**EXHIBIT1.1**

 

**SIERRAWIRELESS, INC.ANNUAL INFORMATION FORMfor the Fiscal Year Ended December 31, 2009**

 

 

**Dated: March 24, 2010**

 

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Sierra Wireless, Inc.

Annual Information Form****March 24, 2010

 

**TABLE OF CONTENTS**

 
| CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS | 1      |
|------------------------------------------------------|--------|
|                                                 |   |
| CURRENCY                                             | 1      |
|                                                 |   |
| CORPORATE STRUCTURE                                  | 1      |
|                                                 |   |
| GENERAL  DEVELOPMENT OF THE BUSINESS                 | 2      |
|                                                 |   |
| **General**                                          | 2      |
| **Significant Acquisitions**                         | 5      |
| **Industry Background and Future Trends**            | 5      |
|                                                 |   |
| NARRATIVE  DESCRIPTION OF THE BUSINESS               | 6      |
|                                                 |   |
| **Our Solution**                                     | 6      |
| **Our Products and Services**                        | 6      |
| **Product Development**                              | 11     |
| **Distribution**                                     | 12     |
| **Marketing**                                        | 13     |
| **Manufacturing**                                    | 14     |
| **Employees**                                        | 14     |
| **Competition**                                      | 15     |
| **Intellectual Property**                            | 16     |
| **Governmental Regulation**                          | 16     |
| **Additional Information Concerning Our  Business**  | 16     |
|                                                 |   |
| RISK FACTORS                                         | 16     |
|                                                 |   |
| DIVIDENDS                                            | 17     |
|                                                 |   |
| DESCRIPTION  OF CAPITAL STRUCTURE                    | 17     |
|                                                 |   |
| **Normal Course Issuer Bid**                         | 17     |
| **Credit Facilities**                                | 17     |
|                                                 |   |
| MARKET FOR  SECURITIES                               | 18     |
|                                                 |   |
| DIRECTORS AND EXECUTIVE OFFICERS                     | 19     |
|                                                 |   |
| **Directors**                                        | 20     |
| **Executive Officers**                               | 21     |
|                                                 |   |
| CODE OF BUSINESS CONDUCT AND ETHICS                  | 21     |
|                                                 |   |
| AUDIT COMMITTEE                                      | 22     |
|                                                 |   |
| **Mandate of the Audit Committee**                   | 22     |
| **Composition of the Audit Committee**               | 26     |
| **Relevant Education and Experience**                | 26     |
| **Reliance on Certain Exemptions**                   | 27     |
| **Audit Committee Oversight**                        | 27     |
| **Pre-approval Policies and  Procedures**            | 27     |
| **Auditor Independence**                             | 28     |

 

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| **Auditors’ Fees**                                   | 28     |
|-----------------------------------------------------------|--------|
|                                                      |   |
| EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES          | 28     |
|                                                      |   |
| **Disclosure Controls**                                   | 28     |
| **Internal Control Over Financial  Reporting**            | 29     |
| **Changes in Internal Control Over  Financial Reporting** | 30     |
|                                                      |   |
| LEGAL PROCEEDINGS                                         | 30     |
|                                                      |   |
| OFF-BALANCE SHEET  ARRANGEMENTS                           | 32     |
|                                                      |   |
| CONTRACTUAL  OBLIGATIONS                                  | 32     |
|                                                      |   |
| QUORUM EXEMPTION                                          | 32     |
|                                                      |   |
| REGISTRAR AND TRANSFER AGENT                              | 32     |
|                                                      |   |
| MATERIAL CONTRACTS                                        | 33     |
|                                                      |   |
| EXPERTS                                                   | 33     |
|                                                      |   |
| ADDITIONAL  INFORMATION                                   | 33     |

 

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## ***CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS***

 

Certain statements in this AnnualInformation Form, or incorporated by reference herein, that are not based onhistorical facts, constitute forward-looking statements or forward-lookinginformation within the meaning of the U.S. Private Securities Litigation ReformAct of 1995 and applicable Canadian securities laws (“forward-lookingstatements”).  These forward-lookingstatements are not promises or guarantees of future performance but are onlypredictions that relate to future events, conditions or circumstances or ourfuture results, performance, achievements or developments and are subject tosubstantial known and unknown risks, assumptions, uncertainties and otherfactors that could cause our actual results, performance, achievements ordevelopments in our business or in our industry to differ materially from thoseexpressed, anticipated or implied by such forward-looking statements.  Forward-looking statements include all disclosureregarding possible events, conditions, circumstances or results of operationsthat are based on assumptions about future economic conditions, courses ofaction and other future events.  Wecaution you not to place undue reliance upon any such forward-lookingstatements, which speak only as of the date they are made.  These forward-looking statements appear in anumber of different places in this Annual Information Form, and the documentsincorporated by reference herein, and can be identified by words such as “may”,“estimates”, “projects”, “expects”, “intends”, “believes”, “plans”, “anticipates”,“continue”, “growing”, “expanding” or their negatives or other comparablewords.  Forward-looking statementsinclude statements regarding the outlook for our future operations, plans andtiming for the introduction or enhancement of our services and products,statements concerning strategies or developments, statements about futuremarket conditions, supply conditions, end customer demand conditions, channelinventory and sell through, revenue, gross margin, operating expenses, profits,forecasts of future costs and expenditures, the outcome of legal proceedings,and other expectations, intentions and plans that are not historical fact.  The risk factors and uncertainties that mayaffect our actual results, performance, achievements or developments are manyand include, amongst others, our ability to develop, manufacture, supply andmarket new products that we do not produce today that meet the needs ofcustomers and gain commercial acceptance, our reliance on the deployment ofnext generation networks by major wireless operators, the continuous commitmentof our customers, increased competition and other risks detailed herein underthe heading “*Risk Factors*”.  Many of these factors and uncertainties arebeyond our control.  Consequently, allforward-looking statements in this Annual Information Form, or the documentsincorporated by reference herein, are qualified by this cautionary statementand we cannot assure you that actual results, performance, achievements ordevelopments that we anticipate will be realized.   Forward-looking statements are based onmanagement’s current plans, estimates, projections, beliefs and opinions and wedo not undertake any obligation to update forward-looking statements should theassumptions related to these plans, estimates, projections, beliefs andopinions change, except as required by law.

 

## ***CURRENCY***

## *** ***

Unlessotherwise indicated, all figures are stated in U.S. dollars.

 

## ***CORPORATE STRUCTURE***

## *** ***

Unless the context otherwise indicates,references to “we”, “our”, “us”, “the Company”, “the Corporation” or “SierraWireless” in this Annual 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 thecapital of the Company to new Common Shares in the capital of the Company (the “CommonShares”); (ii) change the rights attached to all Preference Shares in thecapital of the Company (the “Preference Shares”) and to remove each existingseries of 

 

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PreferenceShares; 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 placeof business 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                                         |
| Sierra  Wireless (Australia) Pty Limited    |       | Australia                                         |
| Sierra  Wireless Technology (Shenzhen) Ltd. |       | China                                             |
| Sierra  Wireless Japan KK                   |       | Japan                                             |
| Sierra  Wireless France SAS                 |       | France                                            |
| Sierra Wireless Luxembourg S.à.r.l.    |       | Luxembourg                                        |
| Sierra  Wireless S.A.                       |       | France                                            |
| Wavecom  Asia-Pacific Ltd.                  |       | Hong Kong                                         |
| Anyware  Technologies S.A.                  |       | France                                            |

 

## ***GENERALDEVELOPMENT OF THE BUSINESS***

## *** ***

### **General**

###  

We provideleading edge wireless wide solutions for the mobile computing andmachine-to-machine (“M2M”) markets. We develop and market a range of productsthat include wireless modems for mobile computers, embedded modules andsoftware for original equipment manufacturers (“OEMs”), intelligent wirelessgateway solutions for industrial, commercial and public safety applications andan innovative platform for delivering device management and end-to-endapplication services. We also offer professional services to OEM customersduring their product development and launch process, leveraging our expertisein wireless design, software, integration and certification to provide built-inwireless connectivity for mobile computing devices and M2M solutions. Ourproducts, services and solutions connect people, their mobile computers andmachines to wireless voice and mobile broadband networks around the world.

 

Our acquisition of Wavecom S.A. (“Wavecom”) on February 27, 2009enhances our product and service offering in the global M2M market by adding highly sophisticated wireless moduleplatforms and solutionswhich integrate all of the necessary software and hardwareon embedded devices that can be used for a wide variety of applications. Theacquisition of Wavecom also enhances our capabilities in key 

 

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markets as they provide us with provendevelopment tools and an innovative services platform for delivering devicemanagement and application services.  Our consolidated results include Wavecom’sresults for the period from February 27, 2009 to December 31, 2009.

 

We believe that the markets for mobile broadbandconnectivity and wireless M2M solutions have strong growth prospects.  We believe that the key growth enablers forthese markets include the continued deployment of mobile broadband networksaround the world, aggressive promotion of mobile broadband services by wirelessoperators, growing strategic focus on mobile broadband and M2M services bywireless operators and expanding end customer awareness of the availability ofsuch services and their benefits.

 

Our mobile computing products are used bybusinesses, consumers and government organizations to enable high speedwireless access to a wide range of applications, including the Internet,e-mail, corporate intranet, remote databases and corporate and consumerapplications.

 

Our expanded line-up of embedded wireless solutionsis used by a wide range of OEMs to wirelessly enable their products andsolutions.  Our OEM customers cover abroad range of industries including mobile computing, networking equipment,automotive, energy, security, transaction processing, industrial control andmonitoring and fleet management.

 

Our rugged mobile and M2M gateway solutions areused primarily in the public safety, energy, industrial, fleet management andtransaction processing markets.  Webelieve the mobile and M2M gateway markets we serve offer attractiveopportunities for long term profitable growth.

 

We sell our products primarily through indirectchannels, including wireless operators, OEMs, distributors and value addedresellers.

 

In 2007, we achieved annual revenue of $439.9 million, driven by thelaunch of nine new mobile computing products for both High Speed Packet Access(“HSPA”) and Code Division Multiple Access Evolution-Data Optimized Revision A(“CDMA EV-DO Rev A”) networks.  Weexpanded our product footprint with key existing customers such as AT&TInc. (“AT&T”) and Sprint Nextel (“Sprint”), and significantly grew ourEuropean and Asia-Pacific business, while increasing profitability.

 

On May 25, 2007, we completed the acquisition of AirLinkCommunications, Inc. (“AirLink”), a privately held developer and supplierof high value fixed and mobile wireless solutions in the M2M segment.  The acquisition is consistent with ourstrategy of strengthening our position in the rugged mobile and M2M segmentsand expanding our high gross margin product lines.  The aggregate purchase price was $31.2million, including cash consideration of $12.0 million, the issuance ofapproximately 1.3 million Common Shares to the shareholders of AirLink and $1.6million in transaction costs.

 

In 2008, we achieved record annual revenue of$567.3 million, an increase of 29% compared to $439.9 million in 2007, drivenby sales of our newest HSPA and CDMA EV-DO Rev A products.  Gross margin was 27.6% in 2008, compared to 28.0%in 2007.  Earnings from operations were$44.6 million in 2008, compared to $38.6 million in 2007.  Net earnings were $62.6 million, or dilutedearnings per share of $2.00 in 2008, compared to $32.5 million, or dilutedearnings per share of $1.16, in 2007. Net earnings for 2008 included an after-tax unrealized foreign exchangegain of $18.4 million on Euros held for the Wavecom transaction that isdescribed below.  In addition, we reducedour valuation allowance by $6.5 million which reduced our income tax expenseand increased net earnings.

