20-F

OMB Number: 3235-0288

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

NORSAT INTERNATIONAL INC.
British Columbia, Canada

(Mark One)

	REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
X	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended    December 31st, 2002
OR
	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from                 to

Commission file number: 0-12600

Norsat International Inc.

British Columbia, Canada

300, 4401 Still Creek Drive, Burnaby, BC V5C 6G9 Canada

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report. 34,177,164 common shares.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

      x Yes   o No

Indicate by check mark which financial statement item the registrant has elected to follow.

      x Item 17   o Item 18

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

  o Yes   o No

Table of Contents

1. Identity of Directors, Senior Management and Advisers	3
2. Offer Statistics and Expected Timetable	3
3. Key Information	3
A. Selected financial data	3
B. Capitalization and indebtedness	3
C. Reasons for the offer and use of proceeds	5
D. Risk factors	5
4. Information on the Company	9
A. History and development of the Company	9
B. Business overview	12
C. Organizational structure	16
D. Property, plants and equipment	16
5. Operating and Financial Review and Prospects	17
A. Operating results	17
B. Liquidity and capital resources	22
C. Research and development, patents and licenses, etc.	23
D. Trend information	24
6. Directors, Senior Management and Employees	25
A. Directors and Senior Management	25
B. Compensation	27
C. Board practices	29
D. Employees	32
E. Share ownership	32
7. Major Shareholders and Related Party Transactions	33
A. Major shareholders	33
B. Related party transactions	33
C. Interests of experts and counsel	33
8. Financial Information	34
A. Consolidated Financial Statements	34
B. Significant Changes	70
9. The Offer and Listing	70
10. Additional Information	71
A. Share capital	71
B. Memorandum and Articles of Association	71
C. Material Contracts	74
D. Exchange controls	74
E. Taxation	75
F. Dividends and paying agents	79
G. Statement by experts	79
H. Documents on display	79
I. Subsidiary Information	80
11. Quantitative and Qualitative Disclosures About Market Risk	80
12. Description of Securities Other than Equity Securities	81

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PART II	82
13. Defaults, Dividend Arrearages and Delinquencies	82
14. Material Modifications to the Rights of Security Holders and Use of Proceeds	82
15. Controls and Procedures	82
16. [Reserved]	82
PART III	83
17. Financial Statements	83
18. Financial Statements	83
19. Exhibits	83

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PART I

1.	Identity of Directors, Senior Management and Advisers
	Not applicable.

2.	Offer Statistics and Expected Timetable
	Not applicable.

3. Key Information

A. Selected financial data

Table 1 below summarizes selected consolidated financial data for the Company calculated in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”). Table 2 below summarizes certain corresponding information calculated in accordance with United States generally accepted accounting principles (“U.S. GAAP”). The information for each of the years in the three year period ended December 31, 2002 and as at December 31, 2002 and 2001 have been extracted from the more detailed consolidated financial statements and related notes included herein and should be read in conjunction with such financial statements appearing under the heading “Item 8 — Financial Information” and with the information appearing under the heading “Item 5 — Operating and Financial Review and Prospects”. Reference is made to Note 23 of the consolidated financial statements of Norsat included herein for a discussion of the material differences between Canadian GAAP and U.S. GAAP, and their effect on the Company’s financial statements. Information for the years ended December 31, 1999 and 1998 and as at December 31, 2000, 1999 and 1998 has been extracted from audited consolidated financial statements not disclosed elsewhere herein.

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Table 1: Selected Financial Information according to Canadian GAAP

	(all dollar amounts are in 000's except per share information)
Year Ended December 31	2002			2001			2000*			1999*			1998*
Sales		14,675			20,599			22,017			17,774			17,707
Loss from continuing operations		(6,182	)		(22,598	)		(27,503	)		(7,891	)		(1,858	)
Net loss		(6,270	)		(22,572	)		(35,703	)		(8,115	)		(1,872	)
Basic and diluted earnings (loss) per share from continuing operations		(0.18	)		(0.71	)		(1.01	)		(0.38	)		(0.09	)
Basic and diluted loss per share		(0.19	)		(0.71	)		(1.32	)		(0.39	)		(0.09	)
Weighted average number of shares		33,501			31,803			27,105			20,852			20,441
Dividends per share		—			—			—			—			—
As at December 31
Total assets		17,026			20,025			47,663			33,092			36,054
Net assets		8,971			11,376			28,828			20,357			21,251
Long-term debt (excluding current portion)		1,251			—			—			—			—
Capital Stock		34,715			33,974			74,192			29,808			22,229

* amounts have been restated for discontinued operations in fiscal year 2000

Table 2: Selected Financial Information according to US GAAP

	(all dollar amounts are in 000's except per share information)
Year Ended December 31	2002			2001			2000*			1999*			1998*
Sales		14,675			20,599			22,017			17,774			17,707
Loss from continuing operations		(5,811	)		(19,873	)		(34,474	)		(12,176	)		(1,504	)
Net loss		(5,899	)		(19,848	)		(42,675	)		(12,165	)		(2,050	)
Basic and diluted earnings (loss) per share from continuing operations		(0.17	)		(0.62	)		(1.27	)		(0.58	)		(0.07	)
Basic and diluted loss per share		(0.17	)		(0.62	)		(1.57	)		(0.58	)		(0.10	)
Weighted average number of shares		33,501			31,803			27,105			20,852			20,288
Dividends per share		—			—			—			—			—
As at December 31
Total assets		17,276			19,909			42,942			33,729			36,417
Net assets		7,317			11,281			25,987			20,722			21,614
Long-term debt (excluding current portion)		3,155			—			—			—			—
Capital Stock		109,350			108,608			103,536			55,522			21,614

* amounts have been restated for discontinued operations in fiscal 2000

In this Form 20-F Annual Report unless otherwise specified, all monetary amounts are expressed in Canadian dollars. The following table sets out the exchange rates, based on the noon buying rates for the Bank of Canada, for the conversion of United States dollars into Canadian dollars in effect at the end of the presented periods and the average exchange rates (based on the average of the exchange rates on each day of

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the month in such periods) and the range of high and low exchange rates for such periods.

The close of business on April 11, 2003: 1.4535

			Year Ended December 31
	2002		2001		2000		1999		1998
Average for period		1.5704		1.5484		1.4852		1.4858		1.4896

					Month Ended
	Mar.		Feb.		Jan.		Dec.		Nov.		Oct.
High for period		1.4907		1.5311		1.5747		1.5796		1.5902		1.5942
Low for period		1.4656		1.4871		1.5221		1.5475		1.5530		1.5603

B. Capitalization and indebtedness

Not applicable.

C. Reasons for the offer and use of proceeds

Not applicable.

D. Risk factors

Investors should carefully consider the risks and uncertainties described below before making an investment decision. If any of the following risks actually occur, our business, financial condition or operating results could be materially harmed. This could cause the trading price of our common shares to decline, and you may lose all or part of your investment.

Risks Associated With Our Financial Results

Our inability to generate sufficient cash flows may result in us not being a going concern. Our consolidated financial statements have been prepared on the going concern basis, which presumes the realization of assets and the settlement of liabilities in the normal course of operations. The application of the going concern basis is dependent upon the Company achieving profitable operations to generate sufficient cash flows to fund continued operations, or, in the absence of adequate cash flows from operations, obtaining additional financing. The Company has reported losses and negative cash flows from operations for the year ended December 31, 2002 and in prior years. The Auditor’s report on our consolidated financial statements includes additional comments about the existence of conditions and events that cast substantial doubt on our ability to continue as an on-going concern. Our consolidated financial statements include no adjustments that might result from the outcome of this uncertainty.

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Management has undertaken to significantly reduce costs through a series of actions including, but not limited to, reducing the number of employees and reducing operating costs. Management is also pursuing additional revenue sources from its portable terminals and is considering other financing alternatives for its operations. There can be no assurances that such financing, if required, will be available on a timely or cost effective basis. The Company will continue to evaluate its projected expenditures relative to its available cash and to evaluate additional means of financing and cost reduction strategies in order to satisfy its working capital and other cash requirements.

Our inability to accurately forecast our results from quarter to quarter may affect our cash resources and result in wide fluctuations in the market price of our stock. Our operating results have varied on a quarterly basis in the past and may fluctuate significantly in the future as a result of a variety of factors, many of which are described below. Due to these and other factors, most of which are outside of our control, our quarterly revenues and operating results are difficult to forecast. As a result, we may not be able to accurately predict our necessary cash expenditures during each quarter or obtain financing in a timely manner to cover any shortfalls. We also believe that period-to-period comparisons of our operating results may not be meaningful and one should not rely on any such comparisons as an indication of our future performance.

Risks Associated With Our Business And Operations

We cannot be sure we will be able to identify emerging technology and market trends, enhance our existing technologies or develop new technologies in order to effectively compete in the satellite communications industry. The satellite communications industry is characterized by rapid technological changes, short technology and product life cycles, pressure to provide improved solutions at increasingly lower prices and frequent introduction of new technologies and products. To succeed, we must be able to identify emerging trends and enhance our existing technologies and develop new technologies and products to meet market requirements. To drive sales, our satellite products must meet the needs of our customers and potential customers and must be competitively priced. Additionally, there must be sufficient consumer interest in and demand for our products. If we do not develop these new technologies and products in a timely and cost effective manner, or if others develop new technologies before us, we will not achieve profitability in the satellite communications industry and we may not be able to participate in selling these new technologies or products.

We cannot be sure that we will be able to compete effectively with our current competitors. The satellite communications industry is intensely competitive. Our competitors have technologies, products and resources that may be more advantageous and they compete directly with us. Some of these competitors are large, established companies which have significantly greater resources than we have. Our ability to compete effectively will depend on our ability to increase sales and attract new customers in a timely and cost effective manner and market and sell these products at competitive prices.

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We are dependent on others for the manufacture of or supply of components for the manufacture of products we sell. We have outsourced substantially all of the manufacturing of the microwave products we sell and, with the progression of the OmniLink product from development to production, we rely on our suppliers to provide components for the production of terminal products. If either the manufacturers or suppliers cannot deliver products to us on time, and at competitive pricing, our revenues and profits will be adversely affected.

We have limited intellectual property protection. Our success and ability to compete are dependent, in part, upon proprietary technology. Due to the rapid technological change in our markets and since our technology is, in part, proprietary, we rely primarily on trade secrets and we do not have adequate patent applications to protect our technology. We also enter into confidentiality, and non-compete agreements with our employees and limit the access to and distribution of our product design documentation and other proprietary information. We cannot be sure that these efforts will deter misappropriation or prevent an unauthorized third party from obtaining or using information which we deem to be proprietary. Although we believe that our technology does not currently infringe upon patents held by others, we cannot be sure that such infringements do not exist or will not exist in the future, particularly as the number of products and competitors in our industry segment grows.

If we experience rapid growth and do not manage it effectively we may not be profitable. If our technologies and products achieve wide acceptance we may experience rapid growth. We may have to hire more employees, including additional management, improve our financial control systems, and expand and manage our technical, sales and support service operations. We would need increased revenues and additional funding to operate these increased activities. If we do not manage our growth effectively we may not be profitable.

We depend on our key employees and we cannot be sure that we will be able to keep these employees or hire and train replacements. Our success depends on the skills, experience and performance of our senior management and other key personnel. While we offer competitive compensation packages and stock options to attract talent, we do not carry key personnel insurance on these employees. Highly skilled technical employees and management in the satellite communications industry are in demand and the market for such persons is highly competitive. We cannot be sure that we will be able to retain these employees or hire replacements. If we do not successfully retain our key personnel or hire and train replacements we will be unable to develop the new products and technologies necessary to compete in our markets or to effectively manage our business. In addition, because of the restructuring that we have implemented, we have had to terminate the employment of a number of our employees. Accordingly, we may not be able to attract new employees or we may have terminated employees that may have been required to build our company.

We may be subject to product liability claims which are not fully covered by insurance. The manufacturing, sale and marketing of our satellite products exposes us to the risk of product liability claims. Given the complex nature of our products, they may contain undetected errors or performance problems, particularly when new products are introduced. Although our products undergo extensive testing prior to introduction to the market, it is typical in the satellite communications industry for such products to contain errors and performance problems which are discovered after commercial introduction. If

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these defects and errors are discovered after shipment, they could result in a loss of sales revenues, delay in market acceptance, product returns, warranty claims and the loss of a potential market. In addition, components and other products manufactured and distributed by others, which are incorporated into our products, may also contain such defects and errors which could substantially reduce the performance of our products. We are also at risk of exposure to potential product liability claims from distributors and end-users for damages resulting from defects in products that we distribute. Although product defects have not been a significant factor, we maintain product liability insurance. We cannot be sure that this insurance will be adequate to cover all claims brought against us or that this insurance will continue to be available to us on acceptable terms. If these claims are not fully covered by our product liability insurance, they could severely and negatively impact our business liability insurance coverage and our available cash resources. A product liability claim, even one without merit or for which we have substantial coverage, could result in significant legal defence costs, thereby increasing our expenses, lowering our earnings and, depending on revenues, potentially resulting in additional losses.

Since we sell our products around the world, we face financial risks associated with currency fluctuations and other risks relating to our international operations which may adversely impact our business and results of operations. To be successful, we believe we must expand our international operations. Therefore, we expect to commit significant resources in order to expand our international sales and marketing activities, including the hiring of an international sales force and agents. If we are unable to maintain or increase international market demand for our products, our business would be harmed. We are increasingly subject to a number of risks associated with international business activities which may increase our costs, lengthen our sales cycle and require significant management attention. These risks include:

• increased expenses associated with marketing services in foreign countries;

• general economic conditions in international markets;

• unexpected changes in regulatory requirements resulting in unanticipated costs and delays;

• tariffs, export controls and other trade barriers;

• longer accounts receivable payment cycles and difficulties in collecting accounts receivable; and

• potentially adverse tax consequences, including restrictions on the repatriation of earnings.

While we expect our international revenues and expenses to be denominated predominantly in US dollars, a portion of our international revenues and expenses may be denominated in other foreign currencies in the future. Accordingly, as our reporting currency is the Canadian dollar, we could experience the risks of fluctuating currencies and could choose to engage in currency hedging activities, which may be unsuccessful and expensive.

We cannot be sure of the market development time line for satellite broadband. As discussed elsewhere in this document, the success of broadband satellite depends on the successful development of a consumer-priced Satellite Interactive Terminal (“SIT”). Success also depends on the ability of the satellite companies to raise or commit the capital needed to underwrite the manufacture and deployment of new satellites while continuing to replace and upgrade both the earth and space components of their existing

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systems. Satellite failure during launch and after deployment is a constant risk factor for the industry, which can be insured against, but can severely disrupt the introduction of new services and the reliability of existing services. Satellites can also be adversely affected by war, electrostatic storms and collisions with space debris.

We may not be able to attract the technical staff needed to support customer adoption of new products. Both the number of staff needed to develop and support new products and services, and the level of expertise of our new and existing staff must rise if our Company is to develop, market and distribute more complex products and offer related installation and after-service support. There is no assurance that such staff can successfully be recruited or that they will remain with Norsat after they have been hired and trained. In particular, with the global supply of experienced engineers being extremely limited, attracting and retaining key technical talent is very challenging and, potentially, a constraint on growth. In addition, Norsat’s wage, benefit, and training costs are likely to increase in advance of revenues.

Risks Which May Affect The Value Of Norsat Shares

The exercise of our existing outstanding, options, warrants, warrants to be issued, conversion of long-term debt and the number of shares available for future issuance may substantially dilute the value of our common shares. We have 50,000,000 shares of Common Stock authorized, of which 36,177,164 were outstanding at April 11, 2003 and an additional 8,685,909 shares have been reserved for issuance upon the exercise of outstanding options or warrants or warrants to be issued or conversion of long-term debt as of such date. Although our Board of Directors has no present intention to do so, it has the authority, within parameters set by the Toronto Stock Exchange (the “TSX”), without action by the shareholders, to issue authorized and unissued shares of Common Stock. Any series of Preferred Stock, if and when established and issued, could also have rights superior to shares of our Common Stock, particularly in regard to voting, the payment of dividends and upon liquidation of Norsat.

4. Information on the Company

A. History and development of the Company

The Company was incorporated in Canada under the name “Norsat International Inc.” on October 15, 1982 pursuant to the Company Act (British Columbia). Effective September 27, 1989, the Company changed its name to NII Norsat International, Inc. At the Company’s Annual General Meeting held on June 9, 1999, shareholders passed a special resolution to change the Company’s name back to Norsat International Inc. Since July 2, 1999, the Company has operated under the name Norsat International Inc.

Head Office Contact Information
The Company’s head office is located at:
300-4401 Still Creek Drive
Burnaby, British Columbia
Canada V5C 6G9
Telephone: 604-292-9000
Fax: 604-292-9100
Email: investor@norsat.com
www.norsat.com

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Important Events

During 2002, Norsat focused its efforts in two key areas: 1. to leverage its technological and early market successes in portable satellite terminal products and 2. to increase its cost competitiveness and sales effectiveness in its traditional microwave products.

The Company worked to better understand global markets and meet existing and future customer needs with high quality and high value satellite products. During the year, it also made significant changes to its governance practices and made important leadership changes, at the board of directors and in the executive and senior management. The following were important events during the year:

• The Open Networks business segment was expanded to include a focus on portability. The new focus included the delivery of high-speed data through portable satellite terminals — Norsat OmniLink^TM, the Company’s new family of portable satellite terminals. (Reference is made to Item 4.B. Business Overview).

• Norsat completed the sale of the first significant order for its portable satellite terminals, to an undisclosed military customer. The pico-Terminals, as they were initially called, provide reliable voice and data communication via satellite from a small, portable outdoor unit and laptop computer that minimizes interference and ensures data privacy and protection. The product is one of the smallest and most lightweight Ku-band, two-way communication devices in the world. The initial multi-million dollar initial delivery of 20 terminals was accepted in October 2002, after rigorous, on-site testing. The customer’s acceptance of the shipment confirmed Norsat’s readiness to supply the military market with a fully tested and field ready system.

• Norsat completed three financings during 2002:

1)	In January, Norsat completed a financing (US $300,000) for net cash proceeds of CAD $461,604. The financing consisted of 8% unsecured notes, maturing in 2003, and which were ultimately converted into common shares at a price of US$1.00 per share. Additionally, 35,334 share purchase warrants were issued. The warrants expire after five years and entitle the holder to purchase one additional common share at a price of US $2.01.
2)	In March, Norsat completed a financing (US $2,000,000) for net cash proceeds of $2,953,188, which consisting of 8% unsecured convertible notes, maturing in 2007, are convertible into common shares at a price of US$1.70 per share.
3)	In August, Norsat completed a private placement of 657,667 units at US $1.50 per unit for net proceeds of $970,386. Each unit consisted of one common share of the Company and one share purchase warrant. The warrants expire after three years and entitle the holder to purchase one additional common share at the price of US $1.50 per share.

• The Company announced at its Annual General Meeting in June 2002 that three new directors were elected to the Board of Directors: Dr. John MacDonald, Mr. Gaetano Manti, and Mr. Troy Bullock. Mr. Manti was subsequently named Chairman of the Board. Later in the year, Mr. Ken Crump joined the Board and currently serves as Chairman of the Board’s Audit Committee.

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• In June Norsat signed a contract with Globecomm Systems Inc. (GSI) for its open standard Digital Video Broadcasting (DVB) forward link satellite network and services. With only a handful of DVB-RCS systems in operation around the world, Norsat established an early market position in the emerging open standard technology.

• On September 24, 2002, Mr. Yutaka Ueda was appointed to the position of President and Chief Executive Officer in place of Mark Ahrens-Townsend. Mr. Ueda was a member of Norsat’s board of directors since June 2001 and had been Vice President and General Manager of ImageOne, one of Japan’s solution providers in satellite communications and imagery (and a Norsat reseller).

• In December 2002, CBS News agreed to purchase two Norsat NewsLink™ units, the portable terminal specifically designed for remote news broadcasting. In January     , 2003, a second major US broadcaster, which wished to remain anonymous for competitive reasons, also purchased a Norsat NewsLink™ unit. All three units were deployed by the broadcasters in the Persian Gulf conflict and embedded in US military divisions with reporters. All three transmitted live front-line coverage to television viewers.

• Norsat’s application to transfer the listing of its common stock to the Nasdaq SmallCap Market was approved in December 2002. Norsat sought the transfer following a change in the continuous listing requirements that required the Company to maintain stockholders equity above US$10 million.

     Capital Expenditure

A description of the Company’s principal Capital Expenditures over the last three years is as follows:

• During 2000 the Company acquired all of the issued and outstanding common shares of SpectraWorks Inc. by issuing 2,154,000 common shares of the Company and incurring acquisition costs totaling $204,000. The acquisition expanded our expertise into the field of software-based advanced broadband management systems — an integral component of the Company’s new Norsat OmniLink^TM family of portable satellite terminals. Also during 2000, the Company incurred approximately $2.2 million in capital expenditures to significantly upgrade existing computer equipment and systems and purchase additional equipment.

• During 2001 the Company purchased for cash, property and equipment totaling $641,590. The majority of the purchases were for microwave test equipment, computer equipment and to create certain broadband equipment to be used exclusively for demonstrations and evaluation.

• During 2002 the Company incurred net cash out flows of $228,479 primarily relating to the purchase of equipment.

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B. Business overview

Description of Business

Norsat International Inc. has built a strong reputation in satellite technologies, serving consumers and businesses with infrastructure products and networks since it began operating as Northern Satellite Systems in 1978.

In addition to its Low Noise Block down converters (“LNBs”) and Digital Video Broadcasting (DVB) satellite networks, in 2002, Norsat began to apply its unique combination of experience and expertise to develop portable satellite terminals for specific markets — beginning with the military market and newsgathering businesses.

The Norsat OmniLink™ family of portable satellite terminals combines Norsat’s expertise in radio frequency (RF), video transmission, and satellite data networking technologies. Performance, flexibility, portability, and ruggedness define the new line of portable products. The OmniLink™ products enable the broadband transmission of large amounts of data and images, quickly and easily, without access to a telecommunications network or infrastructure.

Future applications for the terminal are foreseen in mineral and resource exploration, and in the delivery of emergency, medical and education services in locations where no infrastructure exists or where it has been damaged. As such, Norsat’s board and management believes the application has the potential of helping to narrow the third world “information gap” and in delivering much-needed medical services, information and knowledge where they have not been delivered before.

Norsat distributes its products and services to its worldwide customer base from offices in North America, Europe, and Asia, and through a global network of partners and distributors. The experience of Norsat’s management, sales, marketing, and technical teams is one of the key success factors for the Company. To effectively serve its global customer base, Norsat employs a culturally diverse workforce including sales, marketing, and service staff.

Norsat concentrates on attracting the best and the brightest in scarce talent technology areas and in the sales and marketing of telecommunications products. Today, the Norsat team includes talent from around the world with knowledge that dates back to the late 1960’s.

Two business segments

Norsat operates two strategic business units, Microwave Products and Norsat OmniLink™ — Portable Satellite Terminals, the latter business unit encompassing the open network systems business. While both businesses provide core infrastructure elements for the transportation of high-speed data, the markets for each and the way each business builds, sells, and delivers its products are fundamentally different.

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Norsat’s Microwave Products Business Unit

Norsat’s Microwave Products are typically used in commercial settings as components of a complete system or as replacement parts for existing systems. The product line includes a full range of radio frequency (RF) and associated components including Norsat’s traditional satellite receivers (LNBs) and accessories as well as satellite transmitters, transceivers, and custom satellite outdoor units.

Product Overview

Norsat provides customers with a single source of supply for C, Ku, and Ka-band receivers or Low Noise Block down converters (“LNBs”), which are required by every satellite antenna (or “dish”) regardless of size or location. The LNB is mounted at the focal point of the dish to convert incoming microwave signals into electrical signals that are routed to the remote receiver or indoor unit. Reliability is critical for these products as they are used in remote areas around the world.

Satellite transmitters or Block Up Converters (“BUCs”) and transceivers provide a complementary offering to Norsat’s traditional LNB business. Norsat provides Ku and Ka-band BUCs and transceiver products, which are required for two-way satellite networks. The satellite BUCs convert electrical signals into microwave signals that can be transmitted to an orbiting satellite. Norsat’s transceiver provides customers with an easy to install solution that consists of the BUC, LNB, filters and other hardware.

Market Profile

Norsat’s primary customers include resellers, system integrators, antenna manufacturers and service providers located in North America, Europe and Asia. These customers integrate Norsat’s components into a complete satellite solution for end user customers located all over the world. During 2002, Norsat won key contracts with customers including:

• Pan Am Sat

• Channel Master

• Patriot Antenna Systems

• Hughes Network Systems

• Intelsat

• British Telecom

Norsat OmniLink™ Business Unit

During 2002, the Open Networks segment expanded from delivering open standard Digital Video Broadcasting (“DVB”) Data Hubs for the broadband Internet Protocol (“IP”) market to also include delivery of high-speed data through portable satellite terminals. The segment was renamed Norsat OmniLink™.

Open Networks

The Open Networks offering includes flexible satellite networks that are based on the Digital Video Broadcast (DVB) open standard and Norsat’s high-speed ipe IN A BOX

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product, which converts Internet Protocol information into DVB-ready formats for efficient distribution through a DVB network.

Solution Overview

Norsat’s satellite networks adhere to the DVB open industry standard, which differentiates them from the traditional proprietary systems available on the market. This differentiation provides Norsat with a competitive advantage over more established providers in the market.

Norsat tailors its open standard networks to meet individual customer needs using the intellectual property it has established in standard system modules including:

• Internet Protocol Encapsulator (IPE), a combination of software, firmware and hardware that manages the conversion and distribution of Internet Protocol information into DVB-ready formats

• Network Management System (NMS) software to effectively monitor and manage the entire satellite network

• Subscriber Management Software (SMS) software to allow service providers to track and manage subscriber-based pricing models

Norsat’s OmniLink^TM family of portable satellite terminals

Norsat entered the portable satellite terminal business in 2001, receiving a special order for 20 units geared to a military application (delivered in 2002). In 2002, the Company identified significant market potential in a number of markets for these lightweight, compact units. In 2002, the Company began to focus its efforts on analyzing the market for terminals, developing business cases and marketing plans, gearing up product development and enhancement activities, and focusing on sales and marketing.

The pico-Terminals, as they were initially called, were custom designed to provide reliable voice and data communication via satellite from a small, portable outdoor unit and laptop computer, housed in two suitcases. The terminals minimize interference and ensure data privacy and protection, essential characteristics for a military application.

During 2002, the Company developed a pre-production unit, designed specifically to meet the needs of news broadcasters wishing to transmit high quality news from remote locations. This unit was named the Norsat NewsLink™. By year-end, Norsat had confirmed the sale of two units to leading broadcaster CBS News. In early 2003, additional units were being tested and a second major US news network had purchased a third unit. All units were broadcasting reports from the frontlines of the Persian Gulf conflict in the first quarter of 2003. Also, in the first quarter of 2003, the Company released a second-generation production model of the Norsat NewsLink™ to be known as the Model 3200. It featured a number of enhancements (see below).

The company’s long-term strategy is to develop and introduce portable terminal applications for education, emergency response, mineral and natural resource exploration, and medical services.

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Solution Overview

The portable terminals combine Norsat’s expertise in both microwave products and the open networks businesses.

The product is one of the smallest and most lightweight Ku-band, two-way communication devices in the world. The Norsat NewsLink™ can be carried in two suitcases and deployed and set up easily in the field in several minutes without tools. It allows the transmission of broadcast quality MPEG-2 video via DVB-S over satellite. The terminal is ideally suited for the transmission of video, voice, and IP data to and from remote or hostile environments.

In early 2003, Norsat announced significant product enhancements to the original NewsLink. The second generation “Model 3200” Norsat NewsLink™ is among the most capable and feature-rich system for its size in the industry. The Model 3200 includes sophisticated baseband electronics in a compact 1RU enclosure. The new MPEG-2 encoder combines exceptional quality with ultra-low latency. The slim 1RU form factor of the baseband electronics allows it to easily integrate with a variety of voice and data communications options to further extend the capabilities.

