Novatel Wireless, Inc.  We are assessing the complaint and have notyet been required to file our response. Although there can be no assurance that an unfavourable outcome of thedispute would not have a material adverse effect on our operating results,liquidity or financial position, we believe the claims are without merit andwill vigorously defend the action.

 

***QUOROM EXEMPTION***

 

Nasdaq requires each listed issuer to provide that a quorum for itsshareholders’ meetings be at least 33 1/3 percent of the issuer’s outstandingshares.  The Company has been granted anexemption from this requirement because it is contrary to generally acceptedbusiness practices in Canada, the Company’s country of domicile.  The Company has had the benefit of thisexemption in the current and prior year.

 

In determining whether a requirement is contrary to generally acceptedbusiness practices, the Nasdaq generally looks to the requirements of theprimary market in the issuer’s country of domicile.  The rules and policies of the TorontoStock Exchange, the primary market in Canada, do not contain quorumrequirements, and the *Canada BusinessCorporations Act*, the Corporation’s governing statute, defers to thequorum requirements contained in an issuer’s By-laws.  Under the Company’s By-laws, a quorum for ameeting of the Company’s shareholders is two persons present in person, eachbeing a shareholder entitled to vote thereat or a duly appointed proxyholder orrepresentative for a shareholder so entitled.

 

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## ***REGISTRAR ANDTRANSFER AGENT***

 

The Registrar and Transfer Agent for the common shares in Canada isComputershare Trust Company of Canada, 510 Burrard Street, Vancouver, BritishColumbia, and in the United States is Computershare Trust Company, Inc.,12039 West Alameda Parkway, Suite Z-2, Lakewood, Colorado.  These offices and the principal offices ofComputershare Trust Company of Canada in the City of Toronto maintain theregister of common shares and can effect transfers and make deliveries ofcertificates for common shares.

 

## ***MATERIAL CONTRACTS***

 

There are no material contracts entered into outside of the Company’sordinary course of business.

 

## ***EXPERTS***

 

KPMG LLP, independent chartered accountants, have audited ourconsolidated financial statements as at December 31, 2004 and 2003, andfor each of the years in the three year period ended December 31, 2004 asset forth in their reports.  As at March 24,2005, KPMG LLP and its partners did not hold any registered or beneficialownership interest, directly or indirectly, in the securities of the Company.

 

## ***ADDITIONAL INFORMATION***

 

Additionalinformation relating to the Company:

 

(a)                                  may be found on SEDAR onwww.sedar.com;

 

(b)                                 including directors’ andofficers’ remuneration and indebtedness, principal holders of the Company’ssecurities and securities authorized for issuance under equity compensationplans, is contained in the Company’s Information Circular for its most recentannual meeting of shareholders; and

 

(c)                                  is provided in the Company’sfinancial statements and MD&A for the financial year ended December 31,2004.

 

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