 

On December 2, 2008, we announced an all-cash offer to purchaseall of the ordinary shares and OCEANE convertible bonds (“OCEANEs”) of Wavecom,a global leader in wireless M2M solutions headquartered in Issy-les-Moulineaux,France.  The total value of thetransaction was approximately €218.0 million. We made a cash offer of €8.50 per share of Wavecom and €31.93 perOCEANE.  The transaction was implementedby way of concurrent but separate public tender offers in both France and 

 

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the United States for all Wavecom shares, all American DepositoryShares (“ADSs”) representing Wavecom shares and all OCEANEs issued byWavecom.  On February 27, 2009, wecompleted our acquisition of 84.32% of the outstanding shares and 99.97% of theoutstanding OCEANEs of Wavecom, representing 90.57% of the voting rights ofWavecom.  Following a statutoryre-opening of the tender offer and our purchase of Wavecom shares on themarket, we increased our ownership of the voting rights of Wavecom from 90.57%to 95.4% and, on April 29, 2009, completed our acquisition of all of theremaining Wavecom shares, except for certain shares held by employees that aresubject to a hold period, and OCEANEs by way of a squeeze-out.  The Wavecom shares and OCEANEs have beendelisted from the Euronext and the ADSs have been delisted from the NASDAQGlobal Market (“Nasdaq”).

 

We expect the combination of Sierra Wireless and Wavecom will create aglobal leader that will be uniquely positioned to benefit from the anticipatedgrowth in the wireless mobile computing and M2M markets.  We expect the acquisition to significantlyexpand and diversify our position in the global M2M market, broaden our productofferings and increase our scale and capabilities in Europe and Asia.

 

Prior to ouracquisition of Wavecom, Wavecom announced a cost savings program and a proposedreorganization.  The first portion ofthis plan, related to its operations in the United States, began in late 2008.  In the second quarter of 2009, the staffreduction program in France related to this reorganization wasimplemented.  A total of 77 positions inFrance were impacted, with 10 of these positions remaining to be phased out inthe first quarter of 2010 and two positions to be phased out in the secondquarter of 2010.

 

On January 29, 2009, also prior to theacquisition of Wavecom, Sierra Wireless implemented anexpense reduction program that was completed during the first quarter of 2009and included the elimination of approximately 56 positions, representing 10% ofour workforce.  In the first quarter of2009, we incurred a pre-tax charge of approximately $1.6 million related to theprogram, which includes $0.5 million of stock-based compensation expense.

 

On May 15, 2009, we announcedfurther cost reduction initiatives related to the integration of Wavecom andSierra Wireless that included combining the R&D and product operations ofboth organizations.  As a result, theWavecom location in Research Triangle Park, North Carolina, was closed in thefourth quarter of 2009.  R&Dactivities from this location have been transitioned primarily to the SierraWireless location in Carlsbad, California. The cost reduction initiatives in the U.S. and France are expected to besubstantially completed by the first quarter of 2010.  For the year ended December 31,2009, restructuring costs related to the closure of the Research Triangle Parklocation and additional cost reduction initiatives implemented during thesecond half of 2009 were $19.0 million.  Included in this restructuringcost was $0.4 million of stock-based compensation expense.

 

In 2009, our revenue was $526.4 million, comparedto $567.3 million in 2008.  The decreasein revenue was primarily a result of a decrease in sales of our AirCards andsales of our embedded modules to portable computing original equipmentmanufacturers (“PC OEM”) customers, partially offset by an increase in revenuefrom the Wavecom acquisition.  Grossmargin was 32.8% in 2009, compared to 27.6% in 2008.  The increase resulted primarily from productcost reductions, early synergies from the Wavecom acquisition, as well as theaddition of higher margin products from the Wavecom acquisition.  Loss from operations was $37.7 million in2009, compared to earnings from operations of $44.6 million in 2008.    Our loss from operations includedacquisition costs of $7.8 million, restructuring costs of $20.6 million,integration costs of $3.9 million and acquisition related amortization of $11.8million.  Our net loss was $39.9 millionin 2009, or loss per share of $1.29, compared to net earnings of $62.6 million,or diluted earnings per share of $2.00 in 2008.

 

Key factors that we expect will affect our revenue in the near term aregeneral economic conditions in the markets we serve, our ability tosuccessfully complete the integration of the Wavecom acquisition, the relativecompetitive position our products have within the wireless operators’ saleschannels in any given period, the availability of components from key suppliers,timing of deployment of mobile broadband 

 

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networks by wireless operators, wireless technology transitions, therate of adoption by end-users, the timely launch and ramp up of sales of ournew products currently under development, the level of success our OEMcustomers achieve with sales of embedded solutions to end users and our abilityto secure future design wins with both existing and new OEM customers. Weexpect that product and price competition from other wireless communicationsdevice manufacturers will continue to be intense.  As a result of these factors, we mayexperience volatility in our results on a quarter to quarter basis.

 

With theacquisition of Wavecom, we have a significantly expanded product line andglobal roster of sales channels. However, the state of the global economy causes us to continue to becautious regarding revenue trends in the near term.  We expect that Q1 2010 revenue will increasemoderately relative to Q4 2009.

 

See “Narrative Description of the Business- Our Products and Services” for discussion of specific product developmentinitiatives.

 

### **SignificantAcquisitions**

###  

On December 2, 2008, we announced an all-cash offer to purchaseall of the ordinary shares and OCEANEs of Wavecom, a global leader in wirelessM2M solutions headquartered in Issy-les-Moulineaux, France.  The total value of the transaction wasapproximately €218.0 million.  We made acash offer of €8.50 per share of Wavecom and €31.93 per OCEANE.  The transaction was implemented by way ofconcurrent but separate public tender offers in both France and the UnitedStates for all Wavecom shares, all ADSs representing Wavecom’s shares and allOCEANEs issued by Wavecom.

 

On February 27, 2009, we completed our acquisition of 84.32% ofthe outstanding shares and 99.97% of the outstanding OCEANEs of Wavecom,representing 90.57% of the voting rights of Wavecom.  Following a statutory re-opening of thetender offer and our purchase of Wavecom shares on the market, we increased ourownership of the voting rights of Wavecom from 90.57% to 95.4% and, on April 29,2009, completed our acquisition of all of the remaining Wavecom shares, exceptfor certain shares held by employees that are subject to a hold period, andOCEANEs by way of a squeeze-out.  TheWavecom shares and OCEANEs have been delisted from the Euronext and the ADSshave been delisted from the Nasdaq.  Abusiness acquisition report with respect to the acquisition was filed on May 11,2009.

 

We expect the combination of Sierra Wireless and Wavecom will create aglobal leader that will be uniquely positioned to benefit from the anticipatedgrowth in the wireless mobile computing and M2M markets.  We expect the acquisition to significantlyexpand our position in the global M2M market, broaden our product offerings andincrease our scale and capabilities in Europe and Asia.

 

### **IndustryBackground and Future Trends**

###  

***Growth in Wireless for Mobile Computing and M2M***

 

We provide leading edge wireless solutionsfor the mobile computing and M2M markets. We develop and market a range of products that include wireless modemsfor mobile computers, embedded modules and software for OEMs, intelligentwireless gateway solutions for industrial, commercial and public safetyapplications and an innovative platform for delivering device management andend-to-end application services.  Webelieve that wide area wireless for mobile computing and wireless M2M are bothgrowing markets.  We believe that the keygrowth enablers for these markets include the continued deployment of mobilebroadband networks around the world, aggressive promotion of mobile broadbandservices by wireless operators, attractive mobile broadband rate plans, growingcustomer awareness of mobile broadband and compelling return on investmentrationale for OEMs and end users.

 

End customers in our markets consist ofcorporate enterprises, government organizations, small businesses andindividuals seeking to improve customer service, productivity, safety or toexpand their 

 

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business.  Increased wireless network coverage andspeeds, significant technological improvements to wireless networks, devicesand software, and price reductions for data communications services have alsocontributed to growth in the wireless mobile computing and M2M segments. Theability to meet the demand for anytime, anyplace communications is madepossible by the convergence of trends in mobile computing, M2M, the Internetand wireless communications.

 

*Mobile Computing. *Many business professionals and individualsutilize notebooks or netbooks as their primary computing device.  As businesses and individuals become evermore mobile, we believe that the demand for anywhere, anytime connectivity fromone’s mobile computer to a myriad of applications and information sources willcontinue to grow.

 

*M2M*.  There are billions of machines of everyimaginable type located all over the globe — in offices, homes and remotelocations.  We believe that the ownersand operators of many millions of these machines can derive compelling businessand personal benefit from being able to connect to these assets remotely overwireless networks.

 

*The Internet. *The Internet is pervasive and has becomethe de facto way for businesses, machines and individuals to communicate and toconnect to business applications, other machines, personal information andsocial networks.

 

*WirelessCommunications. *Wireless networks of severaldifferent technologies and generations now cover most of the world’spopulation.  Voice, once the “killer app”for wireless networks is now used by billions of people worldwide.  Wireless operators continue to seek new waysto drive their growth and are increasingly turning to mobile computing and M2Mas strategic growth opportunities.

 

## ***NARRATIVEDESCRIPTION OF THE BUSINESS***

## *** ***

### **Our Solution**

###  

We provideleading edge wireless solutions for the mobile computing and M2M markets. Wedevelop and market a range of products that include wireless modems for mobilecomputers, embedded modules and software for OEMs, intelligent wireless gatewaysolutions for industrial, commercial and public safety applications and aninnovative platform for delivering device management and end-to-end applicationservices. We also offer professional services to OEM customers during theirproduct development and launch process, leveraging our expertise in wirelessdesign, software, integration and certification to provide built-in wirelessconnectivity for mobile computing devices and M2M solutions. Our products,services and solutions connect people, their mobile computers and machines towireless voice and mobile broadband networks around the world.

 

### Our recent acquisition ofWavecom on February 27, 2009 enhances our product and service offering inthe global M2M market by adding highlysophisticated wireless module platforms and solutionswhich integrate all of the necessary software and hardwareon embedded devices that can be used for a wide variety of applications. Theacquisition of Wavecom also enhances our capabilities in key markets withproven development tools and an innovative services platform for deliveringdevice management and applicationservices.

###  

### **Our Products and Services**

###  

### Weoperate in the wireless communications solutions industry and senior managementmakes decisions about allocating resources based on the following segments:

###  

·                  Mobile computing segment which is comprised of:

 

(a)          Mobile computing — includes our AirCard branded PC cardsand USB modems that are developed and sold to wireless operators around theworld, as well as embedded wireless 

 

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solutions that are used by a wide range oforiginal equipment manufacturers to wirelessly enable their products andsolutions.

 

(b)         Machine-to-machine — includes our rugged mobile and M2Mgateway solutions that consist of intelligent modems that are sold to publicsafety, transportation, field service, energy, industrial and financialorganizations.

 

·                  Wavecom segment — which includes our wireless moduleplatforms and solutions acquired with our acquisition of Wavecom, whichintegrates all of the necessary software and hardware on embedded devices forM2M and automotive communications.

 

Our current product line of wireless modemsolutions includes wide-area wireless AirCard products, embedded modules fornotebook computers and other electronic devices, vehicle-mounted modems, M2Mmodems and enabling software.  We have anumber of new products under development within these product lines.

 

Our professional services team provides OEMcustomers with wireless product development support to integrate our wirelesswide-area products into their products.

 

***AirCard*****®*****Mobile Broadband Devices***

 

Our AirCard product family includes our AirCard branded PC cards andUSB modems.  In 2009, sales of ourAirCard products decreased 28% to $295.0 million, compared to $408.8 million in2008 due primarily to timing of product transitions in our key channels, lowerselling prices and reduced sell through.