Choices for RF amplifiers, including a new 25W model, were integrated into the antenna backplane, allowing this ultra portable solution to achieve data transmission rates of 2 — 6 Mbps even near the edge of the footprint.

The NewsLink also incorporates unique and easy-to-use Microsoft Windows software with a new portable sunlight readable LCD screen and sealed keyboard that provides rich functionality such as a built-in dual-trace spectrum analyzer, carrier beacon detector, antenna alignment wizard, transmitter control, and alarming and diagnostic tools.

The primary benefit of integrating Microsoft Windows and PDA platforms into the product is ease-of-use. By eliminating the cryptic displays, tiny front-panel buttons and much of the black art of satellite transmission typical of most existing SNG solutions, the NewsLink can be operated without an RF engineer. The simple operation of the Norsat NewsLink was specially important for its use on the front lines of the Iraqi conflict, since news teams were limited in the number of people and equipment that could be “embedded” with the US military.

Market Profile

The current markets for the portable satellite terminals have been identified as the military and government markets and the news gathering market. In the latter category, the Company has identified several potential tiers of clients, from the major worldwide networks (such as CBS News), to regional networks, and then to stations operating in major metropolitan areas.

The product is ideally suited for “first on the scene” live coverage of major world events (such as the Iraqi War) and, in time, for more routine news events where mobility and timeliness are big advantages for broadcasters.

For government and military applications, the Company is currently investing resources to help it penetrate these markets in North America and elsewhere.

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The Company’s long-term strategy is to develop and introduce portable terminal applications for education, emergency response, mineral and natural resource exploration, and medical services. It is currently in the process of evaluating markets and market potential.

C. Organizational structure

D. Property, plants and equipment

Description of Property

Our Company’s head office and principal place of business since June 1, 1999 has been located in Burnaby, British Columbia, Canada.

The Company has leased approximately 32,000 square feet of warehouse and office space, of which all the warehouse and certain office space totaling approximately 8,200 square feet has been sub-leased to a tenant. The remaining space houses the Company’s corporate office and principal engineering and production department.

The lease is effective from June 1, 1999 until September 30, 2006. The minimum rent is as follows:

(a)	Year 1:	$41,000 per month;
	Year 2:	$42,000 per month;
	Year 3:	$43,000 per month;
	Year 4:	$44,000 per month;
	Year 5:	$45,000 per month;
	Year 6:	$46,000 per month; and
	Balance of Term:	$50,000 per month.

In addition to the minimum rent, the Company is responsible to pay maintenance, utilities and taxes.

The Company has also leased 8,100 square feet of warehouse space in Burnaby, British Columbia, Canada. The majority of receiving and shipping is done from this location. In

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addition a secondary production department is located on site. Total rent is approximately $6,100 per month and the leases expire in 2003 and 2004.

The location of the Company’s head office and warehouse is well situated for access to labour and transportation, being readily accessible to the United States border and to the Vancouver International Airport and a short haul distance from the major sea ports of Vancouver and Seattle.

Norsat also operates out of leased premises in Winnipeg (Canada) and Great Britain.

5. Operating and Financial Review and Prospects

A. Operating results

The following information should be read in conjunction with the Company’s 2002 consolidated financial statements and related notes included therein, which are prepared in accordance with generally accepted accounting principles in Canada (Canadian GAAP). These principles differ in certain respects from generally accepted accounting principles in the United States (U.S. GAAP). The differences as they affect the financial statements of the Company are described in Note 23 to the Company’s audited consolidated financial statements. All amounts following are expressed in Canadian Dollars unless otherwise indicated.

Over the past 25 years, Norsat developed a reputation for technical excellence and innovative design. It successfully positioned itself as a leader in providing high quality microwave products to the satellite industry, with customers in over 87 countries around the world. In 2000, through our acquisition of SpectraWorks Inc. in Winnipeg, Manitoba, we expanded our expertise into the field of software-based advanced baseband management systems. The integration of these two capabilities in 2002 gave Norsat the opportunity to design and produce high-speed portable satellite terminals geared to meet customer needs in several promising new market verticals.

The microwave products business is maturing. World markets for microwave products and large hub systems are expected to grow at a much slower rate than in the past and furthermore, will be subject to increased competition and price erosion. While the Company expects to continue to be a major player in these markets, we recognized the need to restructure our microwave business unit in order to adjust and adapt to these new realities. We also recognized the need to seek new opportunities in new markets in order to grow the Company in the future. We anticipate these new opportunities will come from the continued development, marketing and sales of Norsat’s portable satellite terminals — the Norsat OmniLink™ family of products.

As a result of this shift in business direction, the year 2002 was one of significant transition and refocusing of our business resources and priorities. It was a year not like any other in the Company’s history. The worldwide slump in telecommunications markets severely impacted revenues in our established Microwave Products and Open Networks business. Nevertheless, we were able to reduce our net loss per share by 72% from 2001. The following provides an analysis of our 2002 financial results.

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Fiscal 2002 Compared to Fiscal 2001

Revenues in 2002 were $14,674,806, down 29% from the $20,598,950 earned in 2001, due to lower sales of Microwave Products and Open Networks. This directly reflected the continued overall slowdown in world telecommunications markets in 2002, which resulted in on-going delays in satellite infrastructure projects — the primary driver of demand for these products and services. The revenue decline was partially offset by the first sales of the Company’s new portable satellite terminal equipment known as Norsat SecureLink™ (previously known as the pico-terminal).

Gross margins, however, declined only slightly from the previous year, contributing $6,082,180 in 2002, compared to $6,360,232 in 2001. As a percentage of revenue, margins improved significantly, increasing to 41% in 2002 from 31% in 2001. The improvement was achieved largely by focusing sales activities on the higher margin receivers and transmitters within our portfolio of Microwave Products, residual high margin service revenues from Open Networks contracts delivered in 2001 and the first Norsat SecureLink™ sales to a military client.

During 2002, the Company continued to restructure its operations, not only to further reduce overhead costs, but to also invest in new marketing and sales capabilities required to address the Norsat OmniLink™ market. The savings more than offset the investments made in new sales and marketing resources. As a result, selling, general, and administrative (SG&A) expenses for 2002 declined another 4% to $5,830,112, from $6,080,904 in 2001.

In the past year, the Company has re-focused its product development activities and virtually eliminated all non-strategic development projects. Product development expenditures, guided by a disciplined strategy and comprehensive marketing plans, were $5,102,929 in 2002, a decrease of 29% from $7,137,710 in 2001. The 2002 investments in product development, all of which have been expensed, are now solely focused on the new family of Norsat OmniLink™ portable satellite terminals.

In 2002, Technology Partnerships Canada (TPC) contributions totaled $2,829,821, compared to $4,217,012 in 2001. The reduction in TPC funding is proportional to the overall reduction in product development expenditures.

The net effect of the above factors was a reduction in the loss from continuing operations before amortization, write-down, restructuring, other expenses and income taxes from $2,641,370 in 2001 to $2,021,040 in 2002, an improvement of 23%.

The Company incurred restructuring charges of $1,658,858 during 2002 compared to $1,274,004 during 2001. The 2002 amount represented the impact of the Company’s continued efforts to reorganize, refocus its core Microwave Products business, and redirected sufficient capital to obtain the required skills needed to support the development and marketing of Norsat OmniLink™. These costs include $1,108,658 ($1,140,239 in 2001) for severance costs related to reducing management positions, and $550,200 ($133,765 in 2001) to recognize the net cost to the Company of sub-letting excess office space.

Amortization for the year was down drastically from $7,426,838 in 2001 to $1,766,506 in the current year. This reduction reflects the write-down of goodwill and the amortization

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and write-down of other intangibles relating to the SpectraWorks acquisition in 2001. In 2002 and in subsequent years, goodwill will no longer be amortized but is now subject to an impairment review annually, or more frequently if circumstances change. During 2002, the Company reviewed estimated future cash flows related to the remaining goodwill all of which relates to the Microwave Products business unit and determined that no write-down was required.

Other expenses increased from $324,086 in 2001 to $729,672 in 2002. The most significant increases related to an increase in cash and non-cash interest charges and a loss on the disposal of property and equipment.

The loss from continuing operations for 2002 totaled $6,181,577 or $0.18 per share, compared to a loss of $22,597,784 or $0.71 per share in 2001. The loss from discontinued operations for 2002 totaled $88,684, compared to a recovery of $25,324 in 2001. The loss from discontinued operations related to additional costs incurred relating to the Norsat America distribution business discontinued in 2000.

Overall, the Company significantly reduced its net loss for 2002 to $6,270,261 or $0.19 per share, compared to a loss of $22,572,460 or $0.71 per share in 2001.

Fiscal 2001 Compared to Fiscal 2000

Revenues for the year ended December 31, 2001 were $20,598,950 as compared to $22,017,341 for 2000, which represents a decrease of 6%. The 2001 revenue comprised of $15,200,333 from Microwave Products and $5,398,617 from Open Networks, compared to revenues of $20,338,123 from Microwave Products and $1,679,218 from Open Networks during 2000. This overall decrease in 2001 can be attributed to the loss of revenues coming from the Atlanta based service and repair business offset by significant growth in Open Network sales.

Overall gross profit in 2001 reached $6,360,232 or 31%, compared to $6,216,254 or 28% in 2000. The gross profit represents $4,501,828 or 30% from Microwave Products and $1,858,404 or 34% from the Open Networks compared to gross profit of $6,001,658 or 30% from Microwave Products and $214,596 or 13% from Open Networks during 2000. This continued overall increase in gross profit is a result of the elimination of non-profitable business units as well as improved gross profit achievement on sales.

Selling, general and administrative expenses decreased to $6,080,904 in 2001 compared to $11,137,784 in 2000. The decrease in expenses in 2001, compared to 2000, was the result of an ongoing restructuring process. The process has eliminated 50 positions in December 2000 and a further 20 positions in June 2001, as well as consolidating operations in Canada in order to focus on our core operations.

Product development spending was $7,137,710 in 2001, compared to $9,959,118 in 2000. Additionally, the Company recognized funding from Technology Partnership Canada (“TPC”) of $4,217,012 during 2001 compared to $1,431,937 in 2000. The 2001 decrease in spending of more than 28% reflects the Company’s elimination of nonstrategic development activities and the corresponding reduction of middle management positions.

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The Company incurred a restructuring charge of $1,274,004 during 2001 and $2,386,000 during 2000. The 2001 charge represented the Company’s continued restructuring efforts to refocus on its core operations. These costs primarily represent severance costs associated with reducing senior and middle management positions. All material restructuring costs have been paid by December 31, 2001.

The Company recorded amortization and write-down of other intangibles of $4,003,658 during 2001 compared to $1,940,250 in 2000. In December 2001, the Company determined that a $1,327,754 write-down of other intangible assets acquired pursuant to the SpectraWorks Inc. acquisition was required due to continued delays in broadband network developments that utilize the SpectraWorks technology. The 2001 increase over 2000 includes this write-down of intangibles along with a full year of amortization on these assets.

The Company recognized a loss of $609,477 in 2001 on the write-down of its investment, as the decrease in the fair value was determined to be other than temporary. No similar loss was recognized in 2000.

Amortization and write-down of goodwill related primarily to the impairment in values assigned on the acquisition of SpectraWorks Inc. and amounted to $14,319,666 in 2001 compared to $9,901,675 in 2000. The 2001 charge includes a $10,896,486 write-down of goodwill, compared to $6,234,846 in 2000. These charges were required due to the continued delays in broadband network developments that utilize the SpectraWorks technology. These write-downs have no direct impact on the Company’s cash position.

The loss from continuing operations for 2001 totaled $22,597,784 or $0.71 per share compared to a loss of $27,502,785 or $1.01 per share in 2000. The recovery from discontinued operations for 2001 totaled $25,324 compared to a loss of $8,200,665 in 2000. The loss from discontinued operations related to the closure of the Norsat America Inc. distribution business.

The net loss was $22,572,460 or $0.71 per share for 2001 compared to a net loss $35,703,450 or $1.32 per share in 2000.

Critical Accounting Policies

The Company prepares its consolidated financial statements in accordance with accounting principles generally accepted in Canada, and makes estimates and assumptions that affect its reported amounts of assets, liabilities, revenue and expenses, and the related disclosures of contingent liabilities. The Company bases its estimates on historical experience and other assumptions that it believes are reasonable in the circumstances. Actual results may differ from these estimates.

Management has discussed the development and selection of the Company’s critical accounting policies with the Audit Committee of the Company’s Board of Directors, and the Audit Committee has reviewed the following disclosures.

The following critical accounting policies affect the Company’s more significant estimates and assumptions used in preparing its consolidated financial statements:

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• The Company maintains an allowance for doubtful accounts for estimated losses that may arise if any of its customers are unable to make required payments. Management specifically analyzes the age of outstanding customer balances, historical bad debt experience, customer credit-worthiness and changes in customer payment terms when making estimates of the uncollectability of the Company’s accounts receivable balance. If the Company determines that the financial condition of any of its customers deteriorates, increases in the allowance may be made.

• The Company values its finished goods and work in process inventories at the lower of weighted average cost and net realizable value. The Company assesses the need for inventory write-downs based on its assessment of estimated net realizable value using assumptions about future demand, and market conditions. If these assumptions differ from the Company’s projections, an additional inventory write-down may be required.

• The Company assesses the impairment of goodwill on an annual basis and identifiable intangibles, long-lived assets and goodwill whenever events or changes in circumstance indicate that the carrying value may not be recoverable. Factors the Company considers important which could trigger an impairment review include significant underperformance relative to plan, a change in the Company’s business strategy, or significant negative industry or economic trends. When the Company believes that the carrying value of intangibles, long-lived assets or goodwill may not be recoverable based upon the existence of one or more of the above indicators of potential impairment, the Company determines what impairment, if any, exists based on projected net undiscounted and discounted cash flows expected to be generated from these assets. During 2001, the Company recorded an impairment of goodwill of $10,896,486 and other intangibles of $1,327,754, representing the remaining net book value of the goodwill and intangibles acquired in connection with the acquisition of SpectraWorks Inc. in April 2000. Management concluded that a permanent impairment in the value of these assets had occurred based on the analysis of its projected future undiscounted and discounted cash flows related to these assets.

• The consolidated financial statements have been prepared on the going concern basis, which presumes the realization of assets and settlement of liabilities in the normal course of operations. If the Company were not to continue as a going concern, it would likely not be able to realize on its assets at values comparable to the carrying value or the fair value estimates reflected in the balances set out in the preparation of the consolidated financial statements. As described elsewhere in this report, at December 31, 2002 there are certain conditions that currently exist which raise doubt about the validity of this assumption. Management is pursuing additional revenue sources from its portable terminals and is considering other financing alternatives for its operations. There can be no assurances that such financing, if required, will be available on a timely or cost effective basis. Failure to raise additional funds may result in the Company further restructuring its operations.

• The Company generates a portion of its revenue from multiple element sales arrangements. Revenue is allocated under these arrangements by the residual value method whereby the fair value of undelivered elements is determined by

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reference to objective evidence from comparable arrangements with the balance of the fees assigned to the delivered elements. Revenue is recognized for each element when there are no remaining performance obligations required and is based on their relative fair value at the inception of the sales arrangement. To date, the Company has obtained objective evidence of fair value of the undelivered elements in sales arrangements to support the use of the residual method of allocating revenue. If, in the future, the fair value cannot be determined due to changes in contract elements or other factors, revenue will be required to be deferred until objective evidence of fair value exists or recognized as the final elements are delivered.

Quarterly Financial Data (Unaudited)

(Expressed in thousands of dollars,
except per share amounts)

	Three Months Ended
	Dec. 31		Sept. 30		Jun. 30		Mar. 31
2002
Sales	$	3,432	$	5,111	$	3,126	$	3,006
Loss from continuing operations	$	1,493	$	1,268	$	1,334	$	2,086
Net Loss	$	1,582	$	1,268	$	1,334	$	2,086
Loss per share from continuing operations	$	0.05	$	0.04	$	0.04	$	0.06
Net loss per share, basic and diluted	$	0.05	$	0.04	$	0.04	$	0.06
Weighted average common shares outstanding		34,069		33,415		33,169		33,081
2001
Sales	$	5,846	$	4,913	$	4,258	$	5,583
Loss from continuing operations	$	13,701	$	2,322	$	3,589	$	2,986
Net Loss	$	13,676	$	2,322	$	3,589	$	2,986
Loss per share from continuing operations	$	0.41	$	0.07	$	0.11	$	0.10
Net loss per share, basic and diluted	$	0.41	$	0.07	$	0.11	$	0.10
Weighted average common shares outstanding		33,081		33,026		31,743		29,361

B. Liquidity and capital resources

Fiscal 2002 Compared to Fiscal 2001

At December 31, 2002 the Company’s working capital increased to $6,903,355, up from $5,912,142 at December 31, 2001.

At December 31, 2002 there was 34,177,164 common shares issued and outstanding. In addition, 760,668 warrants to purchase the same number of common shares were outstanding, are exerciseable at prices ranging from CDN$1.50 to US$2.01 per share and expire at various dates to 2007. Also there were 2,663,900 options outstanding at December 31, 2002 with exercise prices ranging from CDN$1.50 to CDN$15.00 per share and with various expiry dates to 2012.

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At December 31, 2002, the Company has future minimum payments under various purchasing commitments and operating lease agreements for 2003 of approximately $4,533,000.

At December 31, 2002, cash and cash equivalents were $2,907,811 an increase from $2,160,678 at December 31, 2001.

Cash flows used in operating activities were $3,352,220. This resulted from the loss from operations partially offset by changes in operating assets and liabilities; the decline in inventories was a result of the Company’s efforts to improve the turn over of its traditional microwave products. The decrease in accounts payable and accrued liabilities was due to payments made relating to the 2001 restructuring charges as well as reducing amounts owing to suppliers.

Cash flows used in investing activities were $300,444 in 2002. Cash was used to purchase additional property and equipment including lease buyouts and short-term investments.

Cash flows generated from financing activities were $4,385,178 in 2002. Cash flows from financing activities resulted from private equity offerings of $970,386 and two financing agreements in the form of a promissory note that contributed net proceeds of $461,604 and unsecured convertible notes that contributed net proceeds of $2,953,188. During 2002, the promissory note was converted to equity. The unsecured convertible notes bear interest at 8% payable semi-annually and mature on March 31, 2007.

The Company’s private equity offering of $970,386 represents 657,667 units at $1.50 per unit. The financing included participation of 241,000 units by certain senior management and directors of the Company.

The Company’s cash requirements through the end of 2003 are primarily to fund operations, product development, capital expenditures, workforce reduction restructuring activities and debt service costs. The Company currently has no significant capital asset expenditure commitments.

The cash required to support these requirements will come from operations, the balance of cash on hand, additional contributions from TPC funding (made in accordance with our existing agreement) and external financing. However, we cannot assure that additional financing will be available on a timely basis or on terms that are acceptable to the Company. Failure to raise additional funds may result in the Company further restructuring its operations.

C. Research and development, patents and licenses, etc.

Norsat began to identify opportunities in the mobile satellite market during 2001, drawing on its initial prototype for a mobile satellite terminal. Using this early prototype, the Norsat development team created a custom product offering aimed at the military market. During 2002, Norsat began to focus its development resources on the portable satellite terminal product line, refining the original pico-Terminal for military markets (now

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renamed Norsat SecureLink™) and introducing a terminal designed specifically for the satellite newsgathering business.

During 2003, the Company released a second-generation version of its Norsat NewsLink™, featuring a number of significant product enhancements (see above). Substantially all $5.1 million spent in 2002 on product development, focussed on the Norsat OmniLink™ product line development and enhancements.

These strategic product development activities resulted in the following research and development expenditures:

2002	$	5,102,929
2001	$	7,137,710
2000	$	9,959,118

D. Trend information

The Company continues to be affected by the global slowdown in telecommunications markets. This downward trend in telecommunications spending, which began in 2000 and continued through 2002, when coupled with the slowdown in the general economy, resulted in extended customer buying cycles, especially for large infrastructure orders. These factors in turn are having an impact on margins and pricing. Customers are becoming more sensitive to price and less concerned about quality and manufacturer reputation and longevity.

Particularly in the microwave business, the Company has faced aggressive new competitors and is attempting to find ways to further reduce product costs without sacrificing quality. While they are still concerned about quality and manufacturer reputation, it is clear that satellite customers are changing their purchase criteria to include price as a more important factor in their decision-making.

The markets for portable satellite terminals appear to be somewhat less sensitive to the general downturn in the global economy and to pricing concerns.

For satellite newsgathering organizations, the ability to provide breaking news, on-location coverage of important events can make a significant difference in audiences reached and advertising dollars obtained. The Norsat NewsLink™ is well positioned to continue to make inroads in this market.

The Company has entered into certain contracts that commit the Company’s resources. Reference is made to Item 8: Financial Information and specifically A. Consolidated Financial Statements, Note 15. Commitments. Since year-end to April 11, 2003, there have been no significant changes. Also Reference is made to Item 11: Quantitative and Qualitative Disclosures About Market Risk, where expected cash flows related to the Company’s long-term debt are presented. If exercised the Company’s issued and vested stock options and warrants represent a potential source of funding. Reference is made to Item 8: Financial Information and

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specifically A. Consolidated Financial Statements, Note 10. Share capital and contributed surplus, and B. Significant Changes.

6. Directors, Senior Management and Employees

A. Directors and Senior Management

Directors

The following section sets forth the information on our directors:

Gaetano Manti
Chairman of the Board
Mr. Manti became Chairman of the Board in June, 2002. He has served as the president of Il Mio Castello since October 1989 and as an international marketing consultant to Italy’s Cartier group, the New York Times magazine division and AMF, a multinational group.

Kenneth Crump
Director
Mr. Crump became a director of Norsat in June, 2002. Mr. Crump is retired. Previously he served as Chief Operating Officer of NCompass Labs from November of 1999 to May of 2001. From 1990 to 1999, he held a number of Senior Executive positions in operations and corporate finance at B.C. Telecom including Senior Vice-President, Corporate Services, Chief Financial Officer and Treasurer from 1995 to 1999; Prior to that, Mr. Crump served in a number of senior management positions at Microtel Ltd, including Vice-President and Chief Financial Officer from 1986 to 1989.

Mr. Crump received his MBA from the Richard Ivey School of Business, University of Western Ontario, in 1974 and a Bachelor of Science (Engineering) degree from Queen’s University in 1970.

Ugo A. Doninelli
Director
Mr. Doninelli became a director of Norsat in May, 1988. He is the General Manager and CEO of Prismafin S.A., an international investment organization with offices in Chiasso and Zurich, Switzerland. He exercises direction over the 1,985,575 Norsat common shares held by Prismafin S.A. He also serves as a Director for Nexmedia Technologies Inc., a multimedia software developer.

John MacDonald
Director
Dr. MacDonald rejoined the board in June, 2002 after taking a year off. Previously he served as Director of the Company from August of 1998 to June of 2001. Dr. MacDonald currently serves as Chairman and CEO of Day4 Energy Inc. Prior to that, Dr. MacDonald was Chairman of MacDonald Dettwiler and Associates Ltd., of which he is also a co-founder. He serves as a member of the Advisory Council to the Canadian Space Agency and is a member of the Defence Science Advisory Board for the Department of National Defence.

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Dr. MacDonald received his BASc from the University of British Columbia in 1959, his Masters degree from the Massachusetts Institute of Technology in 1961 and his PhD from MIT in 1964, all in Electrical Engineering.

Senior Management

Yutaka Ueda
President and Chief Executive Officer, Director
Since June 2002, Mr. Ueda has served as a director of Norsat. He was appointed President and Chief Executive Officer in October, 2002. Mr. Ueda brings with him 18 years of diversified experience in sales and marketing. Prior to joining Norsat, Mr. Ueda served as the Vice President of Business Development for ImageONE Co., Ltd., a Japanese satellite communications company and as a senior manager at Fuji Xerox before that.

Mr. Ueda holds a Master of Business Administration (MBA) from one of Japan’s premier business schools, Keio University, and a Bachelor of Economics from the Otaru University of Commerce.

Troy Bullock
Chief Financial Officer, Director
Mr. Bullock joined Norsat in July 2000 as Director of Finance and became Chief Financial Officer of the company in March, 2002. He became a Director of Norsat in June, 2002. He spent over 9 years with KPMG LLP and most recently was a Senior Manager in their Information, Communications, and Entertainment Practice. Mr. Bullock is responsible for all finance and accounting aspects of the Company.

Mr. Bullock graduated from Simon Fraser University with a Bachelor of Business Administration, and is a Chartered Accountant.

Chris McCormack
General Manager, OmniLink Business Unit
Mr. McCormack was appointed in March 2003 to the position of General Manager, Norsat OmniLink™ Business Unit. Mr. McCormack first joined Norsat in 2002 as the Director of New Product Development for the Norsat OmniLink™.

Mr. McCormack is a graduate of Simon Fraser University with a degree in Computer Engineering.

Cameron Hunter
Vice President, Microwave Business Unit

Mr. Hunter joined Norsat in January of 2003 as the Vice-President of the Microwave Business Unit. Prior to Norsat, he held several positions with SkyStream Networks in Hong Kong, including Senior Director of International Sales and Senior Director of Global Solutions Partners.

Mr. Hunter has a Bachelor’s Degree in Political Studies from Queen’s University and a post-graduate diploma from the Asia Pacific Management Co-operative at Capilano College.

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B. Compensation

Compensation of Directors

Each director of the Company who is not an executive officer of the Company is paid a fee of $10,000 per year, plus $1,000 for each board meeting and $500 for each committee meeting attended during the calendar year. The Company reimburses its directors for disbursements incurred on behalf of the Company. During fiscal 2002 directors who are not executive officers of the Company received, as a group, cash compensation aggregating $67,340 from the Company.

The following table sets forth details of all exercises of stock options/SARs during the year ended December 31, 2002 by directors who are not Named Executive Officers of the Company as a group, and the fiscal year-end value of unexercised options/SARs on an aggregated basis:

					Value of Unexercised
	Securities	Aggregate	Unexercised Options/SARs		In-the-Money Options/
	Acquired on	Value	at Fiscal Year-End		SARs at Fiscal Year-End
	Exercise	Realized	(#)(3)		($)(3)(4)
Name	(#)(1)	($)(2)	Exercisable/ Unexercisable		Exercisable/ Unexercisable
Directors who are not Named Executive Officers	None	Nil		125,000/400,000	Nil / Nil

NOTES:

(1)	Number of common shares of the Company acquired on the exercise of stock options.
(2)	Calculated using the closing price of common shares of the Company on the Toronto Stock Exchange on the date(s) of exercise, less the exercise price of the stock option(s).
(3)	As freestanding SARs have not been granted, these numbers relate solely to stock options.
(4)	Value of unexercised in-the-money options calculated using the closing price of common shares of the Company on the Toronto Stock Exchange on December 31, 2002, less the exercise price of in-the-money stock options.

The following table sets forth the stock options granted during the year ended December 31, 2002, and awarded to directors or former directors who are not Named Executive Officers of the Company.

							Market Value of
							common shares
	Number of		% of Total				Underlying
	common shares		Options				Options on the
	Under Options		Granted in		Exercise Price		Date of Grant
Name	Granted		2002		($/common share)		($/common share)		Expiration Date
Gaetano Manti		100,000		8	$	1.50	$	1.50	August 1, 2012
Kenneth Crump		75,000		6	$	1.50	$	1.50	August 1, 2012
Ugo A. Doninelli		75,000		6	$	1.50	$	1.50	August 1, 2012
John MacDonald		75,000		6	$	1.50	$	1.50	August 1, 2012

Indebtedness of Directors, Executive Officers and Senior Officers

No director or senior officer of the Company, proposed management nominee for election as a director of the Company or any associate or affiliate of any such director, senior officer or proposed nominee was indebted to the Company or any of its subsidiaries during fiscal 2002, except for the following former officer:

27

Ed Johnson, President of Norsat America Inc. $518,000

This loan is non-interest bearing. The Company has commenced legal proceedings to recover the loan balance from Mr. Johnson who left the employ of Norsat America Inc. in December 2000.