 

Our AirCards plug into the PC card, ExpressCard or USB ports ofnotebook and desktop computers, as well as other products such as networkrouters.  Our AirCard products supportEV-DO and HSPA technologies and are sold to wireless operators around theworld.  During 2009, we continued to havea strong position with shipments of our HSPA AirCards to AT&T and Telstraand with shipments of our EV-DO Rev A AirCards to Sprint.

 

During 2009, we began shipping several new HSPA USB modems includingour Compass 889 HSPA USB modem to CSL Limited, our AirCard USB 306/307 modemsto Telstra and CSL Limited, the world’s first mobile broadband modems for HighSpeed Packet Access Plus (“HSPA+”) networks, our AirCard USB 308/309 modems toTelstra, our second generation products for the HSPA+ networks, and our AirCardUSB 301/302 modems for HSPA networks that combine a new design and streamlinedfeature set for the value-driven consumer market.  In the fourth quarter of 2009, we began commerciallyshipping the AT&T USBConnect Lightning, also known as the Sierra WirelessUSB 305 for HSPA networks, to AT&T. The USBConnect Lightning, with download speeds of up to 7.2 Mbps, has aninnovative lighted design with a swivel hinge for flexible use in horizontallyor vertically oriented USB ports.

 

Our AirCard USB 598 modem for EV-DO Rev A networks was launched withTelus Communications Company (“Telus”) during 2009, which is the first CDMAoperator using our TRU-Update feature, a managed service providing automaticfirmware, driver and application updates.

 

We also began shipping two new ExpressCards, including our AirCard 402for EV-DO Rev A networks, a 2-in-1 mobile broadband card designed to fit bothPC card and ExpressCard slots and our AirCard 503, the world’s first 2-in-1ExpressCard with PC Card adapter for HSPA+ networks.

 

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In addition, our AirCard 402, Compass 885 and USB598 modems passedMicrosoft Corp. certification tests for compatibility and reliability withWindows 7 mobile broadband and have been officially designated as “Compatiblewith Windows 7”.

 

We have also made strong progress on the development of Overdrive, ahighly differentiated device in the mobile hotspot segment.  Overdrive is the first mobile hotspot productto combine 3G (EV-DO Rev A) with 4G (WiMax) and Wi-Fi technologies.  Overdrive was launched with Sprint in January 2010.

 

Notwithstanding our lower AirCard revenue for 2009 compared to 2008, webelieve that the market for our AirCard products continues to offeropportunities.  Competition in thismarket continues to be intense and our future success in this market willdepend in part on our ability to continue to differentiate and to developproducts that meet our customers’ evolving technology, design, schedule andprice requirements.

 

***AirPrime*****TM*****Intelligent Embedded Modules***

 

Our expanded line-up of AirPrime Intelligent Embedded Modules is usedby a wide range of OEMs to wirelessly enable their products and solutions.  Our OEM customers cover a broad range ofindustries including mobile computing, networking equipment, automotive,security, transaction processing, fleet management and energy.

 

In 2009, sales of our embedded module products increased 51% to $181.4million, compared to $120.2 million in 2008, primarily as a result of ouracquisition of Wavecom products.  Of the$181.4 million, approximately $174.0 million was from sales to M2M OEMs and$7.4 million was from sales to PC OEMs.

 

With the acquisition of Wavecom, we have significantly expanded ourglobal position in wireless embedded solutions for M2M.  In 2009, we continued to secure design winsin key segments, including consumer electronics, payment, security and mobilecomputing.  One of our modules is embeddedinside the recently introduced Barnes & Noble, Inc. “nook” ebookreader.  In the fourth quarter of 2009,Vodacom, a South African cellular network, along with Tracker, a South Africanvehicle tracking company, introduced a next generation subscriber identitymodule (“SIM”) card for vehicle tracking, based on our inSIM technology.  The inSIM component embeds the SIM functioninto our wireless central processing unit (“CPU”) at the component level,eliminating the use of the traditional plastic SIM card.  We are collaborating with MobiPower in thedevelopment of stolen-vehicle recovery and asset protection solutions based onour wireless microprocessor platform.  Inaddition, two of our OEM partners, Outpost Central Ltd. and Radiocrafts AS,introduced new smart metering solutions based on our Fastrack Supremeplatform.  In the second quarter of 2009,we announced that our Q26 Elite Wireless CPU passed all Federal CommunicationsCommission (“FCC”) and CDMA Development Group (“CDG”) 1 & 2 testingand is Safe for Network on the Verizon Wireless, Sprint and AerisCommunications, Inc. networks.  TheQ26 Elite is ruggedized for extreme environmental conditions and supports GPS,which makes it suitable for fleet management and tracking applications.  We are also collaborating with Meta SystemS.p.A. (“Meta System”) to provide a platform for automotive telematics, with afocus on emergency calls, stolen vehicle tracking, remote diagnostics and fleetmanagement.  In addition, with MetaSystem, we are also developing an optimized telematics on-board unit for theinsurance market.  During the secondquarter of 2009, we commenced commercial volume shipments of a customizedwireless communication module to Denso, a leading supplier of automotiveelectronics to Japanese and global auto manufacturers.  We believe the long-term growth andprofitability prospects in the embedded M2M markets are strong.  We plan to continue to invest to expand ourleadership position in this market.

 

Competition in the PC OEM market intensified during 2008 with the entryof both the Ericsson and Qualcomm solutions for PC OEMs.  Both Ericssonand Qualcomm have secured PC OEM design wins, including PC OEMs with whom wehave had previous design wins.  Asexpected, this increased 

 

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competition continued to put pressure on our revenue from PC OEMsduring 2009.  However, during the firstquarter of 2009, we were awarded our first Gobi design wins with two of ourexisting PC OEM customers.  Since then,we have been awarded additional Gobi design wins with notebook and netbook manufacturers.  We believe that these new design wins willenable us to grow our revenue from PC OEM customers in subsequentquarters.  Our ability to secureadditional design wins in the PC OEM market will depend on being successful indeveloping products and offering services that meet our customers’ technology,design, schedule and price requirements.

 

During the fourth quarter of 2009, we began shipping our MC8795Vembedded module for HSPA networks, which offers quad band frequency supportenabling customers to expand their product offering into new geographicalmarkets as well as data speeds with up to 7.2 Mbps on the downlink and 5.76Mbps on the uplink. In the second quarter of 2009, we introduced our newMC5728V embedded module for EV-DO Rev A networks, that provides addedflexibility to OEMs integrating mobile broadband connectivity into a variety ofdevices, including networking equipment and industrial handheld devices.  The MC5728V is the first EV-DO product withour TRU-Flow data traffic management technology that optimizes overall uploadand download modem performance, even with a virtual private network (“VPN”).

 

***AirLink*****TM*****Intelligent Gateways and Routers***

 

Our AirLinkIntelligent Gateways and Routers are sold to public safety, transportation,field service, energy, industrial and financial organizations and are among ourhighest gross margin products.  Webelieve that there are strong profitable growth prospects for our AirLinkintelligent gateway solutions and intend to capture these opportunities throughsegment, product line and geographical expansion.

 

In 2009, revenuefrom AirLink intelligent gateway solutions increased to $41.0 million from$30.8 million in 2008 primarily as a result of our acquisition of Wavecomproducts.

 

During the fourthquarter of 2009, our Helix RT 3G router was approved to run on the VerizonWireless network through their open development program, which providescustomers with the option to use wireless devices that Verizon does not offerdirectly.  During the third quarter of2009, we signed a Memorandum of Understanding (“MOU”) with T-Mobile to deliverjoint solution offerings for the M2M market. The areas of co-operation identified by the MOU are product development,marketing, sales and deployment of M2M solutions and related services.  The co-operation initiatives target theEuropean market, with an initial focus on Germany.  We also signed an agreement with NetCommLimited to distribute our AirLink range of in-vehicle and M2M devices inAustralia and New Zealand.  We introducedACEnet Services, the latest enhancement in our suite of ACEware web-based devicemanagement platforms.  Using a software-as-a-service(“SaaS”) model, ACEnet Services offers customers a secure hosted platform tocomprehensively configure, control and manage their entire deployment ofAirLink devices using a standard web browser. In the near future, we expect that ACEnet will be integrated with ourAirVantage services and platform and will become part of our comprehensivesuite of hosted services and solutions for M2M. During the third quarter of 2009, we received technical approvals forour Raven XE Gateway on Sprint, our MP 890 in-vehicle Gateway on AT&T andshipped the first commercial units of our Helix RT 3G Router.  During the second quarter of 2009, weannounced that our ALEOSTM embedded software platform will be availableon our MP line of rugged in-vehicle mobile routers.  The addition of ALEOS to our MP product linesimplifies device management and support.

 

***AirVantage*****TM*****Services Platform and Solutions***

 

In the third quarter, we reorganized andintegrated Anyware Technologies S.A. (“Anyware”), the software and servicescompany that Wavecom acquired in 2008. These changes included selling Anyware’s Open Source consulting businessto a group of employees, integrating the remaining team members into SierraWireless and forming our AirVantage solutions and services business unit. We 

 

9

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believe these changes will help us focus ondelivering end to end solutions for the M2M market and to drive collaborationwith our other lines of business.

 

Our new business unit provides solutions andservices that allow system integrators, key accounts and telecom operators toroll out complete M2M solutions for managing remote equipment and assets.  The solutions are based on tools thatfacilitate the development and delivery of applications that are hosted on ourAirVantage services platform.  Our M2Mservices platform is scalable, secure and compatible with the majority ofwireless equipment available on the market.

 

During the third quarter of 2009, we signed acontract with PSA Peugeot Citroen Group, a leader in advanced automotivetechnology, who will use our AirVantage services platform for the remotemonitoring and software upgrade of future generations of cars equipped with ourtelematics technology.  During the fourthquarter of 2009, we entered into an agreement with Orbcomm Inc. to integratethe innovative capabilities of our AirVantage services platform within Orbcomm’sweb services portal to enable customers to control their M2M services, devicesand communications.  Weannounced our collaboration with Atos Worldline, which brings Atos Origin’score expertise in hi-tech transactional services, to provide a comprehensive,expandable and secure M2M services platform, along with significant processingand hosting capacity, to simplify and accelerate the large scale deployment ofend-to-end solutions in Europe. We also announced a new major release of M2MStudio, a fully integrated environment for the development of embedded M2Msoftware, enabling developers to create, develop, compile, download, debug andtest their applications.

 

***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.

 

***Product Revenue***

 

Our revenue byproduct for the years ended December 31, 2009 and 2008 is as follows:

 
| ** **                               | ** ** | **2009** | ** ** | **2008** | ** ** |
|------------------------------------------|------------|----------|------------|----------|------------|
| AirCard Mobile Broadband Devices         |       | 56       | %          | 73       | %          |
| AirPrime Intelligent Embedded Modules    |       | 34       |       | 21       |       |
| AirLink Intelligent Gateways and Routers |       | 8        |       | 5        |       |
| Other                                    |       | 2        |       | 1        |       |
|                                     |       | 100      | %          | 100      | %          |

 

***Future Products***

 

We continuallyevaluate and develop new products and solutions that will allow us todifferentiate and to take advantage of the ever expanding and dynamicmarkets.    As we look forward, we arefocused on continued innovation and execution in our key markets.

 

Mobile computing

 

·                  In ourAirCard business, we focus on distinguishing ourselves through airlink protocolinnovation and delivering products that meet exceptional quality andperformance standards.  Our AirCardproducts that support new airlink protocols are often first in the world tomarket — our proven ability to accomplish this is extraordinarily important tokey operator customers such as AT&T, Sprint and Telstra Corporation Limited(“Telstra”).  In the coming year, weexpect to introduce 

 

10

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several new AirCardproducts supporting new airlink protocols such at HSPA+ dual carrier, dual modeEV-DO/WorldwideInteroperability for Microwave Access (“WiMAX”)and Long Term Evolution (“LTE”).

 

·                  In ourAirPrime product line up for the mobile computing business, we expect tocontinue to develop world leading embedded module solutions, supporting newairlink protocols, tailored for mobile computing OEMs.  We also expect toleverage Qualcomm’s Gobi solution to meet the needs of mobile computing OEMswho require dual mode capability.  Forour organically developed modules, and for Gobi alike, we will continue todeliver differentiation to our customers through driver and user interfacesoftware development, platform design and integration assistance andcertification services.

 

M2M

 

·                  As a result ofour combination with Wavecom, we believe that our AirPrime product line up forM2M is the broadest, most comprehensive in the industry.  Our AirPrime M2M product line supports CDMAand Global System for Mobile communications (“GSM”) technologies, 2G to 3.5Gairlink protocol speeds and multiple form factors including mini PeripheralComponent Interconnect (“PCI”), board to board connectorized andsolder-on-board.  In addition, we haveseveral innovations that we believe further bolster our competitive position,including our inSIM embedded SIM technology, our own protocol stacks and fullyintegrated development environment. Looking forward, we intend to continue to build on these advantages andto expand our product line further with new technologies and form factors.

 

·                  Our broad AirLinkproduct line up is an integral part of our M2M offering and is broad, coveringmultiple form factor needs and airlink protocol support.  Our AirLink products feature our ALEOSembedded software that enables our devices to be rapidly configured andremotely managed.  We view our embeddedALEOS software and remote device management capability as key competitivedifferentiators.  Looking forward, we arefocused on expanding our AirLink product line to serve the needs of newsegments and new geographies. Furthermore, we are focused on fully integrating our AirLink gatewayproducts with our hosted AirVantage services platform so that we can deliverend to end solutions to the markets we serve.

 

·                  Another keyelement in our M2M offering is our AirVantage services platform andsolutions.  We view our AirVantageservices platform and solutions capability as a strategic technology asset anda differentiation enabler.  OurAirVantage services platform is highly scalable and provides important servicedelivery capability including device management, subscription management,billing and rating and a fully integrated development environment, enabling ourpartners and customers to bring end to end M2M solutions to marketquickly.  We believe that our AirVantageservices platform provides the most comprehensive range of capability andscalability in the industry. Furthermore, we intend to fully integrate our AirLink and AirPrimeproducts with the platform, enabling us, and our OEM customers, to bring end toend solutions to the segments we serve.

 

### **Product Development**

###  

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 450 full timeemployees, located in Richmond, B.C., Carlsbad, California, Newark, California,Issy-Les-Moulineaux, France, Toulouse, France, Hong Kong and Shenzhen, China isskilled in the areas of radio frequency, hardware, embedded software, hostsoftware, web-based software, semiconductor and mechanical design. Combined,this team is highly experienced in the design of small form factor wirelessdata and voice 

 

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devices. Ourproduct development team combines leaders with extensive experience in theirfields with younger graduates from leading universities.

 

We take a “core team”approach to product development.  Ourgoal is to 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 staff from otherfunctional areas, including product management, operations, technical supportand quality.  These teams work closely tobring new products through the development phase, while balancing the marketrequirements of performance, time to market and product cost. Concepts andprototypes are validated by working with lead customers, channel partners andindustry consultants.  From time to time,projects are outsourced to third parties, who provide product developmentleverage for our core teams.

 

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 andwireless operators.

 

A group of seniorengineers develops and monitors our development processes within an ISO-9001approved framework or ISOTS16949 for automotive grade products. These processesare applied across all development projects to ensure uniformity. For example,we have 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 moderate additionalintegration effort on their part.

 

Our productdevelopment staff stays current in technology by participating in industrygroups such as the Personal Computer Communications Association, the CellularTelecommunications Industry Association, the Mobile Advisory Council, the USBForum, the PCI Special Interest Group, the European TelecommunicationsStandards Institute, the PCS Type Certification Review Board, the ThirdGeneration Partnership Project, the Third Generation Partnership Project 2, theWiMAX Forum and the International Wireless Packaging Consortium, and throughongoing technical education.  We maintainclose relationships with local universities by hiring co-op students, givinglectures, supporting visiting professorships and participating in regularinformal meetings with faculty members.

 

### **Distribution**

###  

Our products are usedby a variety of end-users and end-user applications.  The users range from home consumers, to salespeople and mobile executives, to police officers and utility workers as well asautomotive manufacturers and utility companies. We have built a distributionchannel that responds to the unique purchasing and usage requirements of ourcustomer base.  Historically, asubstantial majority of our sales have come from North American markets.  With the acquisition of Wavecom in 2009, ourrevenue by geography has become much more diverse.  As our wireless technology platforms andcustomer base have diversified, we have built sales and distribution teams tofocus on developing our truly international business.  Currently, we have dedicated sales anddistribution teams for the Europe, Middle East and Africa (“EMEA”),Asia-Pacific, Latin American 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 resellers forus, purchasing our products and then reselling them to end-user customersthrough their business and retail channels. Second, the wireless operator sales team often works with our sales teamto jointly sell wireless solutions and our equipment to corporate andgovernment end-user customers.  Thewireless operator channel provides us with extended customer reach, while theoperators are able to leverage our wireless data expertise to help sell theirproducts and services.  We have investeda great 

 

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deal of time and resources in cultivating our relationships with wirelessoperators and view these relationships as a critical success factor.

 

***Resellers and Distribution***

 

Resellers purchaseour products either directly from us or from our distributor network and resellthem to carriers, OEMs and end-user customers. In order to support our global resellers and OEMs, we have established aglobal network of distribution partners. Distributors ensure that our products are available to a large number ofresellers and OEM customers around the world.

 

Resellers oftencombine our products with other elements of an overall solution, such ascomputer hardware, application software and bundled communication services anddeliver a complete solution to the end-user customer. Resellers include ITVARs, system integrators and application solution providers.

 

***Original Equipment Manufacturers***

 

Original equipmentmanufacturers are companies that integrate our embedded modules into devicesthey manufacture and sell to end-user customers through their own direct salesforce and indirect distribution channels. Our embedded modules have been integrated into a range of devices, suchas laptops, industrial handheld computers, wireless routers, eBooks, paymentterminals, automated meters and automotive applications.

 

### **Marketing**

###  

Our marketing team isresponsible for providing product management, strategic marketing and marketingcommunications for our products on a global basis.

 

*Product Management*

 

Members of theproduct management team play an active role in our core team approach todeveloping and managing individual products through their entire product lifecycle.  Emphasis is placed onunderstanding customer needs, developing the business case, determiningcompetitive positioning and pricing, and ensuring product completeness, whichincludes documentation, packaging, collateral, promotional material andmarketing programs. This team also develops and manages the portfolio roadmapfor our products.

 

*Marketing Communications*

 

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

 

·            Supporting products with artwork,collateral and packaging;

 

·            Managing the web site content;

 

·            Supporting the retail activities of ourcustomers and our sales team;

 

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

 

·            Activelyparticipating in industry associations;

 

·            Meetingwith opinion leaders and industry analysts; and

 

·            Participating in targeted conferences andtrade shows.

 

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We work with our channel partners to develop programs to encouragecustomer adoption and promotion of our products.  Through marketing strategies including marketanalysis, branding, design, packaging and promotions, we launch products intothe marketplace that complement customer launch timelines.

 

*Trainingand Learning Solutions*

 

SierraWireless’ Learning Solutions team provides sales and technical trainingdirectly to our operator, OEM and channel partners.  We provide these courses in face-to-face,train the trainer, webinar, self-directed and podcast formats.

 

### **Manufacturing**

###  

We outsource most ofour manufacturing services, including parts procurement, kitting, logistics,assembly and repair. 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, lower cost manufacturing resources;

 

·            Achieverapid production scalability; and

 

·            Control capital costs.

 

In addition, weperform certain manufacturing related functions in-house, including keycomponent sourcing, manufacturing engineering, and development of manufacturingtest software, procedures and fixtures.

 

We use FlextronicsInternational Ltd., a large global electronics manufacturing services (“EMS”)provider, as our primary contract manufacturer and logistics partner to providean end-to-end supply chain solution. This includes design support, procurement, low cost manufacturing andrepair in China and fulfillment services. By using its fully integrated supply chain services, we expect tooptimize product costs, improve alignment with our increasingly internationalcustomer base and achieve increased operating efficiencies andscalability.  Our more complex, lowervolume products are manufactured by other EMS partners.

 

### **Employees**

###  

As of December 31,2009 we had a total of 947 full time employees, 266 of whom are at our headoffice in Richmond, B.C., with the balance being located across the UnitedStates, Canada, Europe and Asia. Of the 947 employees, 464 are involved inproduct development, 92 are involved in manufacturing, 207 are sales andsupport personnel, 54 are marketing personnel and 130 are in finance andadministration. Employees have access to corporate-funded ongoing training andprofessional development opportunities, both on-the-job and through outsideeducational programs. Cash compensation, our employee stock option plan, ouremployee restricted share unit plan and our retirement plan contributionprogram are complemented by internal recognition programs and careeradvancement opportunities. We believe our relationships with our employees arepositive.

 

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

 

See “GeneralDevelopment of the Business - General” discussion for information on changes toour workforce subsequent to December 31, 2009.

 

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### **Competition**

###  

Mobile broadband technology is penetrating the mainstreampopulation.  Mobile broadbandadvertisements are appearing on television, in magazines, newspapers, trainstations and airports around the world. Adoption is reaching a level such that more competitors are entering themarket and some of these competitors are large corporations with strongmanufacturing scale and financial resources at their disposal.  The technology is still evolving with fasterand more efficient airlink technologies being released by chipset andinfrastructure manufacturers.  Thisevolution creates an opportunity for us to differentiate ourselves by beingearly to market with quality implementations of these new airlinks.

 

*AirCard Products*:  We have established a technology leadershipposition by being early to market with leading edge, high performance AirCardproducts that support the latest airlink technologies.  We sell our AirCard products globally andsupport several airlink technologies including HSPA, HSPA+, CDMA EVDO Rev A anddual mode EV-DO/WiMAX.  Our competitorsinclude ZTE Corporation (“ZTE”), Huawei Technologies Corporation (“Huawei”),Novatel Wireless, Inc. (“Novatel”), Option N.V. (“Option”) and Pantech Co.

 

*AirPrime Embedded Modules:*  As a result of our acquisition of Wavecom, webelieve that we now have the broadest, most comprehensive wireless embeddedmodule product line up in the industry. Our AirPrime product line supports CDMA and GSM technologies, 2G to 3.5Gairlink protocol speeds and multiple form factors including miniPCI, board toboard connectorized and solder-on-board. In addition, we have several innovations that we believe further bolsterour competitive position, including our inSIM embedded SIM technology, our ownprotocol stacks and fully integrated development environment.  Looking forward, we intend to continue tobuild on these advantages and to expand our product line further with newtechnologies and form factors.  Ourcompetitors vary in this line of business, depending on the segment served, andinclude Ericsson, Foxconn Technology Group, Huawei, Option, Novatel, CinterionWireless Modules GmbH, Telit Communications Plc, Motorola, Inc. and SIMComWireless Solutions Co., Ltd.