Compensation of Executive

The following table sets forth, for the periods indicated, all annual and long term compensation earned from the Company and its subsidiaries for the year ended December 31, 2002 by each Chief Executive Officer and each of the individuals who were, at December 31, 2002, the most highly compensated executive officers of the Company (collectively, the “Named Executive Officers”).

Annual Compensation

Long Term Compensation

Awards

Payouts

Securities

Restricted

Under

Shares or

Other

Options/

Restricted

Name and

Annual

SARs

Share

LTIP

All Other

Principal

Salary

Bonus

Compensation

Granted

Units

Payouts

Compensation

Position

Year

($)

($)

($)(1)

(#)

($)

($)

($)(2)

Yutaka Ueda

President and Chief

Executive Officer(3)

2002

89,688

N/A

160,000

(6)

225,000/Nil(7)

N/A

N/A

Nil

Mark Ahrens-Townsend

2002

254,209

N/A

83,955

150,000/Nil

N/A

N/A

16,770

Former President and

2001

185,673

N/A

Nil

150,000/Nil

N/A

N/A

13,328

Chief Executive Officer(4)

2000

90,000

N/A

Nil

50,000/Nil

N/A

N/A

9,204

E. Michael Heaven(5)

2002

213,333

N/A

30,000

100,000/Nil

N/A

N/A

Former Chief Operating

2001

200,529

N/A

25,000

100,000/Nil

N/A

N/A

15,704

Officer

2000

45,481

N/A

Nil

Nil/Nil

N/A

N/A

3,843

2002

144,053

N/A

Nil

100,000/Nil

N/A

N/A

14,351

Troy Bullock

2001

110,000

N/A

15,000

75,000/Nil

N/A

N/A

5,585

Chief Financial Officer

2000

55,000

N/A

Nil

Nil/Nil

N/A

N/A

2,501

NOTES:

(1)	Other annual compensation includes one time ad-hoc payments authorized by the Board of Directors.
(2)	All other compensation includes car allowances, life insurance and provincial health care premiums and employer registered retirement savings plan (“RRSP”) contributions.
(3)	Mr. Ueda was appointed President and Chief Executive Officer on October 16, 2002.
(4)	Mr. Ahrens-Townsend ceased to be an officer of the Company on October 16, 2002.
(5)	Mr. Heaven ceased to be an officer of the Company on March 10, 2003.
(6)	Represents a relocation-signing bonus.
(7)	Mr. Ueda received 75,000 options as a director prior to being appointed President and CEO

Long-Term Incentive Plans

The Company did not make any long-term incentive awards during the most recently completed fiscal year.

Option and SAR Repricing

The Company did not reprice any options or SARs held by any of the Named Executive Officers during the most recently completed fiscal year.

28

Defined Benefit or Actuarial Plan Disclosure

The Company does not provide retirement benefits for the directors or executive officers.

C. Board practices

Mandate of the Board

The Board is responsible for the stewardship of the Company and fully endorses a system of corporate governance that is designed to assist the Board to mange effectively and supervise the management of the business and the affairs of the Company. The Board also provides considerable guidance to Management in pursuit of the Company’s objectives. The Board met four times in fiscal 2002 and numerous times by way of conference calls.

At those meetings, the Board reviewed the performance of the Company, on a consolidated basis and a business unit basis, and results were compared against previously established budgets. The Board also considered the Company’s strategic plans and provided guidance to management regarding those plans.

Decisions Requiring Board Approval

In general, the Company’s management operates the business on a day-to-day basis. The Board approves the annual budget and strategic plans and reviews the performance of senior management against those standards. In addition, the Board approves all major acquisitions, dispositions, financings, both debt and equity, and changes in the structure of the Company. The Board also determines the responsibility and compensation of the Chief Executive Officer based on the recommendations of the Compensation Committee. The Board appoints the officers of the Company. The Directors also determine the directors’ compensation and consider the declaration of dividends.

Composition of the Board

The Board is currently comprised of six directors, four of which are considered by the Board to be “unrelated”. According to the Corporate Governance guidelines of the TSX (the “TSX guidelines”), an “unrelated” director is a director who is independent of management and is free from any interest and any business or other relationship which could, or could reasonably be perceived to, materially interfere with the director’s ability to act with a view to the best interests of the Company, other than interests and relationships arising from shareholdings.

The members of the Board who are not management meet on an informal basis during the year to discuss the Company’s progress and management.

Recruiting of New Directors

If vacancies occur on the Board, the Board as a group considers replacements and reviews the qualifications of prospective members and determines their relevance,

29

taking into consideration the current Board composition and the skills required to round out the capabilities of the Board and makes recommendation to the board for approval.

Measures for Receiving Shareholder Feedback

Management has been asked to make the Board aware on an ongoing basis of any significant shareholder concerns communicated to management. The Company assigns an employee to respond to shareholder inquiries and to direct appropriate matters to senior management. Where appropriate, senior management will meet with shareholders to discuss their concerns.

The Board’s Expectation of Management

The Board expects management to operate the Company in accordance with good, prudent business practices. Management is expected to report to the Board on financial and operating matters and to make the Board aware of all important issues and major business developments. The Board also expects management to find new business opportunities for business acquisitions and expansion and to make the appropriate reports to the Board regarding those opportunities.

Director’s Service Contracts

The term of office of each of the present directors expires at the Annual General Meeting. Of the present directors, Messrs. Manti, Mr. Crump, Mr. MacDonald, Mr. Ueda and Mr. Bullock have been directors since June 2002. Mr. Doninelli has been a director of the company since May 1988, and Mr. Ueda since June 2001. The Company does not provide for benefits beyond employment with the company.

Board Committees

The Board currently has two standing committees: the Audit Committee and the Corporate Governance and Compensation Committee.

Audit Committee

The Company’s Audit Committee is comprised of three directors: Messrs. Crump, Doninelli, and MacDonald (each of whom is an “unrelated” director). Each of the members of the Audit Committee consider that he is financially literate and capable of reading and understanding financial statements, and Mr. Crump has accounting or related financial expertise. The board has adopted a formal written charter for the Audit Committee under which the committee is responsible for, among other things, reviewing the Company’s annual and quarterly financial statements, financial reporting procedures, internal controls and performance and independence of the Company’s external auditors.

During fiscal 2002, the Audit Committee met four times to carry out its responsibilities. The committee schedules its meetings with a view to ensuring that it devotes appropriate attention to all of its tasks.

As part of its oversight of the Company’s financial statements, the committee reviewed and discussed with both management and the Company’s external auditors the annual

30

financial statements, and with management the quarterly financial statements, prior to their issuance. Management advised the Audit Committee in each case that all financial statements were prepared in accordance with generally accepted accounting principles, and reviewed significant accounting issues with the committee.

Corporate Governance and Compensation Committee

The Corporate Governance and Compensation Committee of the Board of Directors is comprised of three directors: Messrs. Manti, Crump and Doninelli. All of the members of the committee are independent of management. The committee is responsible for all matters related to Corporate Governance and compensation of the Chief Executive Officer. All recommendations are made to the Board for approval. During fiscal 2002, the Corporate Governance and Compensation Committee met three times to carry out its responsibilities.

Change in Responsibilities and Employment Contracts

The Company has entered into an employment agreement with Mr. Yutaka Ueda dated September 24, 2002, pursuant to which he acts as the Company’s President and Chief Executive Officer, effective October 16, 2002. The agreement is for an indefinite term. Mr. Ueda receives an annual base salary of $410,000 plus annual benefits totalling approximately $129,000. Mr. Ueda also received a relocation bonus in the amount of $160,000. He is entitled to participate in any bonus plan if implemented by the board. If Mr. Ueda’s employment is terminated without cause, he will receive 12 months of his annual compensation, plus one month for each year of service, in lieu of notice of termination of employment. Upon termination of his employment, Mr. Ueda’s incentive stock options will continue to vest and he will be entitled to exercise them for a period of two years from the date of his termination.

The Company has entered into an employment agreement with Mr. Troy Bullock dated October 23, 2001, as amended on March 18, 2002, pursuant to which he acts as the Company’s Chief Financial Officer, effective March 14, 2002. The agreement is for an indefinite period. Mr. Bullock receives an annual base salary of $150,000 plus annual benefits totalling approximately $16,000. He is also entitled to participate in any bonus plan if implemented by the board. If Mr. Bullock’s employment is terminated without cause, he will receive 6 months of his annual compensation, plus one month for each year of service, in lieu of notice of termination of employment. Upon termination of his employment, Mr. Bullock’s incentive stock options will continue to vest and he will be entitled to exercise them for a period of two years from the date of his termination.

The Company entered into an employment agreement with Mr. Michael Heaven pursuant to which he acted as the Company’s Chief Operating Officer. Mr. Heaven was terminated by the Company on March 10, 2003 and in accordance with his agreement he will receive 10 1/3 months of his annual compensation, in lieu of notice of termination of employment. Mr. Heaven’s incentive stock options will continue to vest and he will be entitled to exercise them for a period of two years from March 10, 2003.

The Company entered into an employment agreement with Mr. Mark Ahrens-Townsend pursuant to which he acted as the Company’s President and Chief Executive Officer. Mr. Ahrens-Townsend resigned from the Company on October 16, 2002 and negotiated a settlement of 14.75 months of his annual compensation upon leaving. Mr. Ahrens-

31

Townsend’s incentive stock options will continue to vest and he will be entitled to exercise them for a period of two years from October 16, 2002.

D. Employees

The following table shows the number of employees by geographical location at the end of each year ending December 31:

	Canada		United States		Other		Total
2002		77		2		6		85
2001		102		1		7		110
2000		117		3		15		135

We believe that our work force is highly skilled, capable and motivated and that our relations with our employees are good.

E. Share ownership

The following table sets forth the stock options granted during the year ended December 31, 2002, and awarded to each of the Named Executive Officers:

							Market Value of
							common shares
	Number of		% of Total				Underlying
	commons shares		Options		Average		Options on the
	Under		Granted in		Exercise Price		Date of Grant
Name	Options Granted		2002		($/common share)		($/common share)		Expiration Date
Yutaka Ueda		75,000		6	$	1.50	$	1.50	August 1, 2012
Yutaka Ueda		150,000		11	$	1.50	$	1.50	September 25, 2012
Mark Ahrens-Townsend		150,000		11	$	1.50	$	1.50	August 1, 2012
Michael Heaven		100,000		8	$	1.50	$	1.50	August 1, 2012
Troy Bullock		100,000		8	$	1.50	$	1.50	August 1, 2012

Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values

The following table sets forth details of all exercises of stock options/SARs during the year ended December 31, 2002 by the Named Executive Officers of the Company and the fiscal year-end value of unexercised options/SARs on an aggregated basis:

					Value of Unexercised
	Securities	Aggregate	Unexercised Options/SARs		In-the-Money Options/
	Acquired on	Value	at Fiscal Year-End		SARs at Fiscal Year-End
	Exercise	Realized	(#)(3)(4)		($)(3)(4)
Name	(#)(1)	($)(2)	Exercisable/Unexercisable		Exercisable/ Unexercisable
Yutaka Ueda	None	Nil		25,000/250,000	Nil/Nil
Mark Ahrens-Townsend	None	Nil		75,000/225,000	Nil/Nil
Michael Heaven	None	Nil		50,000/150,000	Nil/Nil
Troy Bullock	None	Nil		37,500/137,500	Nil/Nil

32

NOTES:

(1)	Number of common shares of the Company acquired on the exercise of stock options.
(2)	Calculated using the closing price of common shares of the Company on the Toronto Stock Exchange on the date(s) of exercise, less the exercise price of the stock option(s).
(3)	As freestanding SARs have not been granted, the numbers relate solely to stock options.
(4)	Value of unexercised in-the-money options calculated using the closing price of common shares of the Company on the Toronto Stock Exchange on December 31, 2002, less the exercise price of in-the-money stock options.

7. Major Shareholders and Related Party Transactions

A. Major shareholders

The Company’s authorized capital consists of 50,000,000 common shares without par value, of which 36,177,164 common shares are issued and outstanding as at April 11, 2003.

To the knowledge of the directors and senior officers of the Company, there are no persons or companies who beneficially own, directly or indirectly, or exercise control or direction over shares carrying more than 5% of the voting rights attached to all outstanding common shares of the Company., except for Prismafin, S.A. which exercises direction over 1,985,575 common shares or 5.5% of the currently outstanding shares. Mr. Ugo Doninelli, who is one of the Company’s directors, is the General Manager of Prismafin, S.A.

B. Related party transactions

Reference is made under “Item 6 Indebtedness of Directors” and under “Item 8 Financial Information”, specifically note 17.

C. Interests of experts and counsel

Not applicable.

33

8. Financial Information

A. Consolidated Financial Statements

Statement of Management’s Responsibility

The management of Norsat International Inc. is responsible for the preparation of the accompanying consolidated financial statements and the preparation and presentation of all information in the Annual Report. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada and are considered by management to present fairly the financial position and operating results of the Company.

The Company maintains various systems of internal control to provide reasonable assurance that transactions are appropriately authorized and recorded, that assets are safeguarded, and that financial records are properly maintained to provide accurate and reliable financial statements.

The Company’s audit committee is composed of three non-management directors who are appointed by the Board of Directors annually. The committee meets periodically with the Company’s management and independent auditors to review financial reporting matters and internal controls and to review the consolidated financial statements and the independent auditors’ report. The audit committee reported its findings to the Board of Directors who have approved the consolidated financial statements.

The Company’s independent auditors, KPMG LLP, have audited the consolidated financial statements and their report follows.

“Yutaka Ueda”	“Troy Bullock”
President and Chief Executive Officer Yutaka Ueda	Chief Financial Officer Troy Bullock
February 21, 2003

34

AUDITORS’ REPORT TO THE SHAREHOLDERS

We have audited the consolidated balance sheets of Norsat International Inc. as at December 31, 2002 and 2001 and the consolidated statements of operations, deficit and cash flows for each of the years in the three-year period ended December 31, 2002. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2002 and 2001 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2002 in accordance with Canadian generally accepted accounting principles. As required by the Company Act (British Columbia), we report that in our opinion these principles have been applied, after giving effect to the change in accounting for goodwill and intangible assets as explained in note 2(f), on a consistent basis.

“KPMG LLP”
Chartered Accountants

Vancouver, Canada

February 21, 2003

COMMENTS BY AUDITOR FOR US READERS ON CANADA — US REPORTING DIFFERENCE

In the United States, reporting standards for auditors require the addition of an explanatory paragraph (following the opinion paragraph) when the financial statements are affected by conditions and events that cast substantial doubt on the Company’s ability to continue as a going concern, such as those described in note 1 to the financial statements. Our report to the shareholders dated February 21, 2003, is expressed in accordance with Canadian reporting standards which do not permit a reference to such events and conditions in the auditor’s report when these are adequately disclosed in the financial statements.

“KPMG LLP”
Chartered Accountants

Vancouver, Canada

February 21, 2003

35

NORSAT INTERNATIONAL INC.

Consolidated Balance Sheets
(Expressed in Canadian dollars)

December 31, 2002 and 2001

		2002			2001
Assets
Current assets:
	Cash and cash equivalents (note 3)	$	2,907,811		$	2,160,678
	Short-term investments		71,965			—
	Accounts receivable (note 4)		4,314,419			4,761,064
	Inventories (note 5)		5,488,813			5,969,642
	Prepaid expenses and other		419,927			401,220
	Current assets from discontinued operations (note 13)		504,364			1,268,030
			13,707,299			14,560,634
Property and equipment (note 6)			2,696,490			4,262,206
Goodwill (note 7(a))			440,095			440,095
Other assets (note 8)			182,017			761,986
		$	17,025,901		$	20,024,921
Liabilities and Shareholders’ Equity
Current liabilities:
	Accounts payable	$	1,989,818		$	2,391,282
	Accrued liabilities		3,211,479			3,404,882
	Current liabilities from discontinued operations (note 13)		1,268,805			2,281,710
	Deferred revenue		333,842			570,618
			6,803,944			8,648,492
Long-term debt (note 9)			1,251,442			—
Shareholders’ equity:
	Share capital (note 10)		34,715,367			32,974,213
	Contributed surplus (note 10)		1,188,742			1,000,000
	Equity component of long-term debt (note 9)		1,909,127			—
	Deficit		(28,842,721	)		(22,572,460	)
	Cumulative translation adjustment		—			(25,324	)
			8,970,515			11,376,429
		$	17,025,901		$	20,024,921

Continuing operations (note 1)
Commitments (note 15)

See accompanying notes to consolidated financial statements.

Approved on behalf of the Board:

“Gaetano Manti”
Gaetano Manti              Director “Kenneth Crump”
Kenneth Crump              Director

36

NORSAT INTERNATIONAL INC.

Consolidated Statements of Operations
(Expressed in Canadian dollars)

Years ended December 31, 2002, 2001 and 2000

			2002			2001			2000
Sales			$	14,674,806		$	20,598,950		$	22,017,341
Cost of sales				8,592,626			14,238,718			15,801,087
				6,082,180			6,360,232			6,216,254
Expenses:
	Selling, general and administrative			5,830,112			6,080,904			11,137,784
	Product development			5,102,929			7,137,710			9,959,118
	Technology Partnerships Canada funding (note 8(a))			(2,829,821	)		(4,217,012	)		(1,431,937	)
				8,103,220			9,001,602			19,664,965
Loss from continuing operations before amortization and write-down, restructuring, other expenses and income taxes				(2,021,040	)		(2,641,370	)		(13,448,711	)
Expenses:
	Write-down of goodwill (note 7(b))			—			10,896,486			6,234,846
	Amortization and write-down of other intangibles (note 7)			1,766,507			7,426,838			5,607,079
	Restructuring charge (note 11)			1,658,858			1,274,004			2,386,000
				3,425,365			19,597,328			14,227,925
Loss from continuing operations before other expenses and income taxes				(5,446,405	)		(22,238,698	)		(27,676,636	)
Other expenses (earnings) (note 19)				729,672			324,086			(223,851	)
Loss from continuing operations before income taxes				(6,176,077	)		(22,562,784	)		(27,452,785	)
Income taxes (note 12)				5,500			35,000			50,000
Loss from continuing operations				(6,181,577	)		(22,597,784	)		(27,502,785	)
Recovery (loss) from discontinued operations (note 13)				(88,684	)		25,324			(8,200,665	)
Net loss			$	(6,270,261	)	$	(22,572,460	)	$	(35,703,450	)
Net loss per share (note 2(h)):
	Net loss per share from continuing operations:
		Basic and diluted	$	(0.18	)	$	(0.71	)	$	(1.01	)
	Net loss per share:
		Basic and diluted	$	(0.19	)	$	(0.71	)	$	(1.32	)

See accompanying notes to consolidated financial statements.

37

NORSAT INTERNATIONAL INC.

Consolidated Statements of Deficit
(Expressed in Canadian dollars)

Years ended December 31, 2002, 2001 and 2000

	2002			2001			2000
Deficit, beginning of year	$	(22,572,460	)	$	(45,290,073	)	$	(9,586,623	)
Reduction in deficit upon recapitalization (note 10(f))		—			45,290,073			—
Net loss		(6,270,261	)		(22,572,460	)		(35,703,450	)
Deficit, end of year	$	(28,842,721	)	$	(22,572,460	)	$	(45,290,073	)

See accompanying notes to consolidated financial statements.

38

NORSAT INTERNATIONAL INC.
Consolidated Statements of Cash Flows
(Expressed in Canadian dollars)

Years ended December 31, 2002, 2001 and 2000

			2002			2001			2000
Cash provided by (used in):
Operations:
	Loss from continuing operations		$	(6,181,577	)	$	(22,597,784	)	$	(27,502,785	)
	Items not involving cash:
		Write-down of investment		—			609,477			—
		Amortization and write-down of intangibles		1,766,507			18,323,324			11,841,925
		Issuance of common shares for services (note 10(e))		259,845			67,500			—
		Loss on disposal of property and equipment		197,753			—			—
		Restructuring — write-down of assets		131,586			—			—
		Interest accreted on long-term debt and deferred finance cost amortization (note 9)		322,325			—			—
		Loss on conversion of promissory note (note 9)		43,609			—			—
	Changes in non-cash operating working capital (note 18)			77,124			(3,889,916	)		2,520,061
	Cash used in continuing operations			(3,382,828	)		(7,487,399	)		(13,140,799	)
	Recovery (loss) from discontinued operations			(88,684	)		25,324			(8,200,665	)
	Items not involving cash:
		Amortization		—			—			1,149,009
		Other		25,324			—			18,427
	Changes in non-cash working capital and other			93,968			4,314,547			4,269,314
	Cash provided by (used in) discontinued operations			30,608			4,339,871			(2,763,915	)
				(3,352,220	)		(3,147,528	)		(15,904,714	)
Investments:
	Net purchase of property and equipment			(228,479	)		(641,590	)		(2,205,231	)
	Purchase of short-term investments			(71,965	)		—			—
				(300,444	)		(641,590	)		(2,205,231	)
Financing:
	Issue of common shares			970,386			4,573,517			12,459,526
	Issue of long-term debt			2,953,188			—			—
	Issue of promissory note			461,604			—			—
	Acquisition costs			—			—			(204,000	)
	Obligation to issue shares			—			—			765,000
	Decrease in bank indebtedness			—			(2,903,047	)		(1,716,706	)
				4,385,178			1,670,470			11,303,820
Effect of change in exchange rates on cash				14,619			49,152			(50,422	)
Increase (decrease) in cash and cash equivalents				747,133			(2,069,496	)		(6,856,547	)
Cash received on acquisition				—			—			3,129,279
Cash and cash equivalents, beginning of year				2,160,678			4,230,174			7,957,442
Cash and cash equivalents, end of year			$	2,907,811		$	2,160,678		$	4,230,174

Supplemental cash flow disclosure (note 18)

See accompanying notes to consolidated financial statements.

39

NORSAT INTERNATIONAL INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)

Years ended December 31, 2002, 2001 and 2000

1. Nature of business and continuing operations:

The Company is incorporated under the laws of the Province of British Columbia, Canada and its principal business activities include the marketing, design and sales of microwave products and portable terminals for high-speed data transmission in areas without existing infrastructure or where the existing infrastructure has been distressed by a catastrophic event.

These consolidated financial statements have been prepared on the going concern basis, which presumes the realization of assets and the settlement of liabilities in the normal course of operations. The application of the going concern basis is dependent upon the Company achieving profitable operations to generate sufficient cash flows to fund continued operations, or, in the absence of adequate cash flows from operations, obtaining additional financing. The Company has reported losses and negative cash flows from operations for the year ended December 31, 2002 and in prior years.

Management has undertaken to significantly reduce costs through a series of actions including, but not limited to, reducing the number of employees and reducing operating costs. Management is also pursuing additional revenue sources from its portable terminals and is considering other financing alternatives for its operations. There can be no assurances that such financing, if required, will be available on a timely or cost effective basis. The Company will continue to evaluate its projected expenditures relative to its available cash and to evaluate additional means of financing and cost reduction strategies in order to satisfy its working capital and other cash requirements.

2. Significant accounting policies:

These financial statements have been prepared in accordance with generally accepted accounting principles in Canada, which materially conform with those established in the United States, except as explained in note 23.

(a)	Principles of consolidation:
	The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Norsat America Inc., Norsat International (United Kingdom) Limited, and Norsat Atlanta Inc. All material intercompany balances and transactions have been eliminated.
(b)	Cash and cash equivalents:
	Cash equivalents include short-term deposits, which are all liquid securities with terms to maturity of three months or less when acquired.

40

2. Significant accounting policies (continued):

(c)	Inventories:
	Parts and supplies inventory are stated at the lower of weighted average cost and replacement cost. Finished goods and work-in-process inventories include materials, labour and manufacturing overhead and are stated at the lower of weighted average cost and net realizable value. Inventories are recorded net of any obsolescence provisions.
(d)	Revenue recognition:
	The Company generates revenue from the following sources: the sale of microwave products and portable terminal equipment, broadband digital video broadcasting data hubs, systems, and by performing research and development services.
	Equipment, hubs and systems sales are recognized when goods are shipped and the title passes, there is persuasive evidence of an arrangement, collection is probable and the fee is fixed or determinable. Provisions are established for product returns and warranty costs at the time revenue is recognized. If there is a requirement for customer acceptance of any products shipped, revenue is only recognized after customer acceptance has been received. For multiple element sales arrangements, revenue is allocated by the residual value method whereby the fair value of undelivered elements is determined by reference to objective evidence from comparable arrangements with the balance of the fees assigned to the delivered elements. Revenue is recognized for each element when there are no remaining performance obligations required based on their relative fair value at the inception of the sales arrangement. When fair value cannot be determined, revenue is deferred until objective evidence exists or recognized as the final elements are delivered. Elements included in multiple element arrangements consist of equipment, training and installation services, monitoring and testing services and post contract support services.
	Revenues from research and development services are recognized as the services are rendered.
	For long-term contracts, revenue is recognized on a percentage-of-completion basis based upon achievement of specifically identifiable milestones as set out in the contractual arrangement.
	Revenue that has been paid but does not yet qualify for recognition under the Company’s policies are reflected as deferred revenues. As at December 31, 2002, the Company has deferred revenues of $333,842 (2001 - $570,618).

41

2. Significant accounting policies (continued):

(e)	Property and equipment:
	Property and equipment are stated at cost less applicable tax credits and government assistance. Amortization of property and equipment is recorded on a straight-line basis at the following annual rates which approximate the useful life of the assets:

Asset	Period
Equipment and product development equipment	2 to 10 years
Furniture and fixtures	10 years

	Leasehold improvements are amortized over the shorter of the term of the lease or their estimated useful life.
	Property and equipment are assessed for future recoverability on an annual basis by estimating future undiscounted cash flows. When the net carrying amount of a capital asset exceeds it estimated net recoverable amount, the asset is written down with a charge to income.
(f)	Goodwill and other intangible assets:
	Goodwill represents the excess of the purchase price paid over the fair value of the identifiable assets acquired and liabilities assumed.
	Purchased in-process research and development (“purchased IPR&D”) represents the estimated fair value of the acquired research and development technology in a business combination that was not technologically proven as of the acquisition date and had no alternative future use. Purchased IPR&D is amortized on a straight-line basis over five years.
	Effective January 1, 2002, the Company adopted the Canadian Institute of Chartered Accountants (“CICA”) section 1581, “Business Combinations” and CICA section 3062, “Goodwill and Other Intangible Assets”. The Business Combinations section addresses, in part, the initial recognition and measurement of goodwill and other intangible assets acquired in a business combination. The Goodwill and Other Intangible Assets section addresses the continuing measurement and valuation of intangible assets and goodwill. Under this section, goodwill and intangible assets with indefinite lives are not amortized but are tested for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. Intangibles with finite lives such as purchased IPR&D, continue to be amortized over their estimated useful lives, which are reviewed annually. Previously the Company recognized assembled workforce, which represented the estimated value of a trained workforce obtained as part of a business combination, as an intangible asset that was amortized on a straight-line basis over its estimated useful life of two years. Under the new sections, this would not be recognized as an intangible asset apart from goodwill.