 

*AirLink Intelligent Gateways:*  We believe that the market for wirelessintelligent gateways is fragmented from a segment, customer and competitionstandpoint.  In the segments where wecompete, we believe that our market share is high, particularly in NorthAmerica.  Our AirLink product line up isbroad, covering multiple form factor needs and airlink protocol support.  Our AirLink products feature our ALEOSembedded software that enables our devices to be rapidly configured andremotely managed.  We view our embeddedALEOS software and remote device management capability as key competitivedifferentiators.  Looking forward, we arefocused on expanding our AirLink product line to serve the needs of newsegments and new geographies. Furthermore, we are focused on fully integrating our AirLink gatewayproducts with our hosted AirVantage services platform so that we can deliverend to end solutions to the markets we serve. Our competitors in this line of business vary by segment and geographyand include Digi International Inc., BlueTree Wireless Data Inc., CalAmp Corp.,Enfora, Inc. and Multi-Tech Systems, Inc.,

 

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###  

### *AirVantage ServicesPlatform and Solutions:*  We view our AirVantage services platform andsolutions capability as a strategic technology asset and a differentiationenabler.  Our AirVantage servicesplatform is highly scalable and provides important service delivery capabilityincluding device management, subscription management, billing and rating and afully integrated development environment, enabling our partners and customersto bring end to end M2M solutions to market quickly.  We believe that our AirVantage servicesplatform provides the most comprehensive range of capability and scalability inthe industry.  Furthermore, we intend tofully integrate our AirLink and AirPrime products with the platform, enablingus, and our OEM customers, to bring end to end solutions to the segments weserve.  Our competitors in this line ofbusiness include wireless operators who have developed their own servicedelivery systems, nPhase and Jasper Wireless, Inc.

###  

### **Intellectual Property**

###  

We protect our intellectual propertythrough a combination of patent protection, copyright, trademarks, tradesecrets, licenses, non-disclosure agreements and contractual provisions. Weenter into a non-disclosure and confidentiality agreement with each of ouremployees, consultants and third parties that have access to our proprietarytechnology.  Pursuant to assignment ofinventions agreements, all of our employees and consultants assign to SierraWireless all intellectual property rights in the inventions created during suchperson’s employment or contract with Sierra Wireless to Sierra Wireless.

 

We currently hold 84 United States patents and 242international 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.

 

### **GovernmentalRegulation**

###  

Our products are subject to certainmandatory regulatory approvals in the United States, Canada, the European Union(“EU”) and other regions in which we operate. In the United States, the FederalCommunications Commission regulates many aspects of communications devices,including radiation of electromagnetic energy, biological safety and rules fordevices to be connected to the telephone network. In Canada, similarregulations are administered by the Ministry of Industry, through IndustryCanada. EU directives provide the comparable regulatory guidance in Europe.

 

Wireless modems must be approved underthese regulations by the relevant government authority prior to these productsbeing offered for sale. We have obtained all necessary Federal CommunicationsCommission, Industry Canada, EU and other required regulatory approvals for theproducts we currently sell.

 

### **AdditionalInformation Concerning Our Business**

###  

Our operations do not have a significantimpact on the environment.  We have notmade, and are not required to make, any significant capital expenditures tocomply with environmental regulations. Working with the contract manufacturers who build our products andrelevant component suppliers, we intend to ensure that our products that aresold in the EU comply with the EU directives that restrict the use of certainhazardous substances in electronic equipment sold in the EU after July 1,2006.

 

## ***RISK FACTORS***

 

Our business is subject to significant risks and uncertainties and pastperformance is no guarantee of future performance. These risks anduncertainties are described in our Management Discussion and Analysis for theyear ended December 31, 2009, which can be found on our website atwww.sierrawireless.com or at www.sedar.com and included as Exhibit 1.3 to thisAnnual Report.

 

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## ***DIVIDENDS***

## *** ***

Since incorporation, we have not paid anydividends on our Common Shares.  Ourcurrent intention is to reinvest earnings to finance the growth of ourbusiness.  We do not anticipate that we willpay any dividends on our Common Shares in the immediate or foreseeable future.

 

## ***DESCRIPTIONOF CAPITAL STRUCTURE***

## *** ***

Our authorized capital consists of anunlimited number of Common Shares, of which, at March 24, 2010, 31,053,764 are issued and outstanding, andan unlimited number of Preference Shares, issuable in series, of which none areissued and outstanding.  Our board ofdirectors is authorized to determine the designation, rights and restrictionsto be attached to the Preference 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 there for.  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 ofholders of 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 on April 27,2000 and re-adopted by our shareholders on April 28, 2003, April 25,2006 and May 5, 2009.  TheShareholder Rights Plan is designed to encourage the fair treatment of ourshareholders in connection with any take-over offer for our outstanding CommonShares.  The Shareholder Rights Planprovides our board of directors and shareholders with 60 days, which is longerthan prescribed by applicable securities laws governing take-over bids, tofully consider any unsolicited take-over bid without undue pressure, to allowour board of directors, if appropriate, to consider other alternatives tomaximize shareholder value and to allow additional time for competing bids toemerge.  If a bid is made to allshareholders, is held open for at least 60 days and is accepted by shareholdersholding more than 50% of the outstanding Common Shares, or is otherwiseapproved by our board of directors, then the Shareholder Rights Plan will notaffect the rights of shareholders. Otherwise, all shareholders, except the parties making a take-over bid,will be able to acquire a number of additional Common Shares equal to 100% oftheir existing outstanding holdings at half the market price.  Thus, any party making a take-over bid notpermitted by the Shareholder Rights Plan could suffer significant dilution.

 

### **NormalCourse Issuer Bid**

###  

On May 21,2008, we received regulatory approval to purchase up to 1,567,378 of our CommonShares by way of a normal course issuer bid (the “Bid”) on the Toronto StockExchange (“TSX”) and the Nasdaq, representing approximately 5% of the CommonShares outstanding as of May 21, 2008. The Bid commenced on May 26, 2008 and terminated on May 25,2009.

 

Purchases ofour Common Shares were at our discretion, were made at open market prices andwere subject to daily restrictions in compliance with the rules of the respectivesecurities exchanges and applicable securities laws.  As of May 25, 2009, 407,700 CommonShares were purchased, for an aggregate purchase price of $5.0 million, andsubsequently cancelled.  The amount paidto acquire the shares in excess of the average carrying value was charged toretained earnings in 2008.

 

### **Credit Facilities**

###  

During 2007, we obtained letters of credit to ensure the performance of athird party in accordance with specified terms and conditions.  Our obligations under these financialinstruments expired in 

 

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February 2008 andwere replaced by a standby irrevocable letter of credit, which was terminatedduring November 2008.

 

Until December 2008,we had an unsecured revolving demand facility with a Canadian chartered bankfor $10.0 million that bore interest at prime per annum.  No amount was drawn down under that facilityand it was terminated on December 1, 2008.

 

In connectionwith our acquisition of Wavecom, we signed a credit agreement on December 1,2008, with The Toronto-Dominion Bank and Canadian Imperial Bank of Commerce, aslenders, that provided for a one-year revolving term credit facility (“RevolvingFacility”) and a one-year non-revolving term credit facility (“Term Facility”).

 

The TermFacility, not to exceed €218.0 million, was to be used to complete theacquisition of Wavecom ordinary shares and OCEANEs.  The Term Facility was secured by cash of€136.8 million and a pledge against all of our assets.  On December 1, 2008, as required byFrench regulations, we drew a letter of credit in the amount of €218.0 millionissued under the Term Facility.  On February 26,2009, we borrowed €80.473 million under the Term Facility to facilitate thepurchase, on February 27, 2009, of 99.97% of the outstanding OCEANEs.  On February 27, 2009, we completed thepurchase of 84.32% of the outstanding Wavecom shares with €115.3 million of ourcash that secured the Term Facility and the letter of credit was reduced from€218.0 million to €22.2 million.   TheOCEANEs were subsequently redeemed by Wavecom and on March 13, 2009 theloan of €80.473 million under the Term Facility was repaid with thoseproceeds.  On completion of thesqueeze-out on April 29, 2009, the letter of credit was reduced to nil andthe Term Facility was no longer available.

 

The RevolvingFacility, not to exceed $55.0 million, is to be used for working capitalrequirements and is secured by a pledge against all of our assets.  On January 29, 2010, we signed anamended and restated credit agreement which renewed our Revolving Facility to January 28,2011, and amended the maximum amount from $55.0 million to $10.0 million.  Since December 1, 2008, we have notdrawn any amount under the Revolving Facility.

 

## ***MARKET FORSECURITIES***

## *** ***

Our Common Shareshave been listed on the TSX since May 17, 1999, and trade under the symbol“SW”.  Our Common Shares are also listedon Nasdaq under the symbol “SWIR”.

 

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Set out below are theprice ranges and volume of Common Shares of Sierra Wireless, Inc. thattraded on the TSX for the year ended December 31, 2009.

 
| **2009**   | ** ** | **Low****Cdn $ ** | ** ** | **High****Cdn $** | ** ** | **Total Monthly****Volume** | ** ** |
|------------|------------|------------------------|------------|-------------------|------------|-----------------------------|------------|
| ** ** | ** ** | ** **             | ** ** | ** **        | ** ** | ** **                  | ** ** |
| January    |       | 6.53                   |       | 7.85              |       | 1,322,900                   |       |
| February   |       | 4.01                   |       | 6.93              |       | 3,697,600                   |       |
| March      |       | 3.36                   |       | 5.00              |       | 7,572,500                   |       |
| April      |       | 4.39                   |       | 7.33              |       | 6,056,000                   |       |
| May        |       | 5.79                   |       | 7.76              |       | 5,456,800                   |       |
| June       |       | 5.80                   |       | 7.55              |       | 2,486,100                   |       |
| July       |       | 5.95                   |       | 7.98              |       | 2,422,100                   |       |
| August     |       | 7.91                   |       | 9.34              |       | 2,206,600                   |       |
| September  |       | 8.95                   |       | 11.70             |       | 2,949,200                   |       |
| October    |       | 9.55                   |       | 11.22             |       | 2,723,700                   |       |
| November   |       | 8.87                   |       | 10.29             |       | 2,255,800                   |       |
| December   |       | 9.55                   |       | 11.21             |       | 1,850,700                   |       |

 

Set out below are theprice ranges and volume of Common Shares of Sierra Wireless, Inc. thattraded on Nasdaq for the year ended December 31, 2009.

 
| **2009**   | ** ** | **Low****US $ ** | ** ** | **High****US $** | ** ** | **Total Monthly****Volume** | ** ** |
|------------|------------|-----------------------|------------|------------------|------------|-----------------------------|------------|
| ** ** | ** ** | ** **            | ** ** | ** **       | ** ** | ** **                  | ** ** |
| January    |       | 5.27                  |       | 6.79             |       | 2,750,800                   |       |
| February   |       | 3.23                  |       | 5.59             |       | 5,229,000                   |       |
| March      |       | 2.64                  |       | 3.93             |       | 7,223,100                   |       |
| April      |       | 3.46                  |       | 6.05             |       | 9,370,500                   |       |
| May        |       | 4.92                  |       | 6.53             |       | 10,644,000                  |       |
| June       |       | 5.05                  |       | 6.93             |       | 5,333,900                   |       |
| July       |       | 5.08                  |       | 7.38             |       | 4,999,400                   |       |
| August     |       | 7.13                  |       | 8.62             |       | 4,051,500                   |       |
| September  |       | 8.10                  |       | 10.95            |       | 4,627,000                   |       |
| October    |       | 8.80                  |       | 10.73            |       | 3,912,500                   |       |
| November   |       | 8.21                  |       | 9.82             |       | 2,224,500                   |       |
| December   |       | 9.11                  |       | 10.71            |       | 1,937,700                   |       |

## *** ***

## ***DIRECTORS AND EXECUTIVE OFFICERS***

## *** ***

The tables set forthbelow list the directors and executive officers of the Company as at March 24,2010, 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 is electedat our annual meeting of shareholders to serve until the next annual meeting oruntil a successor is elected or appointed, unless such director resigns or isremoved earlier.  To the knowledge ofSierra Wireless, the directors and executive officers as a group, beneficiallyown, directly or indirectly, or exercise control or discretion over, 1,337,491Common Shares (not including Common 

 

19

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Shares issuable upon the exercise of stock options or unvested restrictedstock units), representing as of March 24, 2010 approximately 4.3%****of the issued and outstanding Common Shares.

 

### **Directors**

 
| **Name, Position and  Residence**                                                      | ** ** | **Principal Occupation or Employment in the  Preceding Five Years (1)**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | ** ** | **Director  Since** |
|----------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------|
|                                                                                   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |       |                |
| **Jason W. Cohenour**

President, CEO and Director

Washington, U.S.A.                 |       | President and Chief  Executive Officer of the Company from October 2005 to present; Chief  Operating Officer of the Company from August 2004 to October 2005;  Senior Vice President, Worldwide Sales of the Company from 2000 to August 2004                                                                                                                                                                                                                                                                                                                                                                                                                                       |       | October 2005   |
|                                                                                   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |       |                |
| **Gregory D. Aasen (3)**

Director

British Columbia, Canada                           |       | Independent Outside Director; Chief Strategy Officer  of PMC-Sierra, Inc. (a broadband communications company) from September 2005  to June 2007; Vice-President and General Manager, Communication Products  Division of PMC-Sierra, Inc. from 2004 to September 2005                                                                                                                                                                                                                                                                                                                                                                                                         |       | December 1997  |
| ** **                                                                             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |       |                |
| **Robin Abrams**

Director

California, U.S.A.                                         |       | Independent Outside  Director; Interim Chief Executive  Officer of ZiLOG Inc. (an embedded solutions company) from August 2006  to February 2007; President and Chief Executive Officer of Firefly Mobile (a  mobile communications company for the youth market) from June 2004 to July 2006                                                                                                                                                                                                                                                                                                                                                                                            |       | Feb 2010            |
| ** **                                                                             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |       |                |
| **Paul G. Cataford (2) (4)**

Director

Alberta, Canada                           |       | Independent Outside Director; President and Chief  Executive Officer of University Technologies International Inc. (a technology  transfer and commercialization company) from 2004 to March 2009                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |       | July 1998      |
| ** **                                                                             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |       |                |
| **Charles E. Levine (2) (3) (4)**

Chairman and Director

California, U.S.A. |       | Independent Outside Director                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |       | May 2003       |
| ** **                                                                             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |       |                |
| **S. Jane Rowe****(2)**

Director

Ontario, Canada

                              |       | Independent Outside Director; Executive  Vice-President, Special Accounts Management and Retail Credit Risk of Scotiabank  from August 2009 to present; Executive Vice-President, Executive  Offices, Scotiabank from August 2008 to August 2009; Executive  Vice-President, Domestic Personal Lending and Insurance and President and CEO  of Scotia Mortgage Corporation from May 2006 to July 2007, Vice  Chairman of Maple Trust Company from May 2006 to July 2007; Vice  Chairman of Travelers Leasing Corporation from February 2007 to July 2007;  President and Chief Executive Officer of Roynat Capital from August 2004  to May 2006 |       | March 1998     |
| ** **                                                                             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |       |                |
| **David B. Sutcliffe (4)**

Director

British Columbia, Canada                         |       | Corporate Director from October 2005  to present; Chief Executive Officer of the Company from May 1995 through  October 2005                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |       | June 1995      |

 

20

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| **Name, Position and  Residence**                           | ** ** | **Principal Occupation or Employment in the  Preceding Five Years (1)**                                                                                                                                                                                                                                                                                                                                                                              | ** ** | **Director  Since** |
|-------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------|
|                                                        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                 |       |                |
| **Kent Thexton****(3)**

Director

British Columbia, Canada |       | Independent Outside Director; Managing Partner,  i-wireless LLC (US based Mobile Virtual Network Operator (“MVNO”)) from November 2006  to present; President and Chief Executive Officer of SEVEN Networks, Inc.  (an application software company) from April 2004 to October 2006;  Chief Marketing and Product Officer for O2 PLC and member of the Board of  Directors from November 2001 to March 2004 |       | March 2005     |

 

----

Notes:

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

(2)   Member of the Audit Committee

(3)   Member of the Human ResourcesCommittee

(4)   Member of the Governance andNominating Committee

 

### **ExecutiveOfficers**

 
| **Name, Position and   Province or State and  Country of Residence (1)**               | ** ** | **Principal Occupation in the  Preceding  Five Years**                                                                                                                      | ** ** | **Length of Service** |
|----------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|
|                                                                                   |       |                                                                                                                                                                        |       |                  |
| **Jason W. Cohenour**  President and Chief Executive Officer  Washington, U.S.A.       |       | President and Chief  Executive Officer of the Company since October 2005; Chief Operating  Officer of the Company from August 2004 to October 2005           |       | 13 years              |
| ** **                                                                             |       |                                                                                                                                                                        |       |                  |
| **David G. McLennan**  Chief Financial Officer and Secretary  British Columbia, Canada |       | Chief Financial Officer of the Company from March 2004  to present                                                                                                     |       | 5 years               |
| ** **                                                                             |       |                                                                                                                                                                        |       |                  |
| **James B. Kirkpatrick**

Chief Technical Officer

California, U.S.A.                  |       | Chief Technical Officer of the Company from September 2004  to present;                                                                                                |       | 6 years               |
| ** **                                                                             |       |                                                                                                                                                                        |       |                  |
| **Didier Dutronc**

Senior Vice-President, Marketing

Hong Kong, PRC                   |       | Senior Vice-President, Marketing of the Company from  March 2009 to present; Managing Director, Wavecom Asia-Pacific Ltd. from  September 2004 to March 2009 |       | 1 year                |

 

----

Note:

(1)          Trent Punnett, Senior Vice President, Marketing andCorporate Development was an executive officer of the Company during 2009 untilhis resignation on January 29, 2009.

 

## ***CODE OF BUSINESS CONDUCT AND ETHICS***

 

In 2003, the Board of Directors adopted aCode of Business Conduct and Ethics applying to all directors, officers,employees and contractors of the Company and each affiliate and subsidiary ofthe Company, to ensure that we conduct our business in accordance with thehighest standards of business conduct and ethics.  The Board of Directors approved an updatedversion of the Code of Business Conduct and Ethics in December 2005 and October 2008.  There have been no waivers granted from theCode of Business Conduct and Ethics since its adoption.  The Code of Business Conduct and Ethics isavailable on the Company’s website at www.sierrawireless.com or on SEDAR atwww.sedar.com.

 

21

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## ***AUDIT COMMITTEE***

 

### **Mandate of the Audit Committee**

###  

The full text of the Mandate of the AuditCommittee is set out below.

 

**“1.**** ****Purposeand Scope**

 

Theaudit committee **(the “AC”)** was established by theBoard of Directors **(“Board”)** ofSierra Wireless Inc. **(“Company”)** toassist the Board in all issues relating to the oversight of the following:

 

·                  the Company’s systems of internal anddisclosure controls regarding finance, accounting and legal compliance;

 

·                  the Company’s auditing, accounting andfinancial reporting processes, including adherence to US generally acceptedaccounting principles;

 

·                  the Company’s financial statements and otherfinancial information provided by the Company to its shareholders, the publicand others;

 

·                  the Company’s compliance with legal andregulatory requirements;

 

·                  the appointment, compensation, independence,oversight, communication with, performance and change of the Company’s externaland independent auditors (the “Auditors”);

 

·                  the Company’s whistleblower process; and

 

·                  the fulfillment of the other responsibilitiesset forth in this Mandate.

 

**2.**              Organization, Membership and Meetings

** **

·                  Committee members shall meet the requirementsof the Toronto Stock Exchange, the NASDAQ Exchange, the Securities and ExchangeCommission, the securities commissions of each of the Provinces of Canada inwhich the Company is a reporting issuer and any other regulatory agency thatmay have jurisdiction over the operations of the Company from time to time.

 

·                  The Committee shall consist of three or moredirectors who are “independent” as defined by applicable law, regulations,guidelines and policies, and as determined by the Governance and NominatingCommittee (“GNC”) of the Board.

 

·                  All members of the Committee shall be “financiallyliterate”, and at least one member of the Committee shall be a “financialexpert”.  “Financially literate” and “financialexpert” will have the respective meanings set out in applicable law,regulations, guidelines and policies.

 

·                  Members of the Committee shall be appointedannually by the Board on the recommendation of the GNC.  Members may be replaced by the Board at anytime, but shall otherwise serve until a successor has been named.

 

·                  No director shall serve on the compensationcommittee of another company that employs such directors.

 

·                  No member shall be affiliated with theCompany or any subsidiary.

 

·                  The Committee shall meet from time to time,as it deems necessary, but at least four times per year.

 

·                  The Committee may include management at itsmeetings, but shall also hold an executive session at each meeting at whichonly independent directors are present.

 

22

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·                  The Committee shall maintain written minutesof its meetings, which minutes will be filed in the corporate minute book.

 

**3.**              Authority and Responsibilities

** **

**3.1.**         With respect to the Auditors:

** **

·                  Be directly responsible for recommending tothe Board the appointment and compensation of the Auditor.  Oversee 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 in advanceand pre-approve all non-audit services to be provided to the Company or itssubsidiaries 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 moremembers the authority to pre-approve non-audit services, provided a report ismade to the Committee at its next scheduled meeting.  The Committee may consult with Management butshall not delegate these responsibilities to Management.

 

·                  Have the authority to communicate directlywith the Auditors.

 

·                  Review the performance of the Auditors on atleast 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, respecting one or more independent auditscarried out by the Auditors, and any steps taken to deal with any such issues.

 

·                  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 of theAuditors and Management, the scope and plan of the work to be done by theAuditors for each fiscal year.

 

**3.2.**         With respect 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 submission toshareholders, any governmental body, any stock exchange or disclosure to thepublic.  Subject to 

 

23

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delegation from the Board,approve the interim financial statements and footnotes, MD&A and interimearnings press release.

 

·                  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 approval of the annual audited financialstatements and footnotes, MD&A and annual earnings press release.

 

·                  Recommend to the Board, if appropriate, thatthe Company’s annual audited financial statements be included in the Company’sannual report for filing with appropriate securities regulatory agencies.

 

·                  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.

 

**3.3.**         With respect to periodic and annualreviews:

** **

·                  Periodically review separately with each ofManagement and the Auditors (i) any significant disagreement between Managementand the Auditors in connection with the preparation of the financialstatements, (ii) any difficulties encountered during the course of theaudit or review (including any restrictions on the scope of work or access torequired information), 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 and theCompany’s counsel, as appropriate, any legal, regulatory or compliance mattersthat could have a significant impact on the Company’s financial statements,including significant changes in 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).

 

**3.4.**         Discussions with 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, management informationcircular and any prospectuses.

 

·                  Review and discuss with Management allmaterial off-balance sheet transactions, arrangements, obligations (includingcontingent obligations) and other relationships of the Company with 

 

24

----

 

unconsolidated entities orother persons, that may have a material current or future effect on financialcondition, changes in financial condition, results of operations, liquidity,capital resources, capital reserves or significant components of revenues orexpenses.

 

·                  Inquire about the application of the Company’saccounting policies and its consistency from period to period, and thecompatibility of these accounting policies with generally accepted accountingprinciples, and (where appropriate) the Company’s provisions for futureoccurrences that may have a material impact on the financial statements of theCompany.

 

·                  Review and discuss with Management 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).

 

·                  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.

 

**3.5.**         With respect to internal controls anddisclosure:

** **

·                  In consultation with the Auditors and Management:(a) review the adequacy of the Company’s internal control structure andsystem, and the procedures designed to ensure compliance with laws andregulations, (b) discuss the responsibilities, budget and staffing needsof the Company’s internal accounting department, and (c) review andconsider 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, (ii) theconfidential, anonymous submission by employees of the Company of concernsregarding questionable accounting or auditing matters, and (iii) referringany whistleblower matters that fall outside of the scope of the Committee tothe Chair of the appropriate Committee or to the Chair of the Board.