42

2. Significant accounting policies (continued):

(f)	Goodwill and other intangible assets (continued):
	In accordance with the sections, these changes are not applied retroactively and the amounts presented for prior periods have not been restated.
	If goodwill amortization had not been recorded, net loss and loss per share would be as follows:

		2002			2001			2000
	Reported net loss	$	(6,270,261	)	$	(22,572,460	)	$	(35,703,405	)
	Goodwill amortization		—			3,423,180			3,666,829
	Adjusted net loss	$	(6,270,261	)	$	(19,149,280	)	$	(32,036,576	)
Adjustment net loss per share, basic and diluted		$	(0.19	)	$	(0.60	)	$	(1.18	)

	Had amortization of goodwill not been recorded during these periods, an additional write-down of goodwill of the same amount would have been required. Accordingly, this change has had no effect on prior periods financial statements presented.
(g)	Short-term investments:
	Included in short-term investments are securities with terms to maturity of in excess of three months when acquired. Outstanding balances at December 31, 2002 secure outstanding balances under certain warranty bonds and corporate visa accounts.
(h)	Net loss per share:
	Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the period.
	Diluted net loss per share is computed using the treasury stock method, which assumes that all dilutive options and warrants were exercised at the beginning of the period and the proceeds to be received were applied to repurchase common shares at the average market price for the period. Stock options and warrants are dilutive when the average market price of the common shares during the period exceeds the exercise price of the options and warrants and when the Company generates income from continuing operations.
	As the Company has a net loss in each of the periods presented, basic and diluted net loss per share are the same as the exercise of all warrants or options would be anti-dilutive. The weighted average number of shares used in calculating basic and diluted net loss per share were 33,501,132 (2001 — 31,802,762; 2000 — 27,104,804).

43

2. Significant accounting policies (continued):

(i)	Use of estimates:
	The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires the Company’s management to make estimates and assumptions that affect amounts reported in the financial statements and notes thereto. Significant areas requiring the use of management estimates relate to the determination of the net recoverable value of assets, including inventory obsolescence provisions, allowance for doubtful accounts and asset impairment, the valuation of future income tax assets, useful lives for depreciation and amortization, estimating losses on discontinued operations, and provisions for contingencies. Actual amounts may ultimately differ from these estimates.
(j)	Research and development costs:
	Research costs are expensed as incurred. Development costs are deferred if the product or process and its market or usefulness is clearly defined, the product or process has reached technical feasibility, adequate resources exist or are expected to exist to complete the project and management intends to market or use the product or process. If these criteria are not met, the development costs are expensed as incurred. During 2002, all development costs have been expensed.
(k)	Stock-based compensation:
	Effective January 1, 2002, the Company adopted new CICA section 3870, “Stock-Based Compensation and Other Stock-Based Payments”. This section establishes standards for the recognition, measurement and disclosure of stock-based compensation and other stock-based payments made in exchange for goods and services. The standard requires the fair value based method of accounting for certain, but not all, stock-based transactions. The standard permits, and the Company has elected, for stock option grants to employees and directors to be accounted for using the intrinsic value method. Accordingly, no compensation cost has been recognized in 2002 for such grants beginning on or after January 1, 2002 as the exercise price is equal to the market price of the stock on the date of grant.
	If compensation cost for the Company’s employee stock options issued on or after January 1, 2002 had been determined based on the fair value method at the applicable grant dates, the Company’s pro forma net loss would have increased by $245,000 to $6,515,261 and loss per common share of $0.19 would remain unchanged for the year ended December 31, 2002. The weighted average fair value of options granted during 2002 was $0.90. The fair value of options was determined using the Black-Scholes valuation model assuming an average option life of three years, no dividends, average expected volatility of 93%, and risk-free interest rates of 3%.
	The Company’s stock-based compensation plan is described in note 10(h).

44

2. Significant accounting policies (continued):

(l)	Deferred finance costs:
	Deferred finance costs represent the unamortized cost of obtaining debt financing. Amortization is provided on a straight-line basis over the term of the related debt and is included in interest expense for the year.
(m)	Income taxes:
	The Company follows the asset and liability method of accounting for income taxes. Under this method, the Company recognizes and measures, as assets and liabilities, income taxes currently payable or recoverable as well as future taxes which will arise from the realization of assets or settlement of liabilities at carrying amounts which differ from their tax bases. Future tax assets and liabilities are measured using enacted or substantially enacted tax rates expected to apply to taxable income in the years in which such temporary differences are expected to be recovered or settled. A valuation allowance is recognized to the extent the recoverability of future income tax assets is not considered to be more likely than not. Future tax assets and liabilities are presented net by current and non-current classifications except to the extent that they cannot be offset due to different tax jurisdictions.
(n)	Foreign currency translation:
	The reporting and functional currency of the Company is the Canadian dollar.
	Foreign currency transactions entered into directly by the Company, as well as the accounts of the integrated foreign subsidiary operations, are translated using the temporal method. Under this method, monetary assets and liabilities are translated at year-end exchange rates and other balance sheet items are translated at historical exchange rates. Income statement items are translated at the rate in effect at the time of the transaction.
	Financial statements of the Company’s self-sustaining foreign subsidiary are translated under the current rate method. Under this method, assets and liabilities are translated into Canadian dollars at the exchange rate in effect as of the balance sheet date and income and expense items are translated at the average exchange rate for the period. Net unrealized exchange gains and losses arising on translation of the foreign subsidiary’s financial statements are included in shareholders’ equity as cumulative translation adjustment. Unrealized exchange adjustments are only included in income upon full or substantial liquidation of the Company’s investment in the self-sustaining operation.

45

3.	Credit facility:
	At December 31, 2002, the Company had a credit facility with a major Canadian financial institution to secure letters of credit in favour of customers and suppliers totaling $910,000. The security under these credit facilities consists of a first security interest on all of the Company’s personal property, and a collateral security agreement of US$225,000, in the form of a GIC and Export Development of Canada performance security guarantees. Subsequent to December 31, 2002, this credit facility was renewed as described in note 21.
	The Company has issued and outstanding standby letters of credit and warranty bonds as at December 31, 2002 totalling approximately $151,000.
4.	Allowance for doubtful accounts:
	Accounts receivable are disclosed net of allowance for doubtful accounts. Changes in the allowance for each of the periods presented are as follows:

	2002			2001			2000
Balance, beginning of year	$	478,161		$	528,723		$	149,421
Charged to operations		(214,498	)		(50,562	)		—
Recovery in operations		—			—			379,302
Balance, end of year	$	263,663		$	478,161		$	528,723

5. Inventories:

	2002		2001
Parts and supplies	$	304,610	$	742,544
Work-in-process		—		278,931
Finished goods		5,184,203		4,948,167
	$	5,488,813	$	5,969,642

46

6. Property and equipment:

			Accumulated		Net book
2002	Cost		amortization		value
Equipment	$	3,555,388	$	2,733,906	$	821,482
Furniture and fixtures		1,035,220		701,026		334,194
Leasehold improvements		678,075		281,249		396,826
Product development equipment		5,839,093		4,695,105		1,143,988
	$	11,107,776	$	8,411,286	$	2,696,490

			Accumulated		Net book
2001	Cost		amortization		value
Equipment	$	3,980,285	$	2,551,217	$	1,429,068
Furniture and fixtures		1,075,997		643,518		432,479
Leasehold improvements		661,620		183,453		478,167
Product development equipment		5,841,216		3,918,724		1,922,492
	$	11,559,118	$	7,296,912	$	4,262,206

7. Goodwill and other intangible assets:

(a)

Goodwill outstanding at December 31, 2002 of $440,095 (2001 - $440,095) relates to the Company’s microwave products operating segment and is net of accumulated amortization of $264,057 (2001 — $264,057).

(b)

In December 2001, the Company determined that a write-down of goodwill and other intangibles, including in-process research and development and acquired workforce, arising from the SpectraWorks Inc. acquisition in a prior year was required due primarily to continued delays in broadband network developments that utilize the SpectraWorks technology products and the resultant impact on estimated future cash flows. The net carrying value of assets exceeded the estimated future net undiscounted cash flows from these assets, requiring a write-down of goodwill of $10,896,486 and other intangibles of $1,327,754. The total amortization of goodwill in the Open Networks operating segment for the year ended December 31, 2001 was $3,423,180 and amortization and write-down of other intangibles of $4,003,658.

47

7. Goodwill and other intangible assets (continued):

In December 2000, the Company determined that a write-down of goodwill arising from the SpectraWorks Inc. acquisition was required due primarily to delays at that time in broadband network developments that would utilize the SpectraWorks technology products with the resultant impact on estimated future cash flows. The carrying value of long-lived assets exceeded the estimated future net undiscounted cash flows, requiring a writedown of goodwill of $6,234,846 in the Open Networks operating segment.

8. Other assets:

	2002		2001
Deferred royalty payment (note 8(a))	$	71,205	$	372,856
Receivable on disposition of business (note 13(b))		31,304		389,130
Deferred finance costs (net of amortization of $14,001)		79,508		—
	$	182,017	$	761,986

(a)	The Company has entered into an agreement with Technology Partnerships Canada (“TPC”) whereby TPC will provide funding of 33 1/3% of eligible spending related to the research and development of a communications Satellite Interactive Terminal (“SIT”) technology development project to a maximum funding amount of $9,379,700.
	In return for funding, the Company is obligated to issue TPC $1,000,000 in value of share purchase warrants prior to the completion of the project. The warrants will have a life of five years and will be priced at the market price on the date of issue with the number of warrants issued to be determined using the Black-Scholes pricing model.
	Beginning January 1, 2003, the Company will provide royalty payments in the amount of 1.88% of revenue on legacy products up to a maximum of $4,689,850, and a royalty of 1.28% of new SIT technology products. In the event and at the time that the warrants are issued as required above, the SIT royalty will be reduced from 1.28% to 1.03%. The Company has recorded fair value of the required obligation to issue warrants as a $1,000,000 deferred royalty payment in other assets and as an addition to contributed surplus. The deferred royalty is being amortized pro-rata as funding is receivable under the contract.

48

8. Other assets (continued):

	During 2002 the Company recognized TPC funding in the amount of $2,829,821 (2001 — $4,315,152; 2000 — $1,567,270). Cumulative funding as at December 31, 2002 was $8,712,243 (2001 — $5,882,422; 2000 - $1,567,270). Of the 2002 funding, $2,829,821 (2001 — $4,217,012; 2000 - $1,431,937) has been recognized as a reduction of product development expense and nil (2001 — $98,140; 2000 — $135,333) has been credited against the cost of property and equipment to which the funding related.
	The deferred royalty payment balance at December 31, 2002 of $71,205 (2001 — $372,856), is presented net of accumulated amortization of $928,795 (2001 — $627,144 ).
(b)	During 2001, the Company recognized a loss of $609,477 on write-off of an investment, as the decrease in fair value was determined to be other than temporary.

9. Long-term debt and promissory note:

(a)	Promissory note:
	On January 28, 2002, the Company issued an unsecured promissory note (US$300,000) for net cash proceeds of $461,604 repayable on January 29, 2003 that bears interest at 8% per annum. The interest is payable by issuing 13,333 common shares of the Company at maturity. The promissory note also included 35,334 share purchase warrants. The warrants expire after five years, and entitle the holder to purchase one common share of the Company for US$2.01. A financing fee was paid consisting of US$7,500 cash, and 4,167 common shares of the Company and 17,667 share purchase warrants with similar terms.
	The proceeds of the financing allocated to the interest component and also the fair value of the detachable share purchase warrants was recorded as an equity component of the note financing, reducing the amount assigned to the debt component. The debt component is accreted to its fair value over the term to maturity as a non-cash interest expense charge. On September 24, 2002, a commitment was reached under which the promissory note including all interest obligations, was to be settled by the Company issuing 324,000 common shares which had a fair value of $498,960, resulting in a loss on debt settlement of $43,609. At December 31, 2002 the share purchase warrants remain unexercised (note 10(i)).

49

9. Long-term debt and promissory note (continued):

(b) Long-term debt:

Face value of long-term debt	$	3,188,403
Less: fair value of conversion option		2,123,584
		1,064,819
Accretion to December 31, 202		186,623
Carrying value December 31, 2002	$	1,251,442

On March 28, 2002, the Company completed a financing agreement (US$2,000,000) for net cash proceeds of $2,953,188. The financing consisted of 8% per annum unsecured convertible notes maturing March 31, 2007. The notes are convertible into common shares of the Company at a price of US$1.70 per share at the holder’s option at any time. At March 28, 2002, the market price of the Company’s common shares was US$1.64 per share. The Company is allowed to force the conversion of the notes into common shares of the Company, if the shares trade above US$3.40 for two consecutive days over the term to maturity of the notes. The cost of the financing totaled $307,966 and included 50,000 share purchase warrants with a fair value of $72,751 using a Black-Scholes valuation model. The share purchase warrants expire after three years, and entitle the holder to purchase one common share of the company for US$1.70.

Financing costs of $93,509 were recorded as deferred finance costs on the balance sheet, with the balance of $214,457 recorded as a charge against the equity component of long-term debt. The proceeds of the financing allocated to the estimated fair value of the conversion option of $2,123,584 have been recorded as equity component of long-term debt. The carrying amount of the debt has been reduced on issuance by the value assigned to the conversion option and is being accreted to its face value over the term to maturity through charges to non-cash interest expense. At December 31, 2002 the share purchase warrants remain unexercised (note 10(i)). The Company’s effective interest rate under this financing is approximately 24%.

50

10. Share capital and contributed surplus:

The Company is authorized to issue 50,000,000 common shares without par value.

Common shares issued and fully paid:

		Number
Share capital		of shares		Amount
Balance at December 31, 1999			23,499,862	$	29,807,561
For cash:
	Upon issue for private placement (note 10(a))		1,803,000		5,968,926
	Upon exercise of warrant shares (note 10(a))		1,400,501		5,714,490
	Upon exercise of stock options (note 10(h))		501,800		776,110
Obligation to issue shares (note 10(c))			—		765,000
Upon acquisition (note 10(b))			2,154,000		30,160,200
Balance at December 31, 2000			29,359,163		73,192,287
For cash:
	Upon issue for private placements (note 10(c))		3,550,000		4,438,747
	Reduction in share capital (note 10(f))		—		(45,290,073	)
	Upon exercise of stock options (note 10(h))		85,200		134,770
For settlement of sales commission obligation (note 10(d))			41,627		430,982
Issued for services (note 10(e))			45,000		67,500
Balance at December 31, 2001			33,080,990		32,974,213
For cash:
	Upon issue for private placements (note 10(g))		657,667		970,386
Issued for services (note 10(e))			110,340		259,845
Issued for the settlement of promissory note and financing costs (note 9)			328,167		510,923
Balance at December 31, 2002			34,177,164	$	34,715,367

51

10. Share capital and contributed surplus (continued):

Contributed surplus	Amount
Balance, December 31, 1999	$	—
Obligation to issue warrants (note 8(a))		1,000,000
Balance, December 31, 2000 and 2001		1,000,000
Issue of warrants for financing proceeds and services (note 9)		188,742
Balance, December 31, 2002	$	1,188,742

(a)	On November 12, 1999, the Company entered into private placement agreements to issue 3,606,000 shares in two separate tranches at US$2.50 per share including 256,000 shares as a structuring fee and 1,803,000 warrants to purchase shares at US$2.75 per share including 101,250 warrants as a structuring fee. On November 12, 1999, the Company completed the first tranche closing and issued 1,803,000 shares and 901,500 warrants and received proceeds of $5,797,186 net of share issue costs. The remaining 1,803,000 shares and 901,500 warrants were issued in March 2000 for proceeds of $5,968,926, net of share issue costs. On May 7, 2002 the remaining 402,499 warrants expired unexercised (note 10(i)).
(b)	On April 4, 2000, the Company acquired all of the issued and outstanding share capital of SpectraWorks Inc. for consideration of the issuance of 2,154,000 common shares of the Company.
(c)	On December 16, 2000, the Company received a deposit of $765,000 towards a subscription agreement whereby the Company was to issue common shares at market value in 2001. On April 15, 2001 the Company entered into a private placement agreement and issued 500,000 shares at US$1.00 per share.
	On April 15, 2001, the Company entered into a private placement agreement and issued 2,850,000 common shares for net proceeds of $4,116,917.
	On May 31, 2001, the Company entered into a private placement agreement and issued 200,000 common shares for net proceeds of $321,830.
(d)	As at December 31, 2000, the Company had included in accounts payable a sales commissions payable in the amount of $430,982 under an agreement whereby it had the option to settle the obligation by issuing 41,627 common shares. On May 15, 2001, the Company issued 41,627 common shares to settle this obligation.

52

10. Share capital and contribute surplus (continued):

(e)	On August 29, 2001, the Company issued 45,000 common shares to an employee for general financing services. During 2002, a total of 110,340 common shares were issued to employees at market value for services rendered to the Company.
(f)	At the Company’s annual general meeting on June 26, 2001, the shareholders approved a $45,290,073 reduction in the share capital of the Company, with the corresponding elimination of the deficit of $45,290,073 at December 31, 2000.
(g)	On August 8, 2002, the Company entered into private placement agreements totaling 657,667 units at $1.50 per unit, for proceeds of $970,386, net of share issue costs of $16,114. Each unit consisted of one common share of the Company and one share purchase warrant. The warrants expire after three years, and entitle the holder to purchase one additional common share of the Company for $1.50. At December 31, 2002 the share purchase warrants remain unexercised (note 10(i)).
(h)	Stock option plan:
	The Company has reserved 4,300,000 shares under the incentive share option plan. The plan provides for the granting of stock options at the fair market value of the Company’s shares at the grant date, which options have a term and vesting at a period to be determined by the board of directors to a maximum term of ten years.
	For each of the periods presented, the following stock options to employees, directors and officers were outstanding:

2000		2001		2002
		Number				Exercise price
		of shares				per share		Expiry date
	—		30,000		—		2.12		2002
	156,000		69,000		40,000		1.50		2003
	17,500		10,000		10,000		1.70		2003
	100,000		100,000		100,000		3.00		2003
	65,200		—		—		1.60		2004
	100,000		100,000		—		4.00		2004
	562,500		—		—		9.65		2005
	750,000		225,000		75,000		15.00		2005
	—		479,125		320,875		2.50		2011
	—		479,125		312,125		3.40		2011
	—		479,125		309,875		4.50		2011
	—		479,125		259,875		6.15		2011
	—		—		625		2.53		2012
	—		—		625		3.42		2012
	—		—		625		4.61		2012
	—		—		625		6.22		2012
	—		—		1,233,650		1.50		2012
	1,751,200		2,450,500		2,663,900

53

10. Share capital (continued):

(h)	Stock option plan (continued):
	A summary of changes to issued stock options is as follows:

		Number of			Weighted-average
		shares			exercise price
Balance, December 31, 1999			840,500			$	1.72
	Granted		1,542,500				12.32
	Exercised		(501,800	)			1.54
	Expired/cancelled		(130,000	)			15.00
Balance, December 31, 2000			1,751,200				10.12
	Granted		1,946,500				4.25
	Exercised		(85,200	)			1.58
	Expired/cancelled		(1,162,000	)			11.77
Balance, December 31, 2001			2,450,500				4.97
	Granted		1,312,450				1.60
	Expired/cancelled		(1,099,050	)			5.52
Balance, December 31, 2002			2,663,900			$	3.09

Options exercisable at December 31, 2002 totaled 796,375 (2001 — 737,625; 2000 — 438,700).

(i)	Warrants:
	For each of the periods presented, the following warrants for the purchase of one common share per warrant at the following prices per common share and expiry dates were outstanding:

2000		2001		2002
		Number				Exercise price
		of warrants				per share		Expiry date
	402,499		402,499		—		US$2.75		2002
	—		—		50,000		US$1.70		2005
	—		—		657,667		$1.50		2005
	—		—		17,667		US$2.01		2007
	—		—		35,334		US$2.01		2007
	402,499		402,499		760,668

54

10. Share capital (continued):

(j)	Warrants (continued):
	A summary of changes to issued warrants is as follows:

		Number of
		warrants
Balance, December 31, 1999			901,500
	Issued		901,500
	Exercised		(1,400,501	)
Balance, December 31, 2000 and 2001			402,499
	Issued		760,668
	Expired		(402,499	)
Balance, December 31, 2002			760,688

11. Restructuring charge:

	2002		2001		2000
Workforce reduction and other costs	$	1,108,658	$	1,140,239	$	2,008,719
Lease		550,200		133,765		377,281
	$	1,658,858	$	1,274,004	$	2,386,000

During December 2000, management made a decision to restructure its operations including reducing its workforce and relocating its microwave products business to Canada. The workforce reduction charge primarily related to severance and related benefits for the termination of approximately 50 employees. The Company also incurred lease costs, net of estimated subleasing recoveries, as well as the write-off of certain leasehold improvements and furniture and fixtures related to its facilities.

During June 2001, management made a decision to restructure its operations including reducing its workforce. The workforce reduction charge primarily relates to severance and related benefits for termination of approximately 20 employees. The Company also incurred lease costs, net of estimated subleasing recoveries.

55

11.	Restructuring charge (continued):
	During 2002, management continued to restructure its operations including reducing its workforce. The workforce reduction charge primarily relates to severance and related benefits for termination of approximately 40 employees. The Company also incurred additional lease costs.
	Subsequent to recognition of these restructuring changes, no adjustments to previous estimates have been required. As at December 31, 2002, $849,221 (2001 — $1,048,183) of these costs are accrued as liabilities.
12.	Income taxes:

(a)	Future income tax asset:
	The tax effect of the temporary differences that give rise to future tax assets are presented below:

		2002			2001
Future tax assets:
	Tax loss carry forwards	$	9,344,028		$	8,270,683
	Scientific Research and Development Pool		1,600,385			1,780,102
	Accounting amortization in excess of tax		2,254,964			1,880,547
	Write-down of subsidiary and investment		1,967,170			2,177,476
	Temporary differences in working capital		1,831,351			2,219,890
	Total gross future tax assets		16,997,898			16,328,698
Valuation allowance			(16,997,898	)		(16,328,698	)
Total future tax assets		$	—		$	—

Management believes that it is not more likely than not that it will create sufficient taxable income to realize its future tax assets. As a result, a full valuation allowance has been recognized.

56

12. Income taxes (continued):

(b)	Loss carry forwards and investment tax credits:
	At December 31, 2002, the Company has approximately $26,233,000 of non-capital loss carry forwards available until 2009 to reduce future years’ income for income tax purposes. Also, the Company has investment tax credits available to reduce taxes payable of $516,000. The amounts expire as follows:

Year of		Non-capital		Investment
expiry		loss carry forwards		tax credits
	2003	$	76,000	$	102,000
	2004		179,000		151,000
	2005		237,000		8,000
	2006		3,727,000		19,000
	2007		9,872,000		98,000
	2008		6,191,000		—
	2009		5,951,000		138,000
		$	26,233,000	$	516,000

Recognition of future tax assets related to the Company’s deficit which was reduced upon recapitalization (note 10(f)) will be recognized as a reduction in share capital.

The Company also has available $10,810,000 (2001 — $10,380,000; 2000 - $870,000) of net capital losses for an indefinite carry forward period to be applied against future capital gains. The tax effect of these carry forwards has not been recorded in the financial statements. In addition, the Company has accumulated scientific research and development expenses that are available for indefinite carry forward as discretionary deductions of approximately $4,500,000 (2001 — $4,500,000; 2000 - $4,500,000).

(c)	Income tax expense:
	The Company’s income taxes and effective income tax rates pertaining to the operations were as follows:

	2002			2001			2000
Loss from continuing operations before income taxes	$	(6,176,077	)	$	(22,562,784	)	$	(27,452,785	)

57

12. Income taxes (continued):

(c)	Income tax expense (continued):
	The income tax expense differs from the expected expense if Canadian statutory rates were applied to the earnings before income taxes. The principal factors causing these differences are shown below:

	2002			2001			2000
Income tax expense (recovery) at expected rate of 39.6% (2001 - 44.6% and 2000 - 45.5%)	$	(2,445,700	)	$	(10,063,000	)	$	(12,491,000	)
Non-allowable (non-taxable) expenses or income		191,300			7,467,200			4,680,800
Temporary differences, including amortization, research and development costs and other		(96,700	)		(394,900	)		3,232,600
Unrecognized loss carry forwards		2,356,600			3,025,700			4,627,600
Income tax expense	$	5,500		$	35,000		$	50,000

13. Discontinued operations:

(a) On August 23, 2000, the Company adopted a formal plan to discontinue the business operations of its Norsat America Inc. distribution business. As part of its plan to discontinue these operations, the Company completed the closing of its distribution branches on March 2, 2001. The Company recorded a loss from discontinued operations in 2000 of $8,200,665 representing an operating loss of $1,855,031 and an estimated loss on disposition of $6,345,634. Loss of $88,684 in 2002 and a recovery of $25,321 in 2001 result primarily from changes in estimates or the settlement of liabilities or recovery of assets at amounts different from original estimates.

58

13. Discontinued operations (continued):

(b)	On December 31, 1998, the Company sold the business operations of its Aurora Distributing division.
	As at December 31, there was a long-term receivable related to the disposition of this business as follows:

	2002		2001
Receivable on disposition of business	$	392,132	$	783,873
Current portion		360,826		394,743
	$	31,304	$	389,130

This receivable represents a long-term contract receivable requiring monthly payments over a period expiring January, 2004.

14.	Segmented and other information:
	At December 31, 2001, the Company had two business segments; Microwave and Open Networks. For the fiscal year 2002, the Company’s two business segments are: Microwave and Norsat OmniLink™.
	The Microwave segment supplies satellite signal receivers, transmitters and other ground station products. During 2002, the Open Networks segment expanded from delivering open standard Digital Video Broadcasting (“DVB”) Data Hubs for the broadband Internet Protocol (“IP”) market to also include delivery of high-speed data through portable satellite terminals. The segment was renamed to Norsat OmniLink™.
	The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The key operating decision maker evaluates performance based on the following:

			Norsat
2002	Microwave		OmniLink™		Consolidated
Sales to external customers	$	10,793,669	$	3,881,137	$	14,674,806
Gross profit	$	4,096,227	$	1,985,953	$	6,082,180
Total assets related to continuing operations	$	9,531,006	$	6,959,227	$	16,490,233
Property and equipment	$	298,274	$	2,398,216	$	2,696,490
Goodwill	$	440,095	$	—	$	440,095

59

14. Segmented and other information (continued):

2001	Microwave		Open Networks		Consolidated
Sales to external customers	$	15,200,333	$	5,398,617	$	20,598,950
Gross profit	$	4,501,828	$	1,858,404	$	6,360,232
Total assets related to continuing operations	$	10,283,617	$	8,084,144	$	18,367,761
Property and equipment	$	544,129	$	3,718,077	$	4,262,206
Goodwill	$	440,095	$	—	$	440,095

2000	Microwave		Open Networks		Consolidated
Sales to external customers	$	20,338,123	$	1,679,218	$	22,017,341
Gross profit	$	6,001,658	$	214,596	$	6,216,254
Total assets related to continuing operations	$	27,917,688	$	11,964,723	$	39,882,411
Property and equipment	$	787,913	$	4,063,113	$	4,851,026
Goodwill	$	510,510	$	14,249,250	$	14,759,760

The Company generated revenues from external customers located in the following geographic locations:

	2002		2001		2000
Canada	$	643,070	$	658,000	$	3,006,227
United States		7,766,395		10,336,108		12,904,786
Europe and other		6,265,341		9,604,842		6,106,328
	$	14,674,806	$	20,598,950	$	22,017,341

     Substantially all property and equipment and goodwill are located in Canada.

60

15.	Commitments:
	Future minimum payments at December 31, 2002 under various purchasing commitments and operating lease agreements for each of the next five fiscal years are approximately as follows:

2003	$	4,533,000
2004		969,000
2005		921,000
2006		936,000
2007		8,000

	Rent expense for the Company was approximately $1,116,000 (2001 - $1,214,000, 2000 — $1,150,000).
16.	Financial instruments:

(a)	Fair value:
	The Company’s financial instruments include cash and cash equivalents, accounts receivable, receivable on disposition of business, and accounts payable and accrued liabilities. The carrying value of these instruments approximates their fair value due to their immediate or short-term to maturity or their ability for liquidation at comparable amounts.
	The Company’s long-term debt is also a financial instrument. The carrying value of this instrument approximates its fair value. Fair value was determined based on estimated future cash flows discounted using the current market rate for debt with similar terms and remaining maturities.
(b)	Interest rate risk:
	Interest on the Company’s long-term debt is based on a fixed rate. This exposes the Company to interest rate risk. The Company has not entered into any derivative agreements to mitigate this risk.
(c)	Concentration of credit risk:
	The Company revenues are dependent on customers in the satellite communication industry. As these sales are geographically dispersed and among a large number of customers, concentration of credit risk is considered to be limited.
(d)	Exchange risk:
	The Company is exposed to currency exchange risk as a result of its international markets and operations primarily in the United States. To manage its exchange risk, the Company entered into financing in United States dollars. The Company has not entered into any derivative agreements to further mitigate this risk.

61

17.	Related party transactions:
	As described in note 10(g), the Company entered into private placement agreements totalling 657,667 units at $1.50 per unit. The financing included participation by certain senior management and directors of the Company of 241,000 units.
18.	Supplemental cash flow and other disclosures:

			2002			2001			2000
Changes in non-cash operating working capital:
	Accounts receivable		$	446,645		$	79,500		$	203,018
	Inventories			480,829			469,253			(3,802,530	)
	Prepaid expenses			(18,707	)		(151,726	)		14,086
	Accounts payable and accrued liabilities			(594,867	)		(4,857,561	)		6,105,487
	Deferred revenue			(236,776	)		570,618			—
			$	77,124		$	(3,889,916	)	$	2,520,061
Supplementary information:
	Interest paid		$	126,400		$	182,997		$	361,754
	Income taxes paid			5,500			—			—
	Non-cash transactions:
		Value assigned to common shares and warrants issued, net of cash acquired:
		On acquisition of SpectraWorks Inc.		—			—			27,030,921
		Issue of common shares for settlement of debt		498,960			430,982			—
		Issue of common shares and warrants for financing services		200,705			—			—
		Reclassification of certain inventory to property and equipment		—			258,446			—

19. Other expenses (earnings):

	2002			2001			2000
Net interest	$	182,179		$	(22,745	)	$	(184,881	)
Interest — non-cash		322,325			—			—
Foreign currency gain		(16,194	)		(262,646	)		(38,970	)
Loss on disposal of property and equipment		197,753			—			—
Loss on settlement of promissory note		43,609			—			—
Write-down of investment (note 8(a))		—			609,477			—
	$	729,672		$	324,086		$	(223,851	)

62

20.	Economic dependence:
	The Company purchases substantially all of its resale microwave products from two suppliers.
21.	Subsequent event:
	Subsequent to year end, the Company renewed its credit facility with a major Canadian financial institution. The renewed facility includes a demand operating loan for $200,000 available through cash or letters of credit or letters of guarantee, and additional letters of credit or letters of guarantee in favor of customers and suppliers totaling a maximum of $250,000 that are guaranteed by Export Development Canada. The facility bears interest at market rates.
	The security under this facility consists of a first security interest on all of the Company’s personal property, a collateral security agreement of $250,000, in the form of a GIC and Export Development Canada performance security guarantees.
22.	Comparative figures:
	Certain comparative figures have also been reclassified to conform with the financial statement presentation adopted in 2002.
23.	Reconciliation to United States accounting principles:
	The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in Canada (“Canadian GAAP”) which differ in certain respects from those principles and practices that the Company would have followed had its consolidated financial statements been prepared in accordance with generally accepted accounting principles in the United States (“US GAAP”).

		2002			2001			2000
Net loss from continuing operations under Canadian GAAP		$	(6,181,577	)	$	(22,597,784	)	$	(27,502,785	)
IMT acquisition (a)			—			(54,000	)		(54,000	)
SpectraWorks acquisition (b)			—			3,287,250			(6,917,290	)
Write-down of property and equipment (b)			182,608			(452,699	)		—
Long-term debt and promissory note (f)			188,298			—			—
Other			—			(55,896	)		—
	Net loss from continuing operations according to US GAAP	$	(5,810,671	)	$	(19,873,129	)	$	(34,474,075	)

63

23. Reconciliation to United States accounting principles (continued):

		2002			2001			2000
Recovery (loss) from discontinued operations as shown in the consolidated financial statements according to US GAAP		$	(88,684	)	$	25,324		$	(8,200,665	)
Net loss according to US GAAP		$	(5,899,355	)	$	(19,847,805	)	$	(42,674,740	)
Other comprehensive earnings (loss) (c):
	Increase (decrease) in cumulative translation adjustment		(25,324	)		(49,152	)		(210,775	)
Total comprehensive loss according to US GAAP		$	(5,924,679	)	$	(19,896,957	)	$	(42,885,515	)
Basic and diluted net loss per share from continuing operations according to US GAAP		$	(0.17	)	$	(0.62	)	$	(1.27	)
Basic and diluted loss from discontinued operations according to US GAAP		$	—		$	—		$	(0.30	)
Basic and diluted net loss per share according to US GAAP		$	(0.17	)	$	(0.62	)	$	(1.57	)

The amounts in the consolidated balance sheet that differ significantly from those reported under Canadian GAAP are as follows:

	December 31, 2002						December 31, 2001
	Canadian			US			Canadian			US
	GAAP			GAAP			GAAP			GAAP
Property and equipment	$	2,646,490		$	2,426,394		$	4,262,206		$	3,809,507
Goodwill (a)		440,095			777,095			440,095			777,095
Other asset		182,017			364,949			761,986			761,986
Long-term debt (f)		1,251,442			3,155,203			—			—
Share capital (f) and (g)		34,715,367			109,349,622			33,974,213			108,608,468
Equity component of long-term debt (f)		1,909,127			—			—			—
Deficit (g)		(28,842,721	)		(103,221,768	)		(22,572,460	)		(97,322,414	)

The following are the material measurement variations in accounting principles, practices and methods used in preparing these financial statements from those generally accepted in the United States (US):

64

23. Reconciliation to United States accounting principles (continued):

(a)	IMT Communications Inc. acquisition:
	The valuation of the shares relating to the acquisition of IMT Communications Inc. in 1998 was adjusted by a 25% discount in recognition of the shares held in escrow under Canadian GAAP. For US GAAP purposes, the share value is recorded at market value. This results in an increase in goodwill of $540,000 all of which relate to the microwave products operating segment. Amortization relating to this additional goodwill was $54,000 for the year ended December 31, 2001 (2000 — $54,000). The additional goodwill, net of amortization, under US GAAP would be $337,000 as at December 31, 2002 and 2001.
	As described in note 2(f), effective January 1, 2002, the Company adopted the CICA section 1581, “Business Combinations” and CICA section 3062, “Goodwill and Other Intangible Assets” which substantively harmonized Canadian and US accounting standards. For 2002 no reconciling differences arise as no goodwill amortization was charged under either Canadian or US GAAP as goodwill is no longer amortized but instead now subject to an annual impairment test.
(b)	SpectraWorks acquisition:
	For Canadian GAAP purposes, the valuation of the shares relating to the acquisition of SpectraWorks Inc. on April 4, 2000 was adjusted by a 10% discount relating to a one year hold period on escrowed shares and a general market discount. For US GAAP purposes, the share value would not reflect these discounts. This results in an increase in goodwill recorded at acquisition of $3,630,040. During 2000 the Company recorded an impairment charge relating to goodwill of SpectraWorks based upon undiscounted cash flows under Canadian GAAP (note 7). For US GAAP, goodwill would be written down to fair value as estimated by the present value of future cash flows. The additional amount of goodwill on acquisition and the effect of calculating the fair value on discounted cash flows would result in an additional amount for amortization expense and write-down of goodwill of $5,293,790 in 2000.
	For US GAAP purposes, the acquired in-process research and development pursuant to the SpectraWorks Inc. acquisition would have been expensed on acquisition. Under Canadian GAAP acquired in-process research and development is amortized over a period of five years. As a result, under US GAAP additional amortization in fiscal year of 2000 of $1,623,500 would be recognized.
	During 2001 the Company recorded an impairment charge under Canadian GAAP relating to goodwill and other intangible assets acquired pursuant to the SpectraWorks Inc. acquisition (note 7). The impairment charge under US GAAP in 2001 would also include an additional write-down of property and equipment of $452,699. Amortization and impairment charge relating to goodwill and other intangible assets related to the SpectraWorks Inc. acquisition would be lower under US GAAP by $3,287,250 due to the expense of in-process research and development costs on acquisition and additional impairment charge related to goodwill under US GAAP in fiscal year 2000.

65

23. Reconciliation to United States accounting principles (continued):

(b)	SpectraWorks acquisition (continued):
	For 2002, as a result of the additional US GAAP write-down of property and equipment of $452,699 in 2001, amortization under US GAAP would be reduced by $182,608.
(c)	Short-term investments and foreign currency transaction:
	Under US GAAP, the Company is required to disclose components of comprehensive income in its financial statements. No similar requirement exists under Canadian GAAP. For the years presented, included in other comprehensive income would be unrealized foreign exchange gains or losses included in equity related to the translation of the Company’s self-sustaining foreign operation.
(d)	Income taxes:
	Under Canadian GAAP, future tax assets and liabilities are recorded at substantially enacted tax rates. Under US GAAP, deferred tax assets and liabilities are recorded at enacted tax rates. Recording Canadian deferred tax assets and liabilities at enacted tax rates would not change recorded net assets or shareholders’ equity under US GAAP.
(e)	Stock-based compensation:
	The Company has granted stock options to certain directors and employees for services provided to the Company. The Company, for US GAAP purposes, has elected under Statement of Financial Accounting Standards No. 123 (“SFAS No. 123”), “Accounting for Stock-Based Compensation” to continue to measure compensation cost by the intrinsic value method set out in APB Opinion No. 25 and related interpretations. As fixed options are granted at exercise prices based on the market value of the Company’s share at the date of grant, no adjustment for compensation expense is required. Awards granted where vesting is contingent on the Company’s share price are treated as variable awards. The measurement date is the date the contingency is met. Compensation expense is recognized when it is probable that the performance criteria will be met and is re-measured at each reporting date until the measurement date, with the amount equal to be the excess of the then fair value of the underlying common stock over the exercise price with changes in value recognized in the determination of income.
	As described in note 2(k), the Company adopted the CICA section 3870, “Stock-Based Compensation and Other Stock-Based Payments” and elected to apply the intrinsic value method for other employee awards which essentially harmonize Canadian and US accounting standards to its stock options issued on or after January 1, 2002. Compensation cost attributable to stock options issued before January 1, 2002 under US GAAP will have nil compensation cost under Canadian GAAP.

66

23. Reconciliation to United States accounting principles (continued):

(e)	Stock-based compensation (continued):
	As required under SFAS 123, supplementary pro-forma information is provided below as if the fair value method was applied. The pro-forma stock compensation expense has been determined by reference to an option-pricing model using the following weighted average assumptions:

	2002			2001			2000
Volatility percentage		93	%		84	%		121	%
Risk-free interest rate		3.7	%		5.0	%		5.9	%
Dividend yield		—			—			—
Expected life of options	3.0 years			3.5 years			4.0 years

The weighted average grant date fair value of options granted during the year was $0.90 (2001 — $0.91; 2000 — $8.62).

Pro-forma information with respect to impact of the fair value of stock options at the date of grant on reported loss for the periods presented is as follows:

	2002			2001			2000
Net loss, US GAAP	$	(5,899,355	)	$	(19,847,805	)	$	(42,674,740	)
Additional stock compensation recovery (expense)		(642,307	)		138,192			(1,249,130	)
Pro-forma net loss, US GAAP	$	(6,541,662	)	$	(19,709,613	)	$	(43,923,870	)
Pro-forma basic and fully diluted net loss per share, US GAAP	$	(0.20	)	$	(0.62	)	$	(1.62	)

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23. Reconciliation to United States accounting principles (continued):

(f)	Long-term debt and promissory note:
	Under Canadian GAAP, the proceeds of the financing allocated to the estimated fair value of the conversion feature of the debt is recorded as an equity component of the debt (note 9(b)). Under US GAAP, a value is assigned to the conversion feature only if the conversion rate is less than the market price of the common stock at the date of issuance. Accordingly, value would be assigned under US GAAP to the conversion feature on the promissory note issued in 2002. In addition, under Canadian GAAP a portion of the deferred finance costs has been allocated to equity and not amortized, while under US GAAP all costs would be identified as deferred finance costs and amortized over the term of the debt. Furthermore, under Canadian GAAP, interest on long-term debt required to be paid through the issuance of common shares is recorded at fair value as an equity component and accreted as a charge to retained earnings. For US GAAP purposes, all interest is expensed as incurred.
	Applying US GAAP, long-term debt at December 31, 2002 would be recorded at its face value of US $2,000,000 and no value would be assigned to an equity component of long-term debt. In addition, accretion on the calculated debt discount on the promissory note and the long-term debt under Canadian GAAP aggregating $253,763 for the year ended December 31, 2002 would not have been recorded, reducing interest expense by an equivalent amount. Finally, additional interest expense of $31,525 would be recorded in 2002 on amortization of amounts reclassified to deferred finance costs, a foreign exchange gain on the long-term debt of $33,200 would have been realized, and the loss on conversion of the promissory note would have been increased by $67,140.
	The Company adopted the provisions of SFAS 145 effective May 15, 2002 and as a result did not report the loss on debt settlement (note 9) as an extraordinary item.
(g)	Elimination of deficit:
	During the year ended December 31, 2001, the Company reduced its paid-up capital by $45,290,073 to eliminate the deficit at December 31, 2000 note 10(g).
	In prior years, the Company reduced its paid-up capital by $21,042,063 to eliminate the deficit from preceding years. In order to effect these reductions, it was not necessary to revalue the assets of the Company. As a consequence, all conditions necessary under the US GAAP quasi-reorganization rules were not met and the recapitalization of the deficit is not recorded.
(h)	Release of escrow shares:
	Under US GAAP, the fiscal year 1999 release of shares from escrow representing compensation relating to the achievement by management of securing specific contracts results in the settlement of a contingency and therefore the shares should be valued at the date the contingency was resolved. This results in a charge to earnings and credit to share capital of $4,132,079.

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23. Reconciliation to United States accounting principles (continued):

(i) Future pronouncements:

In August 2001, the Financial Accounting Standards Board (“FASB”) issued FAS No. 143, “Accounting for Asset Retirement Obligations” (“SFAS No. 143”), which requires entities to record the fair value of a liability for an asset or an asset retirement obligation in the period in which it is incurred and a corresponding increase in the carrying amount of the related long-lived asset. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002.

In July 2002, the FASB released SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS 146”), which addresses the financing accounting and reporting for costs associated with exit or disposal activities. SFAS No. 146 relates to the recognition of a liability for a cost associated with an exit or disposal activity and requires that a liability be recognized for those costs only when the liability is incurred, that is, when it meets the definition of a liability under the FASB’s conceptual framework. SFAS No. 146 also established fair value as the objective for initial measurement of liabilities related to exit or disposal activities. As a result, SFAS 146 significantly reduces an entity’s ability to recognize a liability for future expenses related to a restructuring. SFAS 146 is effective for exit and disposal activities initiated after December 31, 2002.

In December 2002, the FASB released SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure”. This statement amends FASB Statement No. 123, “Accounting for Stock-Based Compensation”, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based compensation. In addition, this Statement amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Statement is effective for fiscal years ending after December 15, 2002, with certain changes effective in interim periods beginning after December 15, 2002.

The Company does not believe that the adoption of SFAS No. 143 or SFAS No 146 will have a material affect on the Company’s financial results.

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Other Information

Export Sales
The majority of our component sales are made outside of Canada, primarily in the United States, Europe and Asia. Our hub sales are made primarily in Asia.

Legal Proceedings
We have a lawsuit against Edward Johnson, a former officer of the Company for CDN$500,000.

Dividend Policy
Holders of our common shares are entitled to receive such dividends as may be declared from time to time by our board of directors. There can be no assurance that any dividend will be declared, or if declared, what the amounts of dividend will be or whether such dividends, once declared, will continue for any future period.

B. Significant Changes

On April 8, 2003, the Company completed a private placement of 2,000,000 units at US$1.00 per unit, for proceeds of US$1,976,510, net of share issue costs of US$23,490 (CDN$35,000). Each unit consists of one common share of the Company and one share purchase warrant. The warrants expire after three years, and entitle the holder to purchase one additional common share of the Company for US$1.00.

9.	The Offer and Listing
	Our common shares trade on the TSX under the symbol NII and on the Nasdaq Small Cap under the symbol NSAT.
	The high and low sales prices (in Canadian dollars) for the Company’s common shares on the Toronto Stock Exchange for a) the five most recent full financial years. b) the two most recent financial years by quarter and any subsequent full quarter, c) the most recent six months are listed below:

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		TSX				NASDAQ
		(CDN. Dollars)				(U.S. Dollars)
		High		Low		High		Low
a)	2002		4.00		1.27		2.45		0.71
	2001		5.50		1.20		3.69		0.61
	2000		46.00		3.80		32.00		2.50
	1999		22.00		1.30		17.50		1.00
	1998		2.70		1.00		2.00		0.72
b)	2003
	First Quarter		1.55		1.06		1.05		0.75
	2002
	Fourth quarter		2.07		1.27		1.35		0.71
	Third quarter		2.00		1.36		1.30		0.92
	Second quarter		2.53		1.40		1.61		0.86
	First quarter		4.00		2.37		2.45		1.49
	2001
	Fourth quarter		4.15		1.90		2.62		0.61
	Third quarter		2.70		1.30		1.80		0.80
	Second quarter		4.50		1.60		2.81		1.00
	First quarter		5.50		1.50		3.69		1.00
c)	March 2003		1.52		1.06		1.01		0.75
	February 2003		1.52		1.10		1.02		0.80
	January 2003		1.55		1.30		1.05		0.85
	December 2002		1.65		1.27		1.08		0.71
	November 2002		1.76		1.50		1.15		0.90
	October 2002		2.07		1.55		1.35		1.03

10. Additional Information

A.	Share capital
	Not applicable.

B. Memorandum and Articles of Association

Incorporation

The Company was incorporated on October 15, 1982 under the Company Act (the “Act”) of the Province of British Columbia under the name Norsat International Inc. Effective September 27, 1989, the name of the Company was changed to NII Norsat International Inc., and on July 2, 1999 was further amended to its present name, Norsat International Inc. Our incorporation number is 255727. Our memorandum of incorporation (the “Memorandum”) and our articles (the “Articles”) were included as exhibits in Item 3.1 and 3.2 with our Annual Report filed in June 2000.

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Powers and Functions of the Directors

Our Articles state that it is the duty of any of our directors who are directly or indirectly interested in a contract or proposed contract with us to declare the nature of their interest in accordance with the provisions of the Act. Our Articles also state that a director shall not vote in respect of the approval of any contract or transaction with our Company in which he is interested and if he shall do so his vote shall not be counted, but shall be counted in the quorum present at the meeting at which the vote is taken.

Directors Power to Vote on Compensation for Themselves

Subject to the Act, our Articles provide that the directors may determine to be paid out of our funds or capital as remuneration for their service. The directors may also determine the proportions and manner that the remuneration will be divided among them.

Directors Borrowing Powers

Our Articles provide that the directors, on our behalf, may:

a)	borrow money in any manner or amounts, on any security from any source and upon any terms and conditions;
b)	issue bonds, debentures and other debt obligations as security for any liability or obligation of the Company or any other persons; and
c)	mortgage, charge, whether by way of specific or floating charge, or give other security on the whole or any part of the assets of the Company

Retirement of Directors Under an Age Limit Requirement

Our Articles do not require directors to retire pursuant to an age limit.

Number of Shares Required for a Director’s Qualification

Our Articles do not provide for a requirement of shares for a director’s qualification.

Share Capital

The authorized share capital of our Company consists of 50,000,000 Common Shares.

Common Shares

The Holders of our Common Shares are entitled to dividends if, as and when declared by the Board of Directors, to one vote per Common Share and, upon dissolution of the Company, to receive the remaining property and the assets of the Company available for distribution.

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Dividend Record

Our Company has not paid any dividends during the past seven years. The Company has no fixed dividend policy. Payment of dividends in the future will depend upon, among other factors, the Company’s earnings, capital requirements and financial condition. The Company does not anticipate that dividends will be paid in the foreseeable future.

Alteration of Share Rights

A special resolution is required to effect a change in the rights of shareholders. A special resolution is a resolution passed by a three-quarters majority of the vote cast by shareholders of the Company who being entitled to do so, vote in person or by proxy at a meeting of the shareholders of the Company, or a resolution in writing signed by every shareholder of the Company who would have been entitled to vote at a meeting of the shareholders of the Company.

Meetings of Shareholders: Annual Meetings

The annual general meeting of our shareholders is held at such time and on such day in each year as the directors of the Company may, from time to time, determine for the purpose of receiving the reports and statements required by the Act to be presented to the annual meeting, electing directors, appointing auditors and for the transaction of such other business as may properly be brought before the meeting. Annual general meetings are required to be held once in every calendar year at a time, not being more than 13 months after the holding of the last preceeding annual general meeting.

General or Extraordinary Meetings

The directors of the Company may, at any time, call a general or extraordinary meeting of the shareholders of the Company, for the transaction of any business, which may properly be brought before such a meeting of shareholders.

Place of Meetings

Meetings of shareholders of the Company are to be held at such place within Canada as the directors of the Company, from time to time, determine.

Notice of Meetings

Notice of the time and place of each meeting of shareholders of the Company is required to be sent to our shareholders not less than 21 days before the date of the meeting.

A shareholder of the Company and any other person entitled to attend a meeting of shareholders of the Company may, in any manner and at any time, waive notice of or otherwise consent to a meeting of shareholders of the Company.

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Quorum

No business will be transacted at any general meeting unless the requisite quorum is present at the commencement of the business. Subject to the Act, if we have two or more shareholders, a quorum for the transaction of business at a general meeting shall be two persons present in person, or by proxy, and holding or representing by proxy, not less than five percent (5%) of the shares entitled to vote at the general meeting.

Foreign Ownership Limitations

Neither the Act nor the constating documents of the Company impose limitations on the rights, including the right of non-resident or foreign shareholders, to hold or exercise voting rights attached to the Common Shares.

Change of Control

No provisions of the Company’s Articles exist that would have the effect of delaying, deferring or preventing a change in control of the Company or that would operate with respect to any proposed merger, acquisition or corporate restructuring of the Company.

Share Ownership Reporting Obligations

No provision of the Company’s Articles imposes any requirements on shareholders requiring share ownership to be disclosed. The securities laws of the Company’s home jurisdiction require disclosure of shareholdings by: (a) persons who are directors or senior officers of the Company; and (b) a person who has direct or indirect beneficial ownership of, control or direction over, or a combination of direct or indirect beneficial ownership of and control over securities of the Company carrying more than 10% of the voting rights attached to all of the Company’s outstanding voting securities.

Securities legislation in Canada requires that shareholder ownership must be disclosed once a person owns beneficially or has control or direction over greater than 10% of the issued shares of the Company. This threshold is higher than the 5% threshold under U.S. securities legislation at which shareholders must report their share ownership.

C. Material Contracts

There were no material contracts entered into in 2002.

D. Exchange controls

There are no governmental laws, decrees or regulations in Canada relating to restrictions on the export or import of capital, or affecting the remittance of interest, dividends or other payments to non-resident holders of the Registrant’s common shares. Any remittances of dividends to United States residents are, however, subject to a 15% withholding tax (10% if the shareholder is a corporation owning at least 10% of the outstanding common shares of the Registrant) pursuant to Article X of the reciprocal tax treaty between Canada and the United States.

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Except as provided in the Investment Canada Act (the “Act”), there are no limitations under the laws of Canada, the Province of British Columbia or in the charter or any other constituent documents of the Registrant on the right of foreigners to hold or vote the common shares of the Registrant.

To the best of the Company’s knowledge, there are no governmental laws, decrees, or regulations in Canada (i) relating to restrictions on import/export of capital or (ii) affecting the remittance of interest, dividends, or other payments to non-resident holders of the Common Shares. Any such remittance to United States residents, however, is generally subject to a 15% withholding tax pursuant to the Canada — United States Income tax Convention.

E. Taxation

United States Federal Income Tax Consequences

The following summary describes certain of the material U.S. federal income tax consequences to U.S. Holders (as defined below) arising from the purchase, ownership and disposition of Common Shares. This summary is based on the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), final, temporary and proposed U.S. Treasury Regulations promulgated thereunder, and administrative and judicial interpretations thereof, all as in effect as of the date hereof, and all of which are subject to change, possibly with retroactive effect.

This summary does not deal with all aspects of U.S. federal income taxation that may be relevant to particular U.S. Holders in light of their particular circumstances, or to U.S. Holders subject to special rules, including, without limitation, certain retirement plans, insurance companies, U.S. Holders of securities held as part of a “straddle,” “synthetic security,” “hedge,” “conversion transaction” or other integrated investment, persons that enter into “constructive sales” involving Common Shares or substantially identical property with other investments, U.S. Holders whose functional currency is not the United States dollar, certain expatriates or former long-term residents of the United States, financial institutions, broker-dealers, tax-exempt organizations and U.S. Holders who own (directly, indirectly or through attribution) 10% or more of the Company’s outstanding voting stock. The following discussion does not address the effect of any applicable state, local or foreign tax laws. This summary does not consider the tax treatment of persons who own Common Shares through a partnership or other pass-through entity, and deals only with Common Shares held as “capital assets” as defined in Section 1221 of the Code.

This discussion is addressed only to “U.S. Holders.” A U.S. Holder is a holder of Common Shares that is a U.S. citizen, an individual resident in the United States for U.S. federal income tax purposes, a domestic corporation, an estate the income of which is includible in its gross income for U.S. federal income tax purposes without regard to its source, or a trust if either: (i) a U.S. court is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all the substantial decisions of the trust or (ii) the trust was in existence on August 20, 1996 and, in general, would have been treated as a U.S. Holder under rules applicable prior to such time, provided the trust elects to continue such treatment thereafter.

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U.S. holders of common shares are advised to consult with their own Tax advisors with respect to the U.S. federal, state and local tax consequences, as well as the tax consequences in other jurisdictions, of the Purchase, ownership and sale of common shares applicable in their particular Tax situations.

Sale or Exchange of Common Shares

A U.S. Holder’s sale or exchange of Common Shares generally will result in the recognition of capital gain or loss by such U.S. Holder in an amount equal to the difference between the amount realized and the U.S. Holder’s tax basis in the Common Shares sold. If a U.S. Holder’s holding period on the date of the sale or exchange is more than one year, such gain or loss will be long-term capital gain or loss. The Internal Revenue Service Restructuring and Reform Act of 1998 (the “1998 Act”) includes substantial changes to the federal income taxation of capital gains by non-corporate U.S. Holders. Under the 1998 Act, long-term capital gains realized on the sale of Common Shares by non-corporate U.S. Holders will be subject to a maximum 20% federal income tax rate if the Common Shares sold have been held for more than one year at the time of the sale or exchange. U.S. Holders who are corporations would be subject to a maximum federal income tax rate of 35% regardless of their holding period. If the U.S. Holder’s holding period on the date of the sale or exchange was one year or less, such gain or loss will be short-term capital gain (generally subject to the same effective federal income tax rates as ordinary income) or loss. See “Certain Canadian Federal Income Tax Considerations — Taxation of Capital Gains on Sale of Common Shares” for a discussion of taxation by Canada of capital gains realized on the sale or exchange of Common Shares. In general, any capital gain recognized by a U.S. Holder upon the sale or exchange of Common Shares will be treated as U.S. source income for U.S. foreign tax credit purposes. Capital losses realized upon the sale, exchange or other disposition of Common Shares generally are deductible only against capital gains and not against ordinary income, except that in the case of non-corporate taxpayers, a capital loss is deductible only to the extent of capital gains plus ordinary income of up to $3,000 ($1,500 if married and filing separately).