 

·                  Be satisfied that adequate procedures are inplace 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.

 

**3.6.**         With respect to reporting obligations:

** **

·                  Ensure that all reporting obligations relatedto the AIF (Form 40-F for US purposes) and management information circularunder Part 5 of Multilateral Instrument 52-110 are fully compliedwith.

 

**3.7.**         Other:

** **

·                  Review and approve all related-party transactions.

 

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

 

25

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·                  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.

 

·                  Monitor and ensure compliance with legal andregulatory requirements and corporate policy relating to audit, internalcontrols, financial matters and any other matters within the scope of thismandate.

 

·                  Review and reassess the adequacy of thisMandate not less than annually, and recommend any proposed changes to the Boardfor approval.  The Committee will alsoreview its own performance, at least annually, for purposes of self-evaluationand to encourage the continuing improvement of the Committee in the executionof its responsibilities.

 

·                  The Committee may delegate its authoritywhere permitted and appropriate.

 

·                  As necessary to carry out its duties, toretain and release independent legal, accounting or other advisors to advisethe Committee and set and cause the Company to pay the compensation for anysuch advisors employed by the Committee.

 

·                  Perform any other activities consistent withthis Mandate, the Company’s By-laws and governing law as the Committee or theBoard deems necessary or appropriate.

 

·                  The Committee will have full access to allbooks, records, facilities and personnel of the Company.

 

·                  To honour the spirit and intent of applicablelaw as it evolves, authority to make minor technical amendments to thisMandate, on request of the Chair of the Committee , is delegated to the Chairof the Governance and Nominating Committee, who will report any amendments tothe Board at its next meeting.

 

**4.**              External and Internal Linkages

** **

·                  The Board

 

·                  The CEO and Senior Management

 

·                  Outside Consultants and Advisors

 

·                  The Corporate Governance and NominatingCommittee”

 

### **Composition of the Audit Committee**

###  

We have a separately designated standingaudit committee established in accordance with section 3(a)(58)(A) of theExchange Act.  S. Jane Rowe (Chair), PaulG. Cataford and Charles E. Levine are the current members of the AuditCommittee.  Each of them is anindependent director and is financially literate. The Board of Directors hasdetermined that Ms. Rowe is the Audit Committee’s financial expert withinthe meaning of General Instruction B(8)(a) of Form 40-F.  The Securities and Exchange Commission hasindicated that the designation of a person as an audit committee financialexpert does not make such person an “expert” for any purpose, impose anyduties, obligations or liability on such person that are greater than thoseimposed on member of the audit committee or board of directors who do not carrythis designation or affect the duties, obligations or liabilities of any othermember of the audit committee or board of directors.

 

### **Relevant Education and Experience**

###  

S. Jane Rowe is an independentdirector.  Ms. Rowe is currently theExecutive Vice-President, Special Accounts Management and Retail Credit Risk ofScotiabank.  Previously, she was theExecutive 

 

26

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Vice-President,Executive Offices of Scotiabank from August 2008 until August 2009and the Executive Vice-President, Domestic Personal Lending and Insurance andPresident and CEO of Scotia Mortgage Corporation, the mortgage subsidiary ofScotiabank from May 2006 until July 2007.  Ms. Rowe was also Vice Chairman of MapleTrust Company and Travelers Leasing Corporation, both of which are wholly-ownedsubsidiaries of Scotiabank.  Prior to May 2006,Ms. Rowe was the President and Chief Executive Officer of RoynatCapital.  Ms. Rowe has an extensivebackground in the financial services and banking industry with over 20 years ofexperience with the Scotiabank Group.  Ms. Roweholds a Bachelor of Commerce degree with honours from Memorial University ofNewfoundland, an MBA from York University and has received the Institute ofCorporate Directors certified designation (ICD.D).

 

Paul G. Cataford is an independentdirector.  Mr. Cataford was mostrecently the President and Chief Executive Officer of University TechnologiesInc., a wholly-owned subsidiary of the University of Calgary that isresponsible for the university’s technology commercialization, from 2004 until March 2009.  Mr. Cataford’s other experience includesconsulting, Executive Managing Director of BMO Nesbitt Burns Equity PartnersInc. from 2001 to 2002 and Managing Director and President of BCE Capital Inc.from 1997 to 2001.  Mr. Cataford isalso the Chair of the audit committee for Hemisphere GPS, Inc. (formerlyCSI Wireless, Inc.).  Mr. Catafordhas extensive knowledge of venture capital investing and technology.  Mr. Cataford completed a MechanicalEngineering Degree at Queen’s University and an MBA, specializing in financeand international business, at York University.  Mr. Cataford has received the Instituteof Corporate Directors certified designation (ICD.D) from the Rotman School ofManagement.

 

Charles E. Levine is an independentdirector of technology focused companies, including Openwave Systems and RCNCorporation, and a management consultant. He has a track record of developing brands into large businesses, mostnotably when he was President and Chief Operating Officer of Sprint PCS (nowSprint Nextel) where he oversaw revenue growth to over $10 billion in four anda half years and at AT&T, where he turned around the Consumer Products andSmall Business Markets, winning Popular Electronics Product of the Year for onevideo conferencing product.  He has heldsenior management positions at CAD Forms Technology and Octel Communications(now part of Lucent).  Mr. Levinewas named Marketer of the Year in 1999 by MC Magazine and CEO of the Year in2001 by Frost & Sullivan for his notable achievements at SprintPCS.  He holds an MBA (Marketing) fromthe J.L. Kellogg Graduate School of Management-Northwestern University, and abachelor’s degree in Economics from Trinity College.

 

### **Reliance on Certain Exemptions**

###  

At no time since thecommencement of the Company’s most recently completed financial year has theCompany relied upon any exemption from NI 52-110 provided therein.

 

### **Audit Committee Oversight**

###  

At no time since thecommencement of the Company’s most recently completed financial year was arecommendation of the Audit Committee to nominate or compensate an externalauditor not adopted by the board of directors of the Company.

 

### **Pre-approval Policies and Procedures**

###  

The Audit Committee has the sole authority toreview in advance and pre-approve all audit and non-audit services to beprovided to the Company or its subsidiaries by the external auditor, as well asall fees and other terms of engagement. The Audit Committee may delegate to one or more members the authority topre-approve non-audit services, provided a report is made to the AuditCommittee at its next scheduled meeting. All of the audit-related, tax and all other fees below were pre-approvedby the Audit Committee.

 

27

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### **Auditor Independence**

###  

Sierra Wireless’sAudit Committee has concluded that KPMG LLP, the Company’s independentregistered chartered accountants (the “Auditors”), is independent underapplicable rules and guidelines and, in particular, that the Auditors arefree from conflicts of interest that could impair their objectivity inconducting the audit of the Company’s financial statements.  The Audit Committee is required to approveall audit and non-audit related services performed by our Auditors, and ourAuditors are not permitted to perform services for us prohibited for an independentauditor under applicable Canadian and United States regulations, including theSarbanes-Oxley Act.

 

### **Auditors’ Fees**

 
| ** **          | ** ** | **2008** | ** ** | **2009** | ** ** |
|---------------------|------------|----------|------------|----------|------------|
| Audit fees          |       | $        | 586,000    |     | $          | 859,000 |   |
| Tax fees            |       | 207,000  |       | 75,000   |       |
| Audit-related  fees |       | 39,000   |       | nil      |       |
| All other fees      |       | nil      |       | nil      |       |
|                     |            |          |            |          |            |  |  |

 

***AuditFees***

 

Audit fees for 2009include fees related to the audit of our year-end financial statements, auditof our internal control over financial reporting, review of our interimfinancial statements, review of the Wavecom business acquisition report, auditof the opening balance sheet of Wavecom and services that are normally providedby the Auditors in connection with statutory and regulatory filings orengagements for such year.   Audit feesfor 2008 include fees related to the audit of our year-end financial statements,audit of our internal controls over financial reporting, review of our interimfinancial statements and services that are normally provided by the Auditors inconnection with statutory and regulatory filings or engagements for such year.

 

***Tax Fees***

 

Tax fees for 2009 areprimarily for tax compliance and transfer pricing services.  Tax fees for 2008 are primarily for thepreparation of our Canadian and U.S. tax returns, assistance with tax planningand completion of transfer pricing studies.

 

***Audit-RelatedFees***

 

Audit-related feesconsist of fees for assurance and related services by the Auditors that arereasonably related to the performance of the audit or review of our financialstatements and are not reported above as Audit Fees.  Audit-related fees for 2008 includeassistance related to the Company’s acquisition of Wavecom.

 

***AllOther Fees***

 

No fees were billedby the Auditors in 2009 or 2008 for services other than those reported in thepreceding paragraphs.

 

## ***EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES***

## *** ***

**Disclosure Controls**

 

Our management is responsible for establishingand maintaining adequate disclosure controls and procedures for theCompany.  Our disclosure controls andprocedures are designed to ensure that information required to be disclosed inour reports filed with securities regulatory authorities is recorded, 

 

28

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processed, summarized and reported withinprescribed time periods and is accumulated and communicated to our management,including our Chief Executive Officer and our Chief Financial Officer, asappropriate, to allow timely decisions regarding required disclosure.

 

An evaluation was carried out under thesupervision of, and with the participation of, our management, including ourChief Executive Officer and our Chief Financial Officer, of the effectivenessof our disclosure controls and procedures as of December 31, 2009.  Based on that evaluation, our Chief ExecutiveOfficer and our Chief Financial Officer have concluded that our disclosurecontrols and procedures were effective to ensure thatinformation required to be disclosed by us in the reports we file or submitunder applicable securities laws and regulations is recorded, processed,summarized, and reported within the time periods specified thereby.

 

We do not expect that our disclosure controls and procedures willprevent all error and all fraud, if any. A control procedure, no matter howwell conceived and operated, can provide only reasonable, not absolute,assurance that the objectives of the control procedure are met. Because of theinherent limitations in all control procedures, no evaluation of controls canprovide absolute assurance that all control issues and instances of fraud, ifany, within the Company have been detected. These inherent limitations includethe realities that judgments in decision-making can be faulty, and thatbreakdowns can occur because of simple error or mistake. Additionally, controlscan be circumvented by the individual acts of some persons, by collusion of twoor more people, or by management override of the control. We considered theselimitations during the development of our disclosure controls and proceduresand will periodically re-evaluate them to ensure they provide reasonable assurancethat such controls and procedures are effective.

 

**Internal Control Over FinancialReporting**

 

**Management’s Annual Report on Internal Control Over FinancialReporting**

 

Our management is responsible for establishing and maintaining adequateinternal control over financial reporting, as such term is defined in Rules 13a-15(f) and15d-15(f) under the U.S.Securities Exchange Act of 1934, as amended.

 

Our internal control over financial reporting includes those policiesand procedures that: (1) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions anddispositions of our assets; (2) provide reasonable assurance thattransactions are recorded as necessary to permit preparation of financialstatements in accordance with GAAP, and that our receipts and expenditures arebeing made only in accordance with authorizations of our management anddirectors; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use or disposition of our assetsthat could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financialreporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk thatcontrols may become inadequate because of changes in conditions, or that thedegree of compliance with the policies or procedures may deteriorate.

 

We acquired Wavecom during 2009 and excluded from our assessment of theeffectiveness of our internal control over financial reporting Wavecom’sinternal control over financial reporting associated with total assets of$106.2 million and total revenue of $119.6 million included in our consolidatedfinancial statements as of and for the year ended December 31, 2009.