A U.S. Holder’s tax basis in his, her or its Common Shares generally will be the purchase price paid therefore by such U.S. Holder. The holding period of each Common Share owned by a U.S. Holder will commence on the day following the date of the U.S. Holder’s purchase of such Common Share and will include the day on which such U.S. Holder sells the Common Share.

Treatment of Dividend Distributions

For U.S. federal income tax purposes, the gross amount of any distribution made with respect to, or in some cases a partial purchase or redemption of, Common Shares (including the amount of any Canadian taxes withheld therefrom) will be included in a U.S. Holder’s income as ordinary dividend income to the extent that the dividends are paid out of current or accumulated earnings and profits of the Company, as determined based on U.S. tax principles. Such dividends will not be eligible for the dividends received deduction allowed to U.S. corporations under Section 243 of the Code. Dividend distributions in excess of the Company’s current and accumulated earnings and profits will be treated first as a non-taxable return of the U.S. Holder’s tax basis in his, her or its Common Shares to the extent thereof and then as a gain from the sale of Common Shares. Dividends paid in Canadian dollars will be includible in income in a

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U.S. dollar amount based on the exchange rate at the time of their receipt. Any gain or loss resulting from currency fluctuations during the period from the date a dividend is paid to the date such payment is converted into U.S. dollars generally will be treated as ordinary income or loss.

Dividends paid to a U.S. Holder with respect to Common Shares will be treated as foreign source dividend income for U.S. foreign tax credit limitation purposes. Subject to certain conditions and limitations, any Canadian withholding tax imposed on such dividends generally will be eligible for credit against such U.S. Holder’s U.S. federal income tax liability or, at the U.S. Holder’s election, may be claimed as a deduction against income in determining such tax liability. The limitations on claiming a foreign tax credit include computation rules under which foreign tax credits allowable with respect to specific classes of income cannot exceed the U.S. federal income taxes otherwise payable with respect to each such class of income. Dividends with respect to the Common Shares generally will be classified as “passive income” for purposes of computing the foreign tax credit limitation. Foreign income taxes exceeding the credit limitation for the year of payment or accrual may be carried back for two taxable years and forward for five taxable years in order to reduce U.S. federal income taxes, subject to the credit limitation applicable in each of such years. Other restrictions on the foreign tax credit include a prohibition on the use of the credit to reduce liability for the U.S. individual and corporation alternative minimum taxes by more than 90%.

In addition, a U.S. Holder generally will not be entitled to claim a credit for Canadian tax withheld unless the U.S. Holder has held the Common Shares for at least 16 days within the 30 day period beginning 15 days before the applicable ex-dividend date. The calculation of allowable foreign tax credits and, in the case of a U.S. Holder that elects to deduct foreign taxes, the availability of deductions for foreign taxes paid involve the application of rules that depend on a U.S. Holder’s particular circumstances. Accordingly, U.S. Holders should consult their own tax advisors regarding their eligibility for foreign tax credits or deductions.

Information Reporting and Backup Withholding

Any dividends paid on the Common Shares to U.S. Holders may be subject to U.S. information reporting requirements and the 30% U.S. backup withholding tax. In addition, the proceeds of a U.S. Holder’s sale of Common Shares may be subject to information reporting and the 30% U.S. backup withholding tax. Backup withholding will not apply if the holder (i) is a corporation or other exempt recipient or (ii) the holder provides a U.S. taxpayer identification number, certifies as to no loss of exemption from backup withholding and otherwise complies with any applicable backup withholding requirements. Any amounts withheld under the U.S. backup withholding tax rules will be allowed as a refund or a credit against the U.S. Holder’s U.S. federal income tax, provided the required information is furnished to the U.S. Internal Revenue Service.

Canadian Federal Income Tax Considerations

The following discussion summarizes the material Canadian Federal income tax considerations relevant to an investment in the Common Shares by a holder who, for income tax purposes, is resident in the United States and not in Canada, holds the Common Shares as capital property, deals at arm’s length with the Company, does not use or hold the Common Shares in carrying on a business through a permanent

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establishment or in connection with a fixed base in Canada and, in the case of an individual investor, is also a United States citizen. The tax consequences of an investment in the Common Shares by an investor who is not as described above may be expected to differ from the tax consequences discussed herein.

This discussion is based upon the provisions of the Income Tax Act (Canada) (the “Tax Act”), regulations under the Tax Act, specific proposals to amend the Tax Act publicly announced prior to the date hereof, the Canada-United States Income Tax Convention (1980), as amended (the “Convention”), and administrative practices published by Canada Custom and Revenue Agency, all of which are subject to change. Any such change, which may or may not be retroactive, could alter the tax consequences to a holder as otherwise described herein. The discussion does not take in account the tax laws of the various provinces or territories of Canada.

Taxation of Distributions from the Company

Dividends paid or credited on the Common Shares to U.S. residents will be subject to a Canadian withholding tax. Under the Convention, the rate of withholding tax generally applicable is 15% of the gross amount of the dividends, including stock dividends and payments deemed to be dividends upon the repurchase of Common Shares by the Company, as described below. The rate of withholding tax is reduced if the beneficial owner of the dividend is a company, which owns at least 10% of the voting stock of the Company at the time the dividend, is paid. In this case, the rate is 5% of the gross amount of the dividends.

If Common Shares are purchased by the Company, a holder will be deemed to have received a dividend to the extent that the amount paid on the repurchase exceeds the paid-up capital, as defined in the Tax Act, of the Common Shares acquired. The portion, if any, of the acquisition proceeds that are deemed to be a dividend will be subject to Canadian withholding tax on dividends, as described above. Further, the holder will be deemed to have disposed of the Common Shares for the amount paid by the Company for the Common Shares less the amount deemed to have been received as a dividend. If this results in a capital gain to a holder, the tax consequences will be as described below.

Taxation of Capital Gains on Sale of Common Shares

Under the Tax Act, a holder will not be subject to Canadian tax on any capital gain realized on an actual or deemed disposition of a common share, including a deemed disposition at death, provided that he did not hold the Common Share as capital property used in carrying on a business in Canada, or that neither he nor persons with whom he did not deal at arm’s length alone or together owned 25% or more of the issued shares of any class of the Company at any time in the five years immediately preceding the disposition.

A holder who otherwise would be liable for Canadian tax in respect of a capital gain realized on an actual or deemed disposition of a Common Share will be relieved under the Convention from such liability unless:

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a. the Common Share formed part of the business property of a permanent establishment in Canada that the Holder had within the twelve-month period preceding the disposition; or

b. the holder

i.	is an individual and was resident in Canada for 120 months during any 20-year period preceding the disposition,
ii.	was resident in Canada at any time during the 10 years immediately preceding the disposition; and owned the Common Share when he ceased to be a resident of Canada.

F. Dividends and paying agents

Not applicable.

G. Statement by experts

Not applicable.

H. Documents on display

Copies of the most recent annual report, financial statements for the year ended December 31, 2002 and subsequent interim financial statements of the Company may be obtained, upon request, from the Secretary of the Company. The Company may require the payment of a reasonable fee in respect of a request therefore made by a person who is not a securityholder of the Company.

We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and file reports and other information with the SEC. You may read and copy any of our reports and other information at, and obtain copies upon payment of prescribed fees from, the Public Reference Room maintained by the SEC at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at certain of the SEC’s regional offices at 7 World Trade Center, Suite 1300, New York, NY 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, IL 60661. In addition, the SEC maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC at http://www.sec.gov. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

We are required to file reports and other information with the securities commission in all provinces of Canada. You are invited to read and copy any reports, statements or other information, other than confidential filings, that we file with the provincial securities commissions. These filings are also electronically available from the Canadian System for Electronic Document Analysis and Retrieval (SEDAR) (http://www.sedar.com), the Canadian equivalent of the SEC’s electronic document gathering and retrieval system. We “incorporate by reference” information that we file with the SEC, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is an important part of this report and more recent information automatically updates and supersedes more dated information contained or incorporated by reference in this report. Our SEC file number is 0-12600. As a foreign

79

private issuer, we are exempt from the rules under the Securities Exchange act of 1934, as amended, prescribing the furnishing and content of proxy statements to shareholders. We have included in this report certain information disclosed in our Proxy Statement prepared under Canadian securities rules. We will provide without charge to each person, including any beneficial owner, on the written or oral request of such person, a copy of any or all documents referred to above which have been or may be incorporated by reference in this report (not including exhibits to such incorporated information that are not specifically incorporated by reference into such information). Requests for such copies should be directed to us at the following address: Norsat International Inc., 300-4401 Still Creek Drive, Burnaby, British Columbia, Canada V5C 6G9 Attention Corporate Secretary.

I. Subsidiary Information

Reference is made under “Item 4c. Organization Structure”.

11.	Quantitative and Qualitative Disclosures About Market Risk
	The Company has operations in Canada and a number of countries outside of North America and therefore is subject to risks typical of an international business including, but not limited to differing economic conditions, changes in political climate, differing tax structures, other regulations and restrictions and foreign exchange rate volatility. Accordingly, the future results could be materially adversely affected by changes in these or other factors.
	The Company’s sales and corresponding receivables are substantially in U.S. dollars. However, the Company incurs the majority of its research and development, customer support costs and administrative expenses in Canadian dollars. Norsat is exposed, in the normal course of business, to foreign currency risks on these expenditures. The Company has evaluated its exposure to these risks and has determined that its only significant foreign currency exposure at this time is to the U.S. dollar. At this time, the Company does not believe its exposure to other currencies is material.
	The Company does not engage in hedging transactions as historically its gains and losses on foreign currency transactions have not been significant.
	Reference is made under “Item 8 Financial Information” specifically note 9(b):
	The Company’s long-term debt is a market risk sensitive instrument (“instrument”). The Company does not enter into instruments for trading purposes, and as such the Company’s long-term debt was entered into for purposes other than trading purposes.
	The Company’s long-term debt is subject to the following market risk categories:
	Exchange and interest rate risk
	The following table presents expected cash flows related to the Company’s long-term debt. The information is presented in Canadian dollars, which is the Company’s reporting currency. The instrument’s actual cash flows are denominated in US dollars. Exchange rates can vary, and also under certain circumstances the long-term debt is

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convertible into common shares of the Company — as a result, the actual cash flows could differ significantly. The instrument’s interest rate is fixed at 8% for the term of the contract. Market interest rates for debt with similar terms and remaining maturities can vary and therefore the Company may, from time to time be incurring significantly higher or lower interest costs compared to other Companies. The Company has not entered into any derivative agreements to mitigate either the foreign currency or interest rate risk.

	2003		2004		2005		2006		2007		Total		Fair Value
Long-term debt ($000’s)		252		252		252		252		3,408		4,416		3,155

A change of 1% in the market interest rates compared to this instrument’s fixed interest rate of 8% would have resulted in an opportunity cost of approximately $15,700 for fiscal 2002.

The average exchange rate for fiscal 2002 was Cdn$1.5704 per US$1.00. A change of 1% in the average exchange rate would have impacted our interest cost for this instrument by approximately $1,000.

12.	Description of Securities Other than Equity Securities
	This Form 20-F is being filed as an annual report under the Exchange Act, and accordingly, the information called for in Item 12 is not required.

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PART II

13.	Defaults, Dividend Arrearages and Delinquencies
	None.

14.	Material Modifications to the Rights of Security Holders and Use of Proceeds
	Not applicable.

15.

Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-14(c) within 90 days of the filing date of this annual report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective. There were no significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation.

16. [Reserved]

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PART III

17.	Financial Statements
	Reference is made under “Item 8 Financial Information”.

18.	Financial Statements
	Not applicable. See Item 17.

19. Exhibits

•	4.1	Note Purchase, Paying and Conversion Agency Agreement, dated March 28, 2002, between the Company and Banco Del Gottardo
•	6.1	Employment Contract, dated September 24, 2002 between the Company and Yutaka Ueda.
•	6.2	Employment Contract, dated October 23, 2002 between the Company and Troy Bullock.
•	6.3	Employment Contract, dated October 16, 2002 between the Company and Michael Heaven.
•	6.4	Employment Contract, dated October 23, 2001 between the Company and Mark Ahrens-Townsend.
•	99.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Yutaka Ueda
•	99.2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Troy Bullock

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SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this registration statement [annual report] on its behalf.

		Norsat International Inc.(Registrant) “Troy Bullock”
		(Signature)*
Date:	May 20, 2003	Troy Bullock, Chief Financial Officer

* Print the name and title of the signing officer under this signature.

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I, Yutaka Ueda, certify that:

1.	I have reviewed this annual report on Form 20-F of Norsat International Inc.;
2.	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
c)	presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (and persons performing the equivalent function):

a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:	May 20, 2003	“Yutaka Ueda”
		Yutaka Ueda President and Chief Executive Officer

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I, Troy Bullock, certify that:

1.	I have reviewed this annual report on Form 20-F of Norsat International Inc.;
2.	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
c)	presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (and persons performing the equivalent function):

c) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

d) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:	May 20, 2003	“Troy Bullock”
		Troy Bullock Vice President, Finance and Chief Financial Officer

86 EX-4.1 3 o09662exv4w1.htm AGENCY AGREEMENT

EXHIBIT 4.1

NOTE PURCHASE, PAYING AND CONVERSION AGENCY AGREEMENT

NORSAT INTERNATIONAL INC.

BURNABY, B.C., Canada

USD 2’000’000.—
8% Convertible Notes of 2002 due March 31, 2007

March 28, 2002

TABLE OF CONTENTS

DEFINITIONS

I.	SUBJECT	2
II.	ANNEXES	3
III.	SALES RESTRICTIONS	3
IV.	COMMISSION AND EXPENSES	3
V.	WARRANTIES	4
VI.	PAYMENT TO THE COMPANY	7
VII.	CONDITIONS TO THE OBLIGATIONS OF BANCA DEL GOTTARDO	7
VIII.	INFORMATION MEMORANDUM	8
IX.	PRINTING OF THE NOTES	8
X.	SERVICING OF THE NOTES	9
XI.	CANCELLATION OF NOTES AND COUPONS	11
XII.	COVENANTS	11
XIII.	RIGHT OF TERMINATION	12
XIV.	COMMUNICATIONS	13
XV.	APPLICABLE LAW AND JURISDICTION	13
XVI.	EFFECTIVENESS	13
XVII.	CURRENCY INDEMNITY	14
XVIII.	ENTIRE AGREEMENT	14
XIX.	AMENDMENT, CANCELLATION AND WAIVER	15
ANNEX A	TERMS OF THE NOTES	16
ANNEX B	PERMANENT GLOBAL NOTE	26

NOTE PURCHASE, PAYING AND CONVERSION AGENCY AGREEMENT

entered into effective as of March 28, 2002

between

NORSAT INTERNATIONAL INC.
being a corporation existing under the laws of the Province of British
Columbia, Canada, whose head office is situated at 300-4401 Still Creek Drive,
Burnaby, B.C. V5C 6G9.,

(hereinafter called the “Company” or the “Issuer”)

      on the one part

and

BANCA DEL GOTTARDO
being a corporation duly organized with limited liability and existing under
the laws of Switzerland, whose registered office is situated at Viale Stefano
Franscini 8, 6901 Lugano, Switzerland,

      on the other part

Some Definitions

The Company’s 8% Unsecured Convertible Debentures of 2002 due March 31, 2007, are referred to herein as the “Notes”.

Until the Notes have been printed in definitive form, if printed, pursuant to Article IX hereof, the expression “Notes” herein shall include entitlements under the Permanent Global Note, and the expressions “Noteholder(s)” and “Couponholder(s)”, mutatis mutandis, shall mean and include persons and entities entitled to the benefits under the Permanent Global Note. Each Noteholder possesses a co-ownership in the Permanent Global Note in relation to the principal amount of Notes of which he is an owner. “Permanent Global Note” means a global note for the total principal amount of U.S. Dollars (“USD”) 2’000’000. The Permanent Global Note may be replaced by Notes issued in bearer form and representing 200 single Notes each in the amount of USD 10’000 and representing the aforementioned total principal amount. The Permanent Global Note will be destroyed by Banca del Gottardo when the Notes are printed, if printed. Banca del Gottardo shall promptly after destruction provide to the Company a written certificate that the Permanent Global Note has been destroyed.

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I. SUBJECT

Subject to the terms and conditions hereof

- the Company, pursuant to authorization by its Board of Directors, agrees to issue and sell to Banca del Gottardo USD 2’000’000.— Notes at a price of 100% of their principal amount and

- Banca del Gottardo agrees not later than March 28, 2002

(1)	to purchase (i.e. underwrite) on a firm basis for USD 2’000’000.— Notes at a price of 100% of their principal amount, and
(2)	to offer the Notes in a placement exclusively to its clients and other financial institutions at a price of 100% of their principal amount,

with a total principal amount of	USD 2’000’000.— (United States Dollars two million)
maturing on	March 31, 2007
bearing interest at the rate of	8% per annum, payable semi-annually in arrears each on September 28 and March 28, commencing September 28, 2002 until maturity.

The last coupon will be payable on March 31, 2007 and it will include the interests maturing from September 28, 2006 until March 31, 2007.

The aggregate amount for which Notes are sold are hereinafter referred to as the “Proceeds”.

The Net Proceeds of the Notes will be utilized by the Company for the financing of working capital and general corporate purposes.

Banca del Gottardo shall not have any responsibility for or be obliged to concern itself with the application of the net Proceeds of the Notes.

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II. ANNEXES

The contents of each of the Annexes attached hereto, i.e.

Annex A:
Annex B: Terms of the Notes
Form of Permanent Global Note

shall constitute an integral part of this Agreement.

III.	SALES RESTRICTIONS
	No action has been or will be taken by the Issuer that would permit a public offering of the Notes or possession or distribution of any offering material in relation to the Notes in any jurisdiction where action for that purpose is required. No distribution of any offering material relating to the Notes may be made in or from any jurisdiction except in circumstances which will result in compliance with any applicable laws and regulations and will not impose any obligations on the Issuer.
	The Notes to be issued pursuant to this Agreement have not been registered under the United States Securities Act of 1933, as amended (the “Securities Act”), and may not be offered, sold or delivered, directly or indirectly, in the United States or to, or for the account of, any U.S. person except in transactions exempt from the registration requirements of the Securities Act.
	The Notes have not been and will not be qualified for sale under the securities laws of Canada or any province of territory thereof. The Notes will not be offered or sold directly or indirectly in Canada or to persons established or residing, or having their usual residence in Canada in contravention of the securities laws of Canada or any province or territory thereof. The present agreement or any other offering material relating to the Notes will not be distributed or delivered in Canada in contravention of the securities laws of Canada.
IV.	COMMISSION AND EXPENSES

a) The Company will pay on March 28, 2002 Lugano time (the “Closing Date”) to Banca del Gottardo

(1) a managing and underwriting commission of 5 % calculated on the principal amount of the Notes.

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The payment by the Company of (1) above will be made by deduction from the payment by Banca del Gottardo to the Company of the Proceeds, resulting in the Net Proceeds as per Article VI.

b) The Company shall further bear when ascertainable and due

- all present or future taxes, duties or other charges levied by or within the Province of British Columbia, Canada in connection with the execution and delivery of this Agreement, the Permanent Global Note (excluding tax on interest or principal on the Notes which is addressed in Annex A); and

(c)

The Company will reimburse Banca del Gottardo on first demand for all reasonable bank charges, reasonable legal fees and other reasonable costs and expenses incurred or to be incurred by Banca del Gottardo in case of or in connection with reorganization, merger, restructuring or default, actual or threatened, of the Company as well as in connection with the convening of a Noteholders’ meeting and the preservation and enforcement of any of the rights under this Agreement, the Permanent Global Note or the Notes.

(d)

Banca del Gottardo shall bear

- all costs and expenses in connection with the initial offering and placement of the Notes incurred by it.

Banca del Gottardo shall further bear

- the cost for the printing and delivery to the holders of the definitive Notes, if printed, incurred by Banca del Gottardo on behalf of the Company.

- all costs incurred by it in connection with the offering, including the printing in Switzerland of the Information Memorandum relating to the Notes.

V. WARRANTIES

A) The Company warrants to and for the benefit of Banca del Gottardo that:

1. Status: it is a corporation duly incorporated and existing in good standing under the laws of the Province of British Columbia, Canada, capable of suing and being

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	sued and has the power and authority to own its assets and to conduct the business which it presently conducts;
2.	Powers: it has the power to enter into, exercise its rights and perform and comply with its obligations under this Agreement;
3.	Authorization and Consents:, except for the filing of documentation within ten (10) days following the Closing Date with the British Columbia Securities Commission and the Toronto Stock Exchange, all actions, conditions and things required by the laws of the Province of British Columbia and Canada have been taken, fulfilled and done (including the obtaining of any necessary consents) in order

a)	to enable it lawfully to enter into, exercise its rights and perform and comply with its obligations under this Agreement; and
b)	to ensure that those obligations are legally binding and enforceable in accordance with their terms subject to general equity principles, to applicable bankruptcy, insolvency, conservatorship, reorganization and other similar debtor relief laws, and to other laws establishing liens and priorities or otherwise relating to or affecting creditors-rights;

4. Non-Violation of Laws, etc: its entry into, and exercise of its rights and/or performance of or compliance with its obligations under this Agreement, the terms of the Permanent Global Note and the Notes do not and will not violate in any material way

a)	any law to which it is subject; or
b)	its Certificate and Articles of Incorporation; or
c)	except for matters for which the Company has received a waiver, any agreement to which it is a party or which is binding on it or its assets, and does not and will not result in the existence of, or obligate it to increase, any security interest in those assets, except to the extent that such violations in the aggregate would not have a material adverse effect on the financial conditions of the Company;

5. Obligations Binding: its obligations under this Agreement, the Permanent Global Note and the Notes when duly executed are valid, binding and enforceable in

      Page 6

	accordance with their terms subject to general equity principles, to applicable bankruptcy, insolvency, conservatorship, reorganization and other similar debtor relief laws, and to other laws establishing liens and priorities or otherwise relating to or affecting creditors’ rights;
6.	Information Memorandum: the information pertaining to the Company and its subsidiaries which may be contained in the Information Memorandum (defined in Article VIII) will be accurate in all material respects and there will be no other facts the omission of which makes any statement therein materially misleading;
7.	Accounts: the audited and unaudited consolidated financial statements filed with the B.C. and Ontario Securities Commissions present fairly the results and financial condition of the Company as a whole for the periods and as of the dates thereof, and are in accordance with generally accepted accounting principles in the Province of British Columbia and Canada;
8.	No Material Adverse Change: save as disclosed in the Company’s filings with the British Columbia and Ontario Securities Commissions, there has been no material adverse change in the consolidated financial condition of the Company since December 31, 2001;
9.	Litigation: except as disclosed herein, no litigation, arbitration or administrative proceedings or judgment or award is current or, so far as the Company is aware, threatened or pending that could result in a material adverse financial change to the Company;

a)	to restrain the entry into, exercise of its rights under and/or performance or enforcement of or compliance with its obligations under this Agreement; or
b)	which either individually or collectively are material in the context of the issue and sale of the Notes or the making and performance of this Agreement;

10. No Breach or Default: no event described in Sections 8, 9 or 10 of the Terms of the Notes has occurred and is continuing. The Company is not in breach or in default under any agreement to an extent or in a manner which has had or could have a material adverse effect on the financial condition of the Company and its consolidated affiliates taken as a whole.

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(B) Since the commitment of Banca del Gottardo to purchase the Notes is made on the basis of the aforesaid representations and warranties, the Company hereby undertakes with Banca del Gottardo that it will hold Banca del Gottardo harmless against all losses, liabilities, costs, charges and expenses which it may incur as a Noteholder as a result of or in relation to any material misrepresentation or any material breach of said representations and warranties by the Company, and as long as any of the Notes are outstanding Banca del Gottardo shall be given prompt notice by the Company of any claim, action or proceeding which might in the Company’s good faith judgment give rise to an obligation under this clause (B) of Article V. This indemnification by the Company shall be in addition to any other remedy available to Banca del Gottardo under applicable law.

VI. PAYMENT TO THE COMPANY

On the Closing Date, Banca del Gottardo will pay to the Company the net proceeds (the “Net Proceeds”) amounting to the Issue price of 100% (U.S.$2,000,000) less the commission of 5% of the total amount against the Permanent Global Note being delivered to Banca del Gottardo pursuant to Article VII.

VII. CONDITIONS TO THE OBLIGATIONS OF BANCA DEL GOTTARDO

Banca del Gottardo shall have received from the Company at the latest on March 28, 2002 the following documents:

(1)

a copy of the Certificate of Incorporation, together with all amendments thereto, of the Company certified by the Secretary or the Assistant Secretary of the Company and a copy of a Certificate of Status from the Registrar of Companies in the Province of British Columbia as to the good standing of the Company, each dated as of a recent date;

(2)

a certified copy of a resolution or resolutions duly adopted by the Board of Directors of the Company signed by a duly authorized officer of the Company, conferring the necessary authority upon the person(s) signing this Agreement, the Information Memorandum, the Permanent Global Note, the Notes and any related documents; and a certificate of the Secretary, or Assistant Secretary of the Company as to the incumbency and signatures of the officer(s) of the Company signing the documents provided for in this clause (2) on behalf of the Company and the approval of this Agreement and the Information Memorandum;

      Page 8

(3)	Permanent Global Note (in the form of Annex B, without interest coupons and without reproduction of the Terms of the Notes) duly issued and signed by an authorized officer of the Company to be held in escrow by Banca del Gottardo pending payment of the Net Proceeds pursuant to Article VI;
(4)	Certificate of No Material Adverse Change dated as of the Closing Date and signed by an authorized officer of the Company;
(5)	a legal opinion of external counsel to the Company on the laws of the Province of British Columbia, dated as of the Closing Date; and
(6)	a certificate of two officers of the Company approving the terms of the Notes and the issue and sale thereof by the Company.

	Each of documents 4, 5, and 6 shall be substantially as agreed by the Company and Banca del Gottardo prior to the Closing Date.
VIII.	INFORMATION MEMORANDUM
	If requested by Banca del Gottardo, the Company will supply Banca del Gottardo on behalf of the holders of the Notes in due time with such reasonable and publicly available information and documentation as may be requested by Banca del Gottardo including the Company’s annual and quarterly financial information, its annual report, and the term sheet respecting the notes for the preparation by Banca del Gottardo of the Information Memorandum (the “Information Memorandum”) relating to the Issue, in compliance with Swiss law.
	The Information Memorandum shall be reviewed by the Company and Banca del Gottardo.
IX.	PRINTING OF THE NOTES
	The Notes and Coupons and all rights and obligations in connection therewith are documented solely in form of a Permanent Global Note as per Annex B hereto. Each Noteholder of a Note or Coupon therefore retains a co-ownership in the Permanent Global Note to the extent of his claim against the Company. Content and form of the Permanent Global Note must be in accordance with the regulations of SIS SEGAINTERSETTLE AG (the “SEGA”). Except as provided in item c) below, no printing and delivery of definitive Notes or Coupons will occur.

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a)	Publicity: All documents and publications established in connection with the issue of the Notes (i.e. the Information Memorandum, advertisements, if any, as well as possible additional publications) must explicitly and prominently state that the Notes are represented by way of a Permanent Global Note and that investors are not entitled to receive definitive Notes or Coupons.
b)	Custodianship: Banca del Gottardo undertakes to hold in custody the Permanent Global Note, which it has received duly signed in accordance with Article VII item 3) above, after payment of the Net Proceeds to the Company. The Permanent Global Note remains in safekeeping with Banca del Gottardo during the entire duration of the issue and until the complete redemption of the Notes.
c)	Arrangements for printing of the definitive Notes and Coupons: The Company irrevocably authorizes Banca del Gottardo to arrange for the printing of the definitive Notes with Coupons attached, in the name of and at the expense of the Company, should Banca del Gottardo deem such printing to be necessary or useful, or if the presentation of definitive Notes and Coupons is required by Swiss or foreign laws and regulations in connection with the enforcement of rights (e.g. in cases of bankruptcy, consolidation or reorganisation of the Issuer).
	Should the definitive Notes and Coupons be printed, Banca del Gottardo will then exchange the Permanent Global Note against the definitive Notes and Coupons and thereupon cancel and return the Permanent Global Note to the Company.

Notes and/or Coupons which are mutilated, lost or destroyed may be replaced by Banca del Gottardo in accordance with the respective provisions of the Terms of the Notes.

X. SERVICING OF THE NOTES

(1)

Transfer of funds

The Company will effect transfer of the funds in freely disposable U.S. Dollars required to make any payment of principal or interest on the Notes, including the commissions referred to in paragraph (2) hereafter, to Banca del Gottardo, Lugano, as Paying Agent, for value the respective due date provided that, if such due date does not fall on a Business Day, the Company shall be obliged to effect transfer of such payments for value the Business Day immediately preceding such due date. Any transfer risk shall be borne by the Company.

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“Business Day” means a day on which commercial banks are open for domestic business and foreign exchange in Lugano and Vancouver, Canada.

Banca del Gottardo will supply the Company, by facsimile or otherwise in writing received by the Company not less than five Business Days prior to each due date for any payment under the Notes, with any necessary information including reference numbers and the name of a contact person for the receipt of funds. Further information regarding the transfer may be obtained by Banca del Gottardo from the Company at the address set out in Article XIV below.

Banca del Gottardo shall credit the funds received to separate non-interest bearing accounts with Banca del Gottardo for each Coupon due date and/or redemption date. The receipt by Banca del Gottardo of the due and punctual payment of the funds in Lugano shall release the Company of its obligations under the Permanent Global Note or under the Notes for the interest and principal, to the extent of such payment.

The risk of any exchange loss on the transfer of funds so held by Banca del Gottardo from Banca del Gottardo to the Company shall be borne by the Company, provided the transfer is made by order of, or with the consent of, the Company.

(2) Modalities

Any transfer by the Company as per (1) and (2) above, shall be made in U.S. Dollars freely disposable, without any restrictions, and whatever the circumstances may be, irrespective of the nationality or domicile of the holder of Notes and/or Coupons, and without requiring any affidavit, or the fulfilment of any other formality.

(3) Paying Agency

The Company hereby appoints Banca del Gottardo as sole Paying Agent (the “Paying Agent”) and Banca del Gottardo agrees to pay to the Noteholders all amounts to become due under the Notes.

The Company undertakes, in connection with the Issue, not to appoint any institutions as paying agent without the consent of Banca del Gottardo, which consent shall not be unreasonably withheld and not to pay to other banks any commission or remuneration for the payment of interest or principal on the Notes.

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XI. CANCELLATION OF NOTES AND COUPONS

The Company requests and authorizes Banca del Gottardo and Banca del Gottardo undertakes to cancel and destroy all Coupons (if printed) paid and Notes (if printed) redeemed, converted or replaced, after the period prescribed by law, and to certify to the Company in writing the serial numbers of Notes destroyed, the dates when such destruction took place and the names of the persons witnessing such destruction.

Banca del Gottardo reserves the right to record cashed Coupons as well as redeemed, repaid, converted or replaced Notes on video tape or other data carriers and to store them in this way instead of keeping them physically during the period prescribed by law and to destroy them subsequently. This reproduction of Coupons and/or Notes will remain in safekeeping at Banca del Gottardo during the statutory limitation.

XII. COVENANTS

As long as any of the Notes remain outstanding, the Company undertakes:

(1) To provide Banca del Gottardo forthwith upon becoming aware thereof with

- any change of its Certificate of Incorporation or Articles, and without waiting for Banca del Gottardo to take any of the actions mentioned in Section 8, 9 or 10 of the Terms of the Notes,

- a notice in writing of any event provided for in Section 8, 9 or 10 of the Terms of the Notes.

(2)	To hold meetings of the Board of Directors on at least a quarterly basis, i.e. at least one meeting each quarter.
(3)	To provide Banca del Gottardo with quarterly financial statements of the Company by no later than the 60th day of the month following the quarter covered by such statements. Such statements shall provide Banca del Gottardo with a summary of all of the Company’s operations, in addition to a brief summary of how the Net Proceeds of this issue have been used by Company.

(4) (a) So long as any Notes are outstanding, to keep available authorized shares of Common Stock sufficient to permit all Notes outstanding and unconverted to be converted in accordance with the Provisions;

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(b) to assure that all shares of Common Stock delivered upon conversion of Notes will be validly issued as fully-paid and non-assessable;

XIII. RIGHT OF TERMINATION

Notwithstanding anything contained in this Agreement, Banca del Gottardo may by notice, setting forth in detail the basis for Banca del Gottardo’s reasonable opinion giving rise to such notice, to the Company terminate this Agreement at any time before the time on the Closing Date when payment would otherwise be due under this Agreement to the Company in respect of the Notes if:

(1) in the reasonable opinion of Banca del Gottardo, circumstances shall be such as:

a)	to prevent or to a material extent restrict payment for the Notes in the manner contemplated in this Agreement; or
b)	to a material extent prevent or restrict settlement of transactions in the Notes in the market or otherwise; or

(2) in the reasonable opinion of Banca del Gottardo, there shall have been:

a)	any change in national or international political, legal, tax or regulatory conditions; or
b)	any calamity or emergency

which has in the view of Banca del Gottardo caused a substantial deterioration in the price and/or value of the Notes.

Any such termination of this Agreement shall be without liability on the part of Banca del Gottardo or on the part of the Company.

Upon any such termination of this Agreement pursuant to Article XIII (1), the parties hereto shall (except for the liability of the Company in relation to expenses as provided in Article IV (a) (2) hereof and except for any liability arising before or in relation to such termination) be released and discharged from their respective obligations under this Agreement.

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XIV. COMMUNICATIONS

All communications among Banca del Gottardo and the Company regarding this Agreement shall be made in the English language, by facsimile, followed by registered letter, and shall be transmitted

by the Company to:	by Banca del Gottardo to:
Banca del Gottardo Viale Stefano Franscini 8 6901 Lugano, Switzerland	Norsat International Inc. Suite 300, 4401 Still Creek Drive Burnaby, British Columbia V5C 6G9
Attn:Marco Camozzi	Attn:Troy Bullock
Facsimile:0114191 808 18 43	Facsimile:(604) 292.9011

XV.	APPLICABLE LAW AND JURISDICTION
	The Terms of this Agreement shall be governed by Swiss law, save and except that paragraph 7 of the Terms of the Notes shall be governed by the laws of the Province of British Columbia.
	Any dispute which might arise between Banca del Gottardo on the one hand and the Company on the other hand regarding this Agreement shall fall within the jurisdiction of the ordinary Courts of Justice of the Canton of Ticino, the place of jurisdiction being Lugano, with the right of appeal to the Swiss Federal Court of Justice in Lausanne where the law permits.
	Solely for purposes of the preceding paragraph and for the purpose of execution of a judgment in Switzerland, the Company elects legal and special domicile at Banca del Gottardo’s office in Lugano, and Banca del Gottardo shall send to the Company as soon as possible any documents received by it in this connection.
	Banca del Gottardo shall also be at liberty to enforce its rights and to take legal action before the competent courts of the Province of British Columbia and Canada, in which case Swiss law, save and except that paragraph 8 of the Terms of the Notes shall be governed by the laws of the Province of British Columbia and the applicable laws of Canada, shall be applicable with respect to the construction and interpretation of this Agreement.
XVI.	EFFECTIVENESS
	The effectiveness of this Agreement is subject to:

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(a)	the receipt by Banca del Gottardo of all documents as requested in Article VII of this Agreement, in a form reasonably acceptable to Banca del Gottardo,
(b)	no exercise of the Right of Termination as per Article XIII.

XVII.	CURRENCY INDEMNITY
	If any sum due from the Company in favour of the Paying Agent has to be converted from U.S. Dollars (the “first currency”) into another currency (the “second currency”) for the purpose of (i) making or filing a claim or proof against the Company, (ii) obtaining an order or judgment in any court or other tribunal or (iii) enforcing any order or judgment given or made in relation hereto, the Company shall indemnify and hold harmless Banca del Gottardo from and against any loss suffered as a result of any discrepancy between (a) the rate of exchange used for such purpose to convert the sum in question from the first currency into the second currency and (b) the rate or rates of exchange at which Banca del Gottardo may in the ordinary course of business purchase the first currency with the second currency upon receipt of a sum paid to them in the second currency in satisfaction in whole or in part of any such order, judgment, claim or proof.
	This indemnity shall constitute a separate and independent obligation from the other obligations contained herein, shall give rise to a separate and independent cause of action and shall apply, irrespective of any waiver granted by Banca del Gottardo from time to time and shall continue in full force and effect notwithstanding any judgment or order for a liquidated sum or sums in respect of amounts due hereunder or under any such judgment or order. Any such loss or damage aforesaid shall be deemed to constitute a loss suffered by Banca del Gottardo and no further proof or evidence of any actual loss shall be required by the Company.
XVIII.	ENTIRE AGREEMENT
	This Agreement together with the Annexes hereto and other agreements and documents delivered pursuant hereto set forth the entire agreement and understanding of the parties in respect of the subject matter hereof and thereof and supersede all prior or contemporaneous agreements, arrangements and understandings relating to the subject matter hereof and thereof.

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XIX. AMENDMENT, CANCELLATION AND WAIVER

This Agreement and the Annexes hereto may be amended, modified, superseded or cancelled, and any of the terms hereof or thereof may be waived, only by a written instrument executed by the Company and Banca del Gottardo hereto or thereto, as the case may be, or, in the case of a waiver, by the party or parties waiving compliance. The failure of any party at any time or times to require performance of any provision hereof or of any Annex hereto shall in no manner affect the rights at a later time to enforce the same. No waiver by any party of any condition or of the breach of any term contained in this Agreement or in any Annex hereto, whether by conduct or otherwise, in any one or more instances, shall be deemed to be construed as a further or continuing waiver of any such breach or the breach of any other term of this Agreement or of the Annexes hereto.

THUS DONE AND SIGNED in 2 originals, of which one is for the Company,

in Lugano and Burnaby effective as of March 28, 2002

NORSAT INTERNATIONAL INC.

By:                                                      

BANCA DEL GOTTARDO

By:                                                      

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ANNEX A

TERMS OF THE “CONVERTIBLE NOTES” OF THE COMPANY

(1)	Form and Denomination
	The Notes are issuable in bearer form in the denominations of USD 10’000.— nominal amount each, with interest coupons (the “Coupons”) attached. The Notes will be represented solely by a permanent Global Note (the “Permanent Global Note”), without interest coupons, to be deposited by the Company with Banca del Gottardo on the Payment Date. Each holder of a Note or Coupon, retains a co-ownership in the Permanent Global Note to the extent of his claim against the Company. Except as provided below, no printing of Notes and Coupons will occur. Holders of Notes and Coupons, therefore, do not have the right to request the printing and delivery of individual Notes and Coupons. The Notes are issued in the initial aggregate principal amount of two million United States Dollars (USD 2’000’000.—).
	The Permanent Global Note will remain in safekeeping with Banca del Gottardo during the entire duration of the issue and until the complete redemption of the Notes.
	Should the definitive Notes and Coupons be printed, the Notes shall be evidenced by bearer Notes with Coupons attached in the denomination of USD 10’000.— nominal and multiples thereof.
	Should Banca del Gottardo deem the printing of the Notes with Coupons attached to be necessary or useful, or if the presentation of definitive Notes and Coupons is required by Swiss or foreign laws in connection with the enforcement of rights (e.g. in cases of bankruptcy, consolidation or reorganization of the Company), Banca del Gottardo will provide for such printing without cost for the holders of the Notes and Coupons. Should the definitive Notes and Coupons be printed, Banca del Gottardo will then exchange the Permanent Global Note (deposited as above provided) as soon as possible against the definitive Notes and Coupons. The Company has irrevocably authorized Banca del Gottardo to provide for the printing of the definitive Notes and Coupons on its behalf.
	The Permanent Global Note may be exchanged, as a whole or in part, for appropriate definitive Notes, if printed, in bearer form in denominations of USD 10’000.— with the Coupons attached.. Until such time as and if and when the definitive Notes and Coupons have been issued, the expressions “Notes” and “Coupons” mean and include co-ownership under the Permanent Global Note and the expressions “holder of Note” and “holder of Coupon” shall mean and

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	include any person entitled to co-ownership and any further benefit under the Permanent Global Note.
(2)	Interest
	The Notes bear interest from the Payment Date at the rate of 8% per annum, payable semi-annually in arrears on March 28 and September 28 of each year until maturity (the “Coupon Due Dates”), the first time on September 28, 2002. Such interest is payable in U.S. Dollars. Each Note will cease to bear interest on the date on which they become due for redemption or repayment unless payment of principal and/or premium (if any) is improperly withheld or refused or default is otherwise made in respect of such payment. In such event, interest will continue to accrue (as well after as before any judgment) up to but excluding the date on which payment in full of the principal of such Note is made or (if earlier) the date on which, payment in full of the principal thereof having been received by Banca del Gottardo, notice to that effect shall have been given to the holders of the Notes. Interest is computed on the basis of a 360-day year of twelve 30-day months.
(3)	Repayment
	The Company undertakes to repay the principal amount of the Notes, unless previously redeemed or converted under paragraph 8 herein, without any previous notice on March 31, 2007.
(4)	Payments
	Payments with respect to the Notes and Coupons shall be made in U.S. Dollars against presentation and surrender of such Notes or Coupons in the manner specified below. Such payments shall be made without cost to the Noteholders, without any limitations and under all circumstances notwithstanding any transfer restrictions, regardless of any bilateral or multilateral payment or clearing agreement in existence between Canada and the Swiss Confederation, irrespective of the nationality, residence or domicile of any of the Noteholders and without requiring any affidavit or the fulfillment of any formalities. The funds required for the payment of principal and interest shall be made available to Banca del Gottardo in Switzerland as Paying Agent by the Company prior to each Coupon Due Date. The receipt of the funds by Banca del Gottardo in Switzerland shall release the Company from its obligations in respect of the payments due on the respective dates for principal and interest.
	Banca del Gottardo will arrange for payment of such funds as and when due to the holders of Notes and Coupons. Notes and coupons may be presented for payment at the principal amount

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	printed on the Notes and the amount of interest printed on the Coupons only at the offices in Switzerland of Banca del Gottardo. No payment on the Notes or Coupons will be made by transfer to an account in, or by mailing to an address in Canada.
(5)	Tax Status
	All payments of principal and interest on the Notes and Coupons by the Company shall be made without deduction for or on account of any present or future tax, assessment or other governmental charge (“Taxes”) imposed upon such payment by Canada or any political subdivision or taxing authority thereof or therein. If the Company shall at any time be required by law to withhold any such Taxes, the Company will pay as additional amounts to Banca del Gottardo for the account of the holders of Notes and Coupons, such amounts as may be necessary so that every net payment on each Note or Coupon, after withholding for or on account of any such Taxes (including any backup withholding tax or similar charge that may be required in order for such payment to be made without any certification or disclosure of the nationality, residence or identity of the beneficial owner of such Note or Coupon) will not be less than the amount provided in such Note or Coupon to be then due or payable.
	If, as the result of any change in, enactment of, or amendment to any laws or regulations of the Province of British Columbia and Canada or any political subdivision or taxing authorities thereof affecting taxation, or any change in the official application of such laws or regulations, or any change in, execution of or amendment to any treaty or treaties affecting taxation to which the Province of British Columbia and Canada is a party, it is determined by the Company that it would be required at any time to pay additional amounts pursuant to the preceding paragraph, the Company is entitled to redeem the Notes, as a whole but not in part, on giving not more than 60 days’ but not less than 30 days’ prior notice to Banca del Gottardo, on or after September 28, 2002 at par.
	Notice of redemption shall be given by the Company in writing to Banca del Gottardo and such notice so given shall constitute good and sufficient notice and shall be binding upon all holders of the Notes, regardless of who they may be or where they may be located.
	Banca del Gottardo shall as soon as practicable notify the Noteholders of such redemption in accordance with Section 10 hereof.
	The Company has been advised by Banca del Gottardo that pursuant to the Swiss federal laws at present in force, interest payments on the Notes are not subject to Swiss withholding tax.

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(6)	Authorizations
	The Company has confirmed to Banca del Gottardo that no authorizations or approvals are required under the laws of the Province of British Columbia and Canada for the performance of its obligations hereunder, except for the filings that are required to be made by the Company within ten days of the Closing Date with the British Columbia Securities Commission and the Toronto Stock Exchange.
(7)	Status of the Notes and Negative Pledge
	The Notes constitute unsecured direct obligations of the Company, ranking equally with other unsecured and unsubordinated indebtedness for borrowed money of the Company.
(8)	Conversion
	The Notes may at any time prior to their redemption be converted into Shares of Common Stock (being the equivalent of USD 10’000.— divided by USD 1.70 (“Conversion Price”), the initial conversion price per Share, (the “Conversion Amount”)
	The holder of 1 Note or more will be entitled at any time up to the close of business on March 20, 2007, subject to prior redemption, to convert the Notes, at the Conversion Amount thereof, into initially 5’882 shares of Common Stock of the Company. No payment or adjustment will be made on conversion of any Note for interest accrued thereon or dividends on any Common Stock issued, except that accrued interest will be paid on the conversion of any Note which has been called for redemption prior to the conversion date. The Company is not required to issue fractional shares of Common Stock upon conversion of Notes and, in lieu thereof, will pay a cash adjustment based upon the market price of the Common Stock on the last trading day prior to the date of conversion. In the case of Notes called for redemption, conversion rights will expire at the close of business on the fifth business day prior to the redemption date. Notes may be presented for conversion only to the Head office of Banca del Gottardo in Lugano and Banca del Gottardo will deliver Common Stock or other consideration received upon conversion.
	The Conversion Price is subject to adjustment in the following events occurring after March 28, 2002:

- the issuance of stock of the Company as a dividend or distribution on the Common Stock;

- subdivisions of outstanding shares of the Common Stock into a greater number of shares;

- consolidations of outstanding shares of Common Stock into a smaller number of shares;

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- reclassification of the Common Stock into other shares of the Company’s capital stock;

- issuance to all holders of Common Stock of certain rights entitling them to subscribe for Common Stock at a price per share less than the current market price but not for shares issuable under the Company’s stock option and stock purchase plans; and

- the distribution to all holders of Common Stock of debt securities or assets of the Company or rights to purchase assets or debt securities of the Company (excluding cash dividends or distributions from retained earnings).

No adjustment in the Conversion Price will be made unless such adjustment would require an increase or decrease of at least one Share in the Conversion Price then in effect; but any adjustment that would otherwise be required to be made shall be carried forward and taken into account in any subsequent adjustment. No adjustment need be made for rights to purchase Common Stock pursuant to a Company dividend or interest reinvestment plan. If the Company consolidates or merges into or transfers or leases all or substantially all of its assets to any person, or is a party to a merger that reclassifies or changes its outstanding Common Stock, the Notes will become convertible into the kind and amount of securities, cash or other assets which the Holders would have owned immediately after the transaction if the holders had converted the Notes immediately before the effective date of the transaction.

The Company hereby appoints Banca del Gottardo, acting through its specified office in Switzerland, as sole Conversion Agent (the “Conversion Agent”) for the conversion of Notes or coupons into Shares (the “Conversion Provisions”)

The appointment of the Conversion Agent hereunder shall continue in effect until the conversion right in respect of the Convertible Notes shall have terminated. So long as Banca del Gottardo satisfactorily performs its obligations hereunder the Company shall not without the consent of Banca del Gottardo appoint any other Conversion Agent or pay any other bank any commission or remuneration for the conversion of the Convertible Notes or coupons..

The Company will indemnify and hold harmless the Conversion Agent against any losses, liabilities, costs, claims, actions or demands which it may incur or which may be made against it as a result of or in connection with its appointment or the exercise of its powers and duties under this Agreement other than those based upon or arising out of the negligence of willful misconduct on the part of the Conversion Agent or any of its employees.

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Each Convertible Note, if printed, and all unmatured coupons attached thereto, submitted for conversion to the Conversion Agent (a “Converted Note”) shall be imprinted or stamped by the Conversion Agent with a legend to the effect that such Convertible Note or coupon has been converted. All Converted Notes and coupons shall be held by Banca del Gottardo for the account of the Company. Banca del Gottardo shall maintain a record of Convertible Notes and coupons converted.

The Conversion Agent undertakes to:

(a)	make available to Noteholders the Conversion Notice in such form as may from time to time be agreed by the Company and the Conversion Agent;
(b)	upon receipt of a Conversion Notice from a Noteholder:

(i)

verify that (A) the Conversion Notice has been duly completed and signed by or on behalf of the Noteholder named therein, (B) the Conversion Notice is accompanied by all Notes, if printed, to which it relates and all unmatured coupons appertaining to such Notes and/or an amount equal to the face value of any missing unmatured coupons and (C) the amount of any stamp or other taxes payable by the Noteholder has been paid; and

(ii)

endorse the Conversion Notice;

(c)	imprint or stamp all Notes, if printed, submitted to it for conversion, and all unmatured coupons attached thereto; and
(d)	dispatch within two business days after satisfaction by the Noteholder of all conditions precedent to the conversion to the relevant tax authorities, payment in respect of any stamp or other taxes payable on the conversion, in accordance with the laws of Switzerland.

The Conversion Agent shall promptly, upon the later of the date of receipt of the Conversion Notice and the satisfaction of all other conditions precedent to the conversion stated above, endorse the Conversion Notice and notify the Company by facsimile, telex or cable of (a) the principal amount and serial numbers of the Notes deposited for conversion, (b) the number of Shares issuable upon conversion of such Notes and (c) the name and address of each person (the “Shareholder”) to whom such Shares are to be issued. Such conversion shall become effective at the close of business on the date (the “Conversion Date”) on which the Company shall have received at its principal executive offices, during normal business hours, from the Conversion

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Agent a telex or cable notification. If such facsimile, telex or cable notification is received after the close of business on such date, the Conversion Date will be the immediately following business day. At such Conversion Date the rights of the holder (other than the Company) of a Note shall cease and the Shareholder shall be deemed to have become the holder of such Shares.

The Company covenants that:

(a)	so long as any Notes are outstanding, it shall keep available authorized shares of Common Stock sufficient to permit all Notes outstanding and unconverted to be converted in accordance with these Conversion Provisions;
(b)	all shares of Common Stock delivered upon conversion of Notes as provided herein will be validly issued as fully-paid and non-assessable;

(8)(1)	Forced Conversion
	Banca del Gottardo and any holders of the Notes will be forced to convert all, but not less than all of the Principal Amount at the Conversion Price, if the closing Price of the common shares on the NASDAQ is greater than USD 3.40 for two consecutive trading days (the “Forced Conversion Event”). The Company will not be required to issue fractional common shares upon forced conversion of the Principal Amount or, at the option of the Company, interest thereon.
(8)(2)	Restriction
	Banca del Gottardo is aware that any shares acquired upon conversion or forced conversion pursuant hereto before July 28, 2002 will be subject to a hold period and will not be able to be traded on or through the facilities of The Toronto Stock Exchange or otherwise in Canada until July 28, 2002.
	The Company will, upon the occurrence of the Forced Conversion Event, give written notice to Banca del Gottardo that the Forced Conversion Event has occurred. Such notice will specify the date for forced conversion (the “Forced Conversion Date”), which will not be more than five (5) days after the Forced Conversion Event has occurred. On the Forced Conversion Date, Banca del Gottardo will be deemed to have surrendered the Notes for conversion and, as of such date, to have subscribed for and will be entitled to be issued, as fully paid and non-assessable, the whole number of common shares of the Company into which the Principal Amount has been converted. On the later of the Forced Conversion Date and the day on which the Notes are actually surrendered by delivery to the Company, the Company will deliver to

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	Banca del Gottardo a single certificate in definitive form representing the whole number of common shares into which the Principal Amount has been converted.
	The Company agrees that if it files a registration statement with the US Securities and Exchange Commission following the Closing Date it will provide piggyback rights and include for registration the common shares of the Company issuable pursuant to the conversion of the Notes.
(9)	Events of Default
	Banca del Gottardo as regards all Notes or Holders having 10% or more of the aggregate principal amount of all Notes outstanding shall have the right to declare by notice to the Company the Notes held by such Holder, plus accrued interest, to be due and payable if any of the following events of default shall occur:

(a)	default in the payment of principal, or, for a period of 15 days after due and payable, in the payment of interest on any Note; or
(b)	default in the performance or observance in any material respect of any covenant or agreement of the Company in the Notes if such default continues for a period of 30 days after notice thereof has been given by Banca del Gottardo to the Company; or
(c)	a default shall occur under any evidence of indebtedness for money borrowed by the Company or under any instrument under which there may be issued or by which there may be secured or guaranteed any indebtedness for money borrowed by the Company, which default involves the failure to pay when due (after any applicable grace period and subject to any extension or postponement of such maturity), or results in the acceleration of, indebtedness in an amount in excess of USD 500’000.— without such indebtedness having been discharged or such default or acceleration having been waived, rescinded or annulled, within a period of 30 days after notice thereof shall have been given by Banca del Gottardo to the Company; or
(d)	the entry of a decree or order in respect of the Company in an involuntary case under any bankruptcy, insolvency or other similar law, or appointing a receiver, liquidator, trustee or other similar official of the Company or for any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of 45 consecutive days; or

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(e)

the Company shall commence a voluntary case under any bankruptcy, insolvency or other similar law, or consent to the appointment of or taking possession by a receiver, liquidator, trustee or other similar official, of the Company or for any substantial part of its property, or the making by it of a general assignment for the benefit of creditors, or if it shall fail generally to pay its debts as they become due, or shall take any corporate action in furtherance of any of the foregoing; or

(f)

if the Company shall merge or consolidate, or sell or convey all or substantially all of its assets to, any other corporation, unless (i) the Company is the surviving corporation, or (ii) the surviving or transferee corporation expressly assumes all obligations of the Company under the Notes by supplemental agreement, reasonably satisfactory to Banca del Gottardo and the Company, or (iii) the Company or the surviving or transferee corporation irrevocably deposits in trust with Banca del Gottardo, money or U.S. government obligations sufficient to pay principal and interest on the Notes to maturity.

	Upon the occurrence of an event of default, the Company shall promptly give notice thereof to Banca del Gottardo which shall publish such notice of default in accordance with Section 10 hereof. Banca del Gottardo shall in relation to any event of default have no other obligation than the publication of such event of default.
	The principal amount of all Notes declared to be due and payable plus accrued interest thereon shall become due and payable 15 days after notice to the Company by Banca del Gottardo or by each Holder of such event of default; provided, however, that such declaration shall be rescinded if, within 15 days of such notice, such event of default shall have been remedied by payment, in the case of a payment default, or in a manner reasonably satisfactory to Banca del Gottardo.
(10)	Notices and Publications
	All notices to the Holders shall be deemed to have been duly given if communicated to Banca del Gottardo, which will inform accordingly the Noteholders. All notices to the Company by any Holder shall be deemed to have been duly given if sent by fax to the principal office of the Company to the attention of Troy Bullock, V.P. Finance, of the Company.

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(11)	Replacement of Notes or Coupons
	If any Note or Coupon, if printed, is defaced, mutilated, destroyed, stolen or lost, it may be renewed or replaced at the head office of Banca del Gottardo in Lugano, Switzerland on payment of such costs as may be incurred in connection therewith and on presentation of such evidence and indemnity as Banca del Gottardo may require. Defaced or mutilated Notes or Coupons must be surrendered before replacements may be issued.
(12)	Applicable Law and Jurisdiction
	The terms, conditions and form of the Notes and coupons (the English language version of which shall govern) shall be governed by and construed in accordance with Swiss law, with the exception of Section 7 which shall be governed by the laws of the Province of British Columbia and the laws of Canada applicable therein.
	Any action or proceedings against the Company relating to the Notes may be brought and enforced in the ordinary courts of the Canton of Ticino, venue being in the City of Lugano, or, if such courts fail to grant jurisdiction in the ordinary courts of the Canton of Basle-City, venue being in Basle, and the Company hereby irrevocably submits to the jurisdiction of such courts in respect of any such action or proceeding, with the right to appeal, as provided by law, to the Swiss Federal Court in Lausanne, the judgment of which shall be final. Solely for that purpose, the Company hereby elects legal and special domicile at the office of Banca del Gottardo, Viale Stefano Franscini 8, 6901 Lugano, Switzerland. Banca del Gottardo shall notify the Company promptly upon receipt of any notice by it in its capacity as the Company’s agent for service of process. The Company covenants that so long as any Notes are outstanding it will maintain an agent for service of process in Switzerland. The aforementioned jurisdiction shall also be valid for the cancellation and replacement of lost, stolen, defaced, mutilated or destroyed Notes and coupons. Payment effected to a holder of Notes who has been identified as the legitimate holder of a Note or coupon by a final judgment of a Swiss court shall release the Company from its payment obligations under such Note or coupon.

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      ANNEX B

(to be typed on security paper)

PERMANENT GLOBAL NOTE

ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS, INCLUDING THE LIMITATIONS PROVIDED IN SECTIONS 165(j) AND 1287(a) OF THE INTERNAL REVENUE CODE.

THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND MAY NOT BE OFFERED, SOLD OR DELIVERED, DIRECTLY OR INDIRECTLY, IN THE UNITED STATES OR TO, OR FOR THE BENEFIT OF, ANY U.S. PERSON (AS SUCH TERMS ARE DEFINED IN REGULATION S UNDER THE SECURITIES ACT) UNLESS THIS NOTE IS REGISTERED UNDER THE SECURITIES ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT IS AVAILABLE.

Norsat International Inc.

USD 2’000’000.—

8% Notes due March 31, 2007

Convertible into shares
of Common Stock of the Company

This Permanent Global Note without interest coupons is a Permanent Global Note in respect of a duly authorized issue of 8% Notes due March 31, 2007 (the “Notes”) of Norsat International Inc (the “Company”), a corporation duly organized and existing under the laws of the Province of British Columbia, in the principal amount of two million US Dollars and issued pursuant to a Note Purchase, Paying and Conversion Agency Agreement (the “Agreement”) dated as of March, 28 2002 between the Company of the first part and Banca del Gottardo of the second part.

Subject to the provisions of the Agreement, Norsat International Inc., for value received, hereby promises to pay to the holder of this Permanent Global Note, payable upon presentation and surrender hereof, the amount of U.S. Dollars 2’000’000.— (USD Two Million) and interest thereon at 8% per annum, in accordance with the Terms of the Notes set forth in Annex A of the Agreement.

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Each holder of Notes retains a co-ownership in this Permanent Global Note to the extent of his claims against the Company. The decision, if and when the definitive Notes with Coupons attached are to be printed, is at the sole discretion of Banca del Gottardo. An exchange of this Permanent Global Note prior to the complete redemption of the issue can only be effected against the definitive Notes with Coupons attached.

If definitive Notes are printed, this Permanent Global Note is exchangeable for the definitive Notes in accordance with this Agreement. Unless and until so exchanged, Banca del Gottardo, on behalf of the holders of the Notes, as the bearer of this Permanent Global Note shall enjoy the benefit of and be subject to the Agreement (including the Terms of the Notes).

The Terms of the Notes set forth in Annex A of the Agreement are hereby incorporated by reference herein mutatis mutandis and, except as otherwise provided herein, shall be binding on the Company and the holder hereof as if fully set forth herein. Except as otherwise provided herein, the Company shall make all payments hereunder as and when provided in the Terms of the Notes and shall be bound by all its covenants set forth therein.

This Permanent Global Note shall be governed by and construed in accordance with the laws of Switzerland.

IN WITNESS WHEREOF, the Company has caused this Permanent Global Note to be duly executed under its corporate seal as of March 28, 2002.

Dated: March 28, 2002

Swiss Security no.:1’397’650 ISIN: CH0013976508
	NORSAT INTERNATIONAL INC.
	By:

This Permanent Global Note shall not become valid for any purpose until this Permanent Global Note has been authenticated by any two officers of Banca del Gottardo.

By:		By:
	Authorized Officer		Authorized Officer

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CONVERSION AGENCY AGREEMENT

This agreement is entered into effective as of April 5, 2002, between Norsat International Inc., a corporation existing under the laws of the Province of British Columbia, Canada, with principal offices at 300-4401 Still Creek Drive, Burnaby, B.C. V5C 6G9 (the “Company”) of the first part and BANCA DEL GOTTARDO, a Swiss corporation with principal offices at Viale Stefano Franscini 8, 6901 Lugano, Switzerland (“Banca del Gottardo”) of the second part.

The present agreement is to be considered an integral part of the “Note Purchase, Paying and Conversion Agency Agreement” entered into between the Company and Banca del Gottardo on March 28, 2002 (the “Agreement”). It is available for inspection at the Head Office in Lugano of Banca del Gottardo.

Premises

As authorized by its Board of Directors March 26, 2002 and pursuant to the Agreement, the Company proposes to make an offer on the Swiss capital market for the sale of its convertible notes (the “Convertible Notes”). The Convertible Notes will be convertible into shares (the “Shares”) of the Common Stock of the Company (the “Common Stock”), on the terms and conditions provided hereafter. The Board of Directors of the Company has approved this agreement as regards the conversion of the Notes and has authorized the conversion of the Convertible Notes into the Common Stock of the Company on the terms and conditions hereof.

These provisions relates to the conversion of the USD 2’000’000.— 8% Convertible Notes due March 31, 2007 of the Company into shares of the common stock of the Company. Unless otherwise defined herein, the terms used herein have the meanings ascribed to them in the Note Purchase, Paying and Conversion Agency Agreement dated as of March 28, 2002, between the Company and Banca del Gottardo.

Article 1. Conversion Agent
As described in point 6 of Annex A to the Agreement, the Company appoints Banca del Gottardo, acting through its head office in Lugano, Switzerland, as sole Conversion Agent (the “Conversion Agent”) for the conversion of Notes or coupons into Shares. So long as any Notes are outstanding, the Company shall maintain a stock transfer agent (the “Stock Transfer Agent”) or shall itself perform the functions required of such agent under this agreement.

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Article 2. Conversion Right

2.1

Subject to and upon compliance with these Conversion Provisions, the holder of any Note (a “Noteholder”) will have the right at any time on and after March 28, 2002 up to the close of business of banks in Lugano on March 20, 2007 to convert USD 10’000.— (the Conversion Amount) of one Note or more Notes into initially 5’882 shares of common stock of the Company, calculated as to each conversion to the greatest number of full Shares, disregarding fractions, at a price of initially USD 1.70 per share, such price being subject to adjustment in certain instances (as so adjusted from time to time, the “Conversion Price”). Fractions of a share will not be issued on conversion; provided, however, that if a Noteholder at any one time delivers more than one Note for conversion, the number of Shares issued shall be calculated on the basis of the aggregate principal amount of the Notes so delivered. A cash adjustment shall be paid in respect of any fractional Share which would otherwise be issuable upon conversion of any Note in an amount based upon the market price of the Common Stock on the last trading day prior to the date of conversion.

2.2.

In order to exercise the right of conversion, a Noteholder shall (a) deliver the Note or Notes to be converted during normal business hours, accompanied by the conversion notice in the form obtainable from the Conversion Agent (the “Conversion Notice”) to the Conversion Agent and (b) pay to the Conversion Agent any stamp or other taxes that may be payable in Switzerland on such conversion. Each Note, if printed, delivered for conversion must be delivered with all unmatured coupons attached and/or with an amount equal to the face value of any missing, unmatured coupons. Such missing, unmatured coupons shall be paid by Banca del Gottardo upon subsequent presentation thereof, provided they shall not have become barred pursuant to Art. 127 et seq. of the Code of Obligations (five years after their due date).

Article 3. Adjustment of the Conversion Price

3.1. Whenever the Conversion Price is adjusted as described in point 8 of the Terms of the Convertible Notes in the Agreement (the “Adjustment Price Provisions”), the Company shall promptly send to Banca del Gottardo a certificate of the Company setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment and the date on which it becomes effective. The contents of any certificate required by this Section may be transmitted by fax, but shall be confirmed in writing as hereinbefore provided. Banca del Gottardo may rely upon such certificate (or such transmission by fax, whether or not so confirmed) as conclusive evidence of the correctness of the adjustment referred to therein.

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3.2.

Anything in the Adjustment Price Provisions to the contrary notwithstanding, the Company shall be entitled, but shall not be required, to make such reductions in the Conversion Price in addition to those required by the Adjustment Price Provisions as it, in its discretion, shall determine to be advisable.

3.3.

In any case in which an adjustment shall be required to be made retroactively immediately following a record date, the Company shall as promptly as practicable issue to the holder of any Note converted after such record date the shares of Common Stock and other common stock of the Company issuable on such conversion in excess of the shares of Common Stock and other common stock of the Company issuable on such conversion on the basis of the Conversion Price prior to such adjustment.

Article 4. Notices

4.1. In the event that:

(a)	the Company shall authorize the issuance to all holders of shares of Common Stock of rights, options to subscribe for or purchase any shares of Common Stock or any securities convertible into shares of Common Stock, or of any other subscription rights;
(b)	the Company shall authorize the distribution to all holders of shares of Common Stock of evidences of its indebtedness or assets (other than cash dividends or cash distributions payable out of consolidated earnings or earned surplus or dividends payable in Common Stock);
(c)	there shall be any consolidation or merger to which the Company is a party and for which approval of any shareholders of the Company is required, or there shall be the conveyance or transfer of all or substantially all of the properties and assets of the Company, or there shall be any reorganization or reclassification or change of outstanding Common Stock issuable upon the exercise of conversion rights hereunder (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination);
(d)	there shall be voluntary or involuntary dissolution, liquidation or winding-up of the Company; or

      Page 31

(e) the Company proposes to take any action which would require an adjustment of the Conversion Price pursuant to the Adjustment Price Provisions;

	then the Company shall, at least 10 days prior to the applicable record date, provide written notice of such event to Banca del Gottardo stating (x) the record date in Canada as of which the holders of record of shares of Common Stock to be entitled to receive any such rights, warrants, or distributions are to be determined, or (y) the date in Canada on which such reorganization, consolidation, merger, conveyance, transfer, dissolution, liquidation or winding-up is expected to become effective, and the date as of which it is expected that holders of record of the shares of Common Stock shall be entitled to vote upon, and, if approved, to exchange their shares of Common Stock for securities or other property, if any, deliverable upon such reorganization, reclassification, consolidation, merger, conveyance, transfer, dissolution, liquidation or winding-up.
4.2	If the event described in the notice given pursuant to this article will result in an adjustment of the Conversion Price, such notice shall also state the new Conversion Price unless the Conversion Price cannot be calculated at the time such notice is given.
4.3	The failure to give or publish the notice required by this article or any defect therein shall not affect the legality or validity of the proceedings referred to above in this article.

Article 5

So long as any of the Convertible Notes remain convertible, the Company shall not take any action which would result in an adjustment of the Conversion Price if, after giving effect thereto, the Conversion Price would be decreased to such an extent that the Shares could not be legally issued, under applicable law of the jurisdiction of incorporation of the Company then in effect, at such decreased Conversion Price as fully-paid and non-assessable Shares.

Article 6

The Conversion Agent shall not at any time be responsible to any Noteholder for determining whether any facts exist (a) which may require any adjustment of the Conversion Price, (b) with respect to the nature or extent of any such adjustment when made, (c) with respect to the method employed, or herein or in any supplemental agreement (if any) provided to be employed in making any such adjustment. The Conversion Agent makes no representation as to the validity or value (or the kind or

      Page 32

amount) of any shares of Common Stock, or of any securities, property or cash, which may at any time be issued or delivered upon the conversion of any Convertible Note. The Conversion Agent shall not be responsible for any failure of the Company to make any cash payment or to issue, transfer or deliver any shares of stock or stock certificates or other securities or property upon the surrender of any Note for the purpose of conversion or to comply with any of the covenants of the Company contained in these Conversion Provisions.

Article 7

7.1.

In case of any consolidation of the Company with, or merger of the Company into, any other corporation (other than a consolidation or merger in which the Company is the continuing corporation), or in the case of any sale or transfer of all of the assets of the Company as an entirety or substantially as an entirety, the corporation formed by such consolidation or the corporation into which the Company shall have been merged or the corporation which shall have acquired such assets, as the case may be, shall execute with Banca del Gottardo a supplemental agreement which shall (a) provide that the holder of each Convertible Note then outstanding shall have the right to receive thereafter, during the period such Convertible Note shall be convertible, upon conversion of such Convertible Note, in lieu of each share of Common Stock deliverable on such conversion immediately prior to such event, only the kind and amount of shares and/or other securities and/or property and/or cash which are receivable, upon such consolidation, merger, sale or transfer and (b) set forth the Conversion Price for the shares and/or other securities and/or property and/or cash so issuable, which shall be an amount equal to the Conversion Price per share of Common Stock of the Company immediately prior to such event.

7.2.

In case of any reclassification or change of the shares of Common Stock issuable upon conversion of the Notes (other than a change in par value, or from par value to no par value, or as a result of a subdivision or combination) or in case of any consolidation or merger of another corporation into the Company in which the Company is the continuing corporation and in which the holders of the shares of Common Stock thereafter receive shares, other securities, property, cash or any combination thereof for such shares of Common Stock (including for this purpose shares reflecting a change in par value or from par value to no par value or as a result of a subdivision or combination of the shares of Common Stock), the Company shall execute with Banca del Gottardo a supplemental agreement which shall (a) provide that the holder of each Convertible Note then outstanding shall receive, upon conversion thereof, in lieu of each share of Common Stock of the Company deliverable upon such conversion immediately prior to such

      Page 33

	event, the kind and amount of shares and/or other securities and/or property and/or cash receivable upon such reclassification, change, consolidation or merger, and (b) set forth the Conversion Price for the shares and/or other securities and/or property and/or cash so issuable, which shall be an amount equal to the Conversion Price per share of Common Stock immediately prior to such event.
7.3.	If, as a result of Section 7.1 or Section 7.2, the holder of any Convertible Note thereafter surrendered for conversion shall become entitled to receive shares of two or more classes of common stock of the Company, the Board of Directors (whose determination shall be conclusive) shall determine the allocation of the Conversion Price between or among shares of such classes of capital stock. Any supplemental agreement executed pursuant to Sections 7.1 and 7.2 shall provide for adjustments which shall be as nearly equivalent as practicable to the adjustments provided for herein, and, where appropriate, state the Conversion Price in terms of one full share of Common Stock or one full share of common stock of any successor or purchasing corporation. The terms of this Article 7 also shall apply to successive consolidations, mergers, sales or transfers. In the event that at any time as a result of an adjustment made pursuant to this Article 7 the holder of any Note thereafter surrendered for conversion shall become entitled to receive any shares or securities other than shares of Common Stock, thereafter the prices or price of such other shares or other securities so receivable on conversion of any Convertible Note shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to Common Stock contained in the Adjustment Price Provisions and accordingly.
7.4.	The Conversion Agent shall have no responsibility for any consolidation, merger, sale or transfer, the form or substance or any plan relating thereto or the consequences thereof to any Noteholder.
	The Conversion Agent shall have no responsibility to determine the correctness of any provision contained in any supplemental agreement relating either to the kind or amount of shares of stock or securities or property receivable by Noteholders upon the conversion of their Convertible Notes after any such consolidation, merger, sale or transfer, or to any adjustment made with respect thereto. Not withstanding any provision herein, in the event that there is an inconsistency or ambiguity in this article 7 with the terms contained in the Agreement, the provisions contained within the Agreement shall govern.

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Article 8 Counterparts

This agreement may be executed in any number of counterparts, each of which shall be an original; but such counterparts shall together constitute but one and the same instrument.

IN WITNESS WHEREOF, the Company and Banca del Gottardo have caused this agreement to be signed and acknowledged by their officers authorized to do so, as of April 5, 2002 in Lugano and Burnaby, respectively.

NORSAT INTERNATIONAL INC.

By:

BANCA DEL GOTTARDO

By:

EX-6.1 4 o09662exv6w1.htm EMPLOYMENT CONTRACT YUTAKA UEDA

Exhibit 6.1

THIS EMPLOYMENT AGREEMENT, dated as of September 24, 2002, is made between Norsat International Inc., a company incorporated under the laws of British Columbia (“Norsat”) and Yutaka Ueda (the “Executive”).

A.	WHEREAS Norsat is engaged in the business of design, manufacture, sales and servicing of satellite technology and communication products;
B.	AND WHEREAS the Executive has agreed to accept Norsat’s offer of employment as President and Chief Executive Officer, effective September 24, 2002, upon the terms and conditions hereinafter set forth;

THE PARTIES HERETO COVENANT AND AGREE AS FOLLOWS:

1. POSITION AND DUTIES

1.1     Norsat will employ the Executive as its President and Chief Executive Officer.

1.2     Norsat may, by mutual agreement, change the position in which the Executive is employed.

1.3     The Executive will report to the Chairman of the Board of Norsat.

1.4     The Executive will perform the duties and responsibilities that are reasonably assigned to him from time to time.

1.5     The Executive agrees to faithfully and to the best of his ability to serve Norsat and to devote his or her full time, skill and effort to Norsat as a full-time employee. The Executive shall not, without the prior consent in writing of Norsat, engage in any other business, profession or occupation without the express written consent of Norsat.

1.6     It is essential to the continued success of Norsat that all transactions are conducted with integrity and the Executive agrees to adhere to sound ethical and honest business practices, comply with applicable laws and conduct his activities in a manner that shall reflect favourably on the Executive and Norsat.

2. COMPENSATION AND BENEFITS

2.1     Effective October 16, 2002, Norsat will pay the Executive an annual base salary of $410,000 (Cdn.) The Executive reserves the option to request that a portion of his

salary be paid in U.S. currency. Norsat will pay the Executive a signing bonus of $160,000 Cdn.

2.2     The Executive shall be entitled to participate, at the President & CEO level, in any bonus, profit sharing and incentive compensation programs established by Norsat.

2.3     Norsat will grant the Executive 150,000 stock options at strike price of $1.50 Cdn., in accordance with the terms of Norsat’s stock option plan. In the event the Executive resigns, the stock options will vest over three years as follows:

Stock Options	Vesting Date
30,000	December 31, 2003
50,000	December 31, 2004
70,000	June 30, 2005

In the event Norsat terminates the Executive’s employment, all options will vest immediately.

2.4     The Executive will be entitled to participate in all benefit plans that may be provided by Norsat to its employees.

2.5     The Executive shall be entitled to receive a monthly car allowance of $600.00.

2.6     Norsat shall reimburse the Executive for all reasonable and customary business expenses incurred by him in the performance of his duties hereunder, provided that the Executive shall submit vouchers and other supporting data to substantiate the amount of said expenses in accordance with Norsat’s corporate policies as implemented from time to time.

2.7     The Executive shall be entitled to 4 (four) weeks of vacation each calendar year to be taken at such times as are reasonably acceptable to Norsat.

2.8     For a period not exceeding eight months, commencing on November 1, 2002, (or until the Executive’s family moves), the Executive will reside in Norsat’s rented accommodation at the Executive Hotel on 1379 Howe Street, in Vancouver, B. C. At the end of the eight-month period, if the Executive’s family does not relocate to Vancouver, the Company will pay for the Executive’s accommodation in a suitable apartment.

2.9     Should the Executive’s family relocate to Vancouver, Norsat will pay the Executive a living allowance of $10,000 Cdn. per year.

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2.10     Norsat will pay for one trip per year to and from Japan for the Executive’s family, traveling in economy class. The cost of such trip for three family members is not to exceed a total of $6,000 Cdn. per trip.

2.11     Norsat will pay for qualifying expenses related to the relocation of the Executive and his family from Japan to Vancouver. These expenses would not exceed $50,000 Cdn. The Executive shall submit receipts. Should the actual costs exceed $50,000 Cdn., the Executive and Norsat agree to negotiate an equitable solution. It is agreed that Executive will utilize the services of one company to handle all of the relocation services.

Alternatively, Norsat may pay a third party directly to provide the relocation services. The relocation services need to be handled by one company. In either case, the Executive reserves the right to select the company , which will provide the relocation services.

Norsat will also pay for the airfare and ground transportation for the relocation of the Executive’s family to Vancouver.

If the Executive is terminated at any time, other than for just cause, or if the Executive resigns on or after June 2005, Norsat will pay for the qualifying expenses related to the relocation of the Executive and his family from Vancouver to Japan. These expenses would not exceed $50,000 Cdn. The Executive shall submit receipts. Should the actual costs exceed $50,000 Cdn., the Executive and Norsat agree to negotiate an equitable solution. Alternatively, Norsat may pay a third party to provide the relocation services. The Executive reserves the right to select the company, which will provide the relocation services. In either case, the relocation services need to be provided by one company. Norsat will also pay for the airfare and ground transportation for the relocation of the Executive’s family to Japan.

2.12     Without restricting any other provision of this Agreement, all confidential, proprietary and trade secret information of Norsat and its subsidiary, associated and affiliated entities, including, but without limiting the generality of the foregoing, information concerning the technology, research, test procedures and results, machinery, equipment, hardware, software, programs, manufacturing processes and products, assembly, services used, identity and description of components, purchasing, accounting, engineering, marketing, selling and servicing or business methods used, manufactured or developed by or for Norsat and information concerning suppliers or customers thereof (all herein called “Confidential Information”) disclosed or otherwise revealed to the Executive from time to time, shall be and remain the property of Norsat or its subsidiaries or affiliates (as the case may be) and shall be held by the Executive in strict confidence for the sole benefit of Norsat. The Executive shall not use, disclose, reveal, copy nor appropriate any Confidential Information whatsoever, nor cause or permit any other person to do so except as specifically permitted by Norsat, either during the term of this Agreement or following the termination thereof. The foregoing shall not prevent the Executive from using or disclosing any portion of the Confidential Information which:

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(a)	was known to the Executive prior to his receipt of the Confidential Information from Norsat and was not originally learned by or disclosed to Norsat in his capacity or in connection with his duties as an employee of Norsat;
(b)	was or becomes generally available to the public independently of Norsat; or
(c)	is rightfully disclosed to the Executive by any third party independently of Norsat.

2.13     The Executive acknowledges and covenants to observe and be bound by the terms of Norsat’s Employment Internet and E-Mail Usage Policy, a copy of which is attached hereto as Appendix “A”, Norsat’s Employee Agreement Respecting Confidentiality and Intellectual Property as Appendix “B”: and Agreement to Assign Inventions and Norsat’s Insider Trading Policy as Appendix “C” which form a part of this Agreement.

3.    UNFAIR COMPETITION

3.1       The Executive covenants and agrees that he will not during the term of this agreement and for a period of one year following the date of termination of this Agreement, directly or indirectly,

(a)	be connected as an officer, employee, consultant, owner, partner or otherwise of any business within Canada or the United States that directly or indirectly competes with the business carried on by Norsat or any of its associated, affiliated or subsidiary entities;
(b)	assist any other person or entity to hire or otherwise seek to induce employees of Norsat, or any of its associated, affiliated and subsidiary entities, to terminate their employment;
(c)	solicit or induce, or assist any other person or entity to solicit or induce, any customer of Norsat, or any of its associated, affiliated and subsidiary companies, to buy goods and services similar in function or nature to goods and services supplied by Norsat or any of its associated, affiliated or subsidiary entities;
(d)	submit, or assist any other person or entity to submit, a tender for the supply of goods or services if Norsat, or any of its associated, affiliated and subsidiary entities, is also submitting a tender for the supply of such goods or services.

3.2       The Executive confirms and agrees that the covenants and restrictions contained in the preceding Article 4.1, are reasonable and valid and that Norsat would suffer irreparable injury in the event of any breach of the Executive’s obligations therein.

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Accordingly, the Executive acknowledges and agrees that damages would be an inadequate remedy at law in connection with any such breach and that Norsat shall be entitled to obtain, in addition to any other remedy at law or equity, temporary and permanent injunctive relief enjoining and restraining the Executive from any such breach.

3.3     Any claim or cause of action by the Executive against Norsat, whether predicated on this Agreement or otherwise, shall not constitute a defence to the enforcement by Norsat of the covenants and restrictions set out in Article 4.1 hereof.

3.4     In the event a Court of competent jurisdiction determines that the period and geographical area set out in Article 4.1 hereof is unreasonable and that such provision would for that reason be void and unenforceable, the parties will request the Court to substitute such shorter period or such other geographical area as would provide the maximum protection to Norsat consistent with the enforceability of that provision.

3.5     In the event a Court of competent jurisdiction should hold the covenants and restrictions set out in Article 4.1 hereof to be illegal, invalid or unenforceable in any jurisdiction, such decision shall not affect any other covenant or provision of this Agreement or the application of any other covenant or provision.

4. TERMINATION

4.1     The Executive may terminate his employment by giving six weeks of written notice to Norsat. On receipt of such notice, Norsat may waive the notice period in whole or in part, and set an earlier date on which the Executive’s resignation shall become effective. In such case, Norsat will compensate the Executive for the balance of the resignation notice.

4.2     Norsat may terminate the Executive’s employment forthwith in the event of Just Cause for dismissal, in which case the Executive is not entitled to notice or payment in lieu thereof. When used in this Agreement, the term “just cause” includes a) the Executive’s failure to perform his employment duties hereunder after reasonable notice to the Executive by the Board, specifying such failure and providing the Executive with a reasonable opportunity to cure such failure given the content of the circumstances, as determined by the Board in the exercise of its reasonable discretion, b) the Executive’s breach of covenants or agreements contained in this Agreement, the Proprietary Rights Agreement, or any of the other material agreement or undertaking of the Executive, c) the Executive’s commission of a felony or any crime involving moral turpitude, fraud or misrepresentation, whether or not related to the business or property of Norsat, d) any act of the Executive against Norsat intended to enrich the Executive in derogation of his duties to Norsat, or e) any wilful or purposeful act or omission (or any act or omission taken in bad faith) of the Executive having the effect of injuring the business or business relationships of Norsat.

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In the absence of Just Cause, Norsat may terminate the Executive’s employment in accordance with the terms outlined in the Severance Agreement (Appendix “D”).

5. MISCELLANEOUS

5.1     This Agreement shall be interpreted in accordance with and governed by the laws of the Province of British Columbia.

5.2     This Agreement constitutes the entire agreement between the parties hereto and supersedes all previous communications, representations and agreements, whether oral or written, between the parties with respect to the subject matter of this Agreement, and without limiting the generality of the foregoing, this Agreement supersedes any previous agreements of employment entered into between Norsat (or any of its predecessor, subsidiary or associated companies or divisions) and the Executive.

5.3     No delay, omission or forbearance on the part of Norsat with respect to the enforcement of any of the provisions of this Agreement, or any renewal thereof, in relation to an act or omission by the Executive, shall constitute a waiver of the right of Norsat to enforce such provision in relation to that act or omission.

5.4     This Agreement may not be amended or modified except by written agreement of the parties.

5.5     Either party may, after attempting to resolve a dispute by negotiation, submit such dispute to arbitration in Vancouver, British Columbia, in accordance with the rules of the Commercial Arbitration Act (British Columbia).

IN WITNESS WHEREOF, the parties have executed and delivered this Agreement and agree that it is to be effective on the date first above written.

	NORSAT INTERNATIONAL INC
	By:
Executive:	Gaetano Manti        Chairman of the Board

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APPENDIX “A”

PROTECTION OF NORSAT’S COMPUTERIZED
INFORMATION RESOURCES POLICY

Effective November 17, 2000

Norsat information resources, client information, research, design and administration files, are its most valuable assets. It is important that access to, and use of, our firm’s computers and network systems be limited to authorized