 

Under the supervision and with the participation of our Chief ExecutiveOfficer and our Chief Financial Officer, management conducted an evaluation ofthe effectiveness of our internal control over financial reporting, as of December 31,2009, based on the framework set forth in *InternalControl-Integrated Framework*issued by the Committee of SponsoringOrganizations of the Treadway Commission (COSO). Based on its evaluation underthis framework, management concluded that our internal control over financialreporting was effective as of that date.

 

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KPMG LLP (“KPMG”), an independent registeredpublic accounting firm, who audited and reported on our consolidated financialstatements, has issued an attestation report on the effectiveness of ourinternal control over financial reporting as of December 31, 2009.  The attestation report is included in ourconsolidated financial statements.

 

**Changes in Internal Control Over Financial Reporting**

 

Prior to our acquisition of Wavecom, Wavecom maintained effectiveinternal control over financial reporting based on criteria established in *Internal Control-Integrated Framework* issued by theCommittee of Sponsoring Organizations of the Treadway Commission. We areevaluating Wavecom’s internal control over financial reporting but are notaware of any changes since the date of acquisition that have materiallyaffected, or are reasonably likely to materially affect, Wavecom’s internalcontrols over financial reporting.

 

There have been no changes in Sierra Wireless’ internal control overfinancial reporting during the year ended December 31, 2009 that havematerially affected, or are reasonably likely to materially affect, ourinternal controls over financial reporting.  The design of any system of controls and procedures is based in partupon certain assumptions about the likelihood of certain events. There can beno assurance that any design will succeed in achieving its stated goals underall potential future conditions, regardless of how remote.

 

## ***LEGAL PROCEEDINGS***

 

In July 2009, a patent holding company, SPH America, LLC, filed apatent litigation lawsuit in the United States District Court for the EasternDistrict of Virginia asserting patent infringement by a number of devicemanufacturers, including us, and computer manufacturers, includingHewlett-Packard Co. (“HP”), Panasonic Corporation (“Panasonic”), GeneralDynamics Itronix Corporation (“GD”) and Fujitsu America and Fujitsu Japan (“Fujitsu”).  The litigation, which has been transferred tothe United States District Court, Southern District of California, makescertain allegations concerning the wireless modules sold to the computermanufacturers by us, our competitors, and some of our customers with whom wehave supply agreements.  We are assessingour obligations and our liability, if any, in respect of this litigation.Although there can be no assurance that an unfavourable outcome would not havea material adverse effect on our operating results, liquidity or financialposition, we believe the claims are without merit and will vigorously defendthe lawsuit.

 

In July 2009, a patent holding company, WIAV Networks, LLC, fileda patent litigation lawsuit in the United States District Court for the EasternDistrict of Texas asserting patent infringement by a number of parties,including wireless device manufacturers, including us.  We are currently assessing our potential liability,if any, in respect of this litigation. Although there can be no assurance thatan unfavourable outcome would not have a material adverse effect on ouroperating results, liquidity or financial position, we believe the claims arewithout merit and will vigorously defend the lawsuit.

 

In July 2009, a patent holding company, Celltrace, LLC, filed apatent litigation lawsuit in the United States District Court for the EasternDistrict of Texas asserting patent infringement by a number oftelecommunication carrier companies including Sprint Spectrum, LP and AT&TMobility LLC.  The litigation makescertain allegations concerning the wireless modems sold to the carriers by usand our competitors.  We are currentlyassessing our obligations and our liability, if any, in respect of thislitigation. Although there can be no assurance that an unfavourable outcomewould not have a material adverse effect on our operating results, liquidity orfinancial position, we believe the claims are without merit and will vigorouslydefend the lawsuit.

 

In June 2009, a patent holding company, Saxon Innovations, LLC (“Saxon”),filed a patent litigation lawsuit in the United States District Court for theEastern District of Texas asserting patent infringement 

 

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by a number of wireless device manufacturers, including us.  The litigation makes certain allegationsconcerning the products sold by those manufacturers.  We are currently assessing our liability, ifany, in respect of this litigation. 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 lawsuit.

 

In January 2009, a patent holding company, DNT LLC, filed a patentlitigation lawsuit in the United States District Court for the Eastern Districtof Virginia asserting patent infringement by a number of telecommunicationcarrier companies including Sprint Spectrum, LP and Nextel, Verizon Wirelessand T-Mobile USA, Inc.  Thelitigation made certain allegations concerning the wireless modems sold to thecarriers by us and our competitors. Following a trial in December 2009,the Court entered a verdict of patent non-infringement and invalidity.  In February 2010,  DNT LLC filed a motion for a new trial, or,in the alternative, for an amended judgment. While we believe this motion will be unsuccessful and we intend tovigorously defend the motion.  DNT LLChas indicated its intention to file an appeal from the Court’s verdict.  While we believe that the appeal, if any,will be unsuccessful, we intend to vigorously defend against the appeal.

 

In July 2008, Saxon also filed a patent litigation lawsuit in theUnited States District Court for the Eastern District of Texas asserting patentinfringement by a number of computer manufacturers, including HP.  We have entered into a supply agreement withHP and, pursuant to that agreement, have been notified of the litigation.  We are currently assessing our obligationsand our liability, if any, in respect of this litigation. Although there can beno assurance that an unfavourable outcome would not have a material adverseeffect on our operating results, liquidity or financial position, we believe theclaims are without merit and will vigorously defend the lawsuit.

 

On February 6, 2008, Wavecom filed a civil proceeding in theSupreme Court of the State of New York (USA) against Siemens AG and two of itsU.S. subsidiaries.  In that proceeding, Wavecom alleged that thedefendants improperly took Wavecom’s confidential internal product information,distributed it internally and to customers of Wavecom, and utilized it tounfairly compete with Wavecom.  The lawsuit claimed torts of conversion,unfair competition and misappropriation of trade secrets, and sought damages inan amount to be proved at trial and a court order requiring the defendants toreturn the information.  On August 24, 2009, the parties reached amutually agreeable settlement of the lawsuit and the case was subsequentlydismissed by stipulation of the parties.

 

Since early December 2008, Wavecom and its subsidiary Wavecom, Inc.have been involved in litigation with a contracting counterparty, TemicAutomotive of North America (Continental Group) which has unjustly withheldpayment of approximately $2.0 million for products sold by Wavecom, Inc.  This amount has been provided for in ourallowance for doubtful accounts.  Wavecomand Wavecom, Inc. filed suit against Continental Group in the SupremeCourt of the State of New York (USA) to recover the unpaid receivables.  Continental Group filed a separate suit instate court in North Carolina against Wavecom, asserting eight claims forrelief, alleging breach of both tort and contracts law.  Continental Group has requested damages underthe main claim of $1.5 million to be determined at trial.  On the other claims, Continental Group hasrequested damages in excess of $10,000 each and has also requested treble andpunitive damages.  As a result of a mergerwith Sierra Wireless America, Inc. (“SWA”), Wavecom, Inc. no longerexists and the liabilities of Wavecom, Inc. are the liabilities ofSWA.  Although there can be no assurancethat an unfavourable outcome would not have a material adverse effect on ouroperating results, liquidity or financial position, we believe the claims madeby Continental Group are without merit and will vigorously defend the lawsuit.

 

We are engaged in certain other claims and legal actions in theordinary course of business and believe that the ultimate outcome of theseactions will not have a material adverse effect on our operating results,liquidity or financial position.

 

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## ***OFF-BALANCESHEET ARRANGEMENTS***

 

During2007, the Company obtained letters of credit to ensure the performance of athird party in accordance with specified terms and conditions. At December 31,2008, the Company had no amounts outstanding (2007 - $6,028,000) under theletters of credit.  The Company’s obligationsunder these financial instruments expired in February 2008 and werereplaced by a standby irrevocable letter of credit, which was terminated duringNovember 2008.

 

On December 1, 2008, we issued a letter of credit in the amount of€218 million under the secured Term Facility of €218 million.

 

As of December 31, 2009, the Companydid not have any off-balance sheet finance or special purpose entities.

 

## ***CONTRACTUALOBLIGATIONS***

 

The followingtable specifies our known contractual obligations as of December 31, 2009:

 
| ** **                                                         | ** ** | **Payments  due by period** | ** ** |
|--------------------------------------------------------------------|------------|-----------------------------|------------|
| **Contractual Obligations********(in  thousands of U.S. dollars)** | ** ** | **Total**                   | ** ** | **Less than  1 year** | ** ** | **1-3 years** | ** ** | **3-5 years** | ** ** | **More  than 5  years** | ** ** |
| * *                                                           |       |                        |       |   |   |   |   |   |   |   |   |
| Operating lease obligations                                        |       | $                           | 22,534     |   | 10,933 |   | 8,081 |   | 2,942 |   | 578 |   |
| Purchase obligations (1)                                           |       | 109,400                     |       | 109,400 |   | — |   | — |   | — |   |
| Other long-term liabilities (2)                                    |       | 39,231                      |       | 3,371 |   | 20,478 |   | 12,125 |   | 3,257 |   |
| Total                                                              |       | $                           | 171,165    |   | $ | 123,704 |   | $ | 28,559 |   | $ | 15,067 |   | $ | 3,835 |   |
|                                                                    |            |                             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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Note

(1)          Purchase obligations represent obligationswith certain contract manufacturers to buy a minimum amount of designatedproducts between January 2010 and March 2010.  In certain of these arrangements, we may berequired to acquire and pay for such products up to the prescribed minimum orforecasted purchases.

 

(2)          Other long-term liabilities include thelong-term portions of accrued royalties and marketing development funds.

 

## ***QUORUM EXEMPTION***

## *** ***

The rules andregulations of the Nasdaq require each listed issuer to provide that a quorumfor its shareholders’ meetings be at least 33 1/3 percent of the issuer’soutstanding shares.  The Company has beengranted an exemption from this requirement because it is contrary to generallyaccepted business practices in Canada, the Company’s country of domicile.  The Company has had the benefit of thisexemption in the current and prior year.

 

In determiningwhether a requirement is contrary to generally accepted business practices, theNasdaq rules generally look to the requirements of the primary market inthe issuer’s country of domicile.  The rules andpolicies of the Toronto Stock Exchange, the primary market in Canada, do notcontain quorum requirements, 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.

 

## ***REGISTRAR AND TRANSFER AGENT***

## *** ***

The Registrar andTransfer Agent for the Common Shares in Canada is Computershare InvestorServices Inc., 510 Burrard Street, Vancouver, British Columbia, and in theUnited States is Computershare Trust Company, N.A., 350 Indiana Street, Suite 800,Golden, Colorado.  These offices 

 

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and the principal offices of Computershare Investor Services Inc. in theCity of Toronto maintain the register of Common Shares and can effect transfersand make deliveries of certificates for Common Shares.

 

## ***MATERIAL CONTRACTS***

 

Other than the Shareholder Rights Plan disclosed under the heading “Descriptionof Capital Structure”, the Company is not a party to any material contracts asdefined in National Instrument 51-102.

 

## ***EXPERTS***

## *** ***

KPMG LLP, independentchartered accountants, have audited the Company’s consolidated financialstatements as at December 31, 2009 and 2008, and for each of the years inthe three year period ended December 31, 2009 as set forth in theirreports.  KPMG LLP has advised theCompany that they are independent with respect to the Company within themeaning of the Rules of Professional Conduct of the Institute of CharteredAccountants of British Columbia and the U.S. Securities Exchange Act of 1934,as amended.

 

## ***ADDITIONAL INFORMATION***

## *** ***

Additional information relating to theCompany:

 

(a)                                  may be found on SEDAR atwww.sedar.com and on EDGAR at www.sec.gov;

 

(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’saudited financial statements and management discussion and analysis for the yearsended December 31, 2009 and 2008.

 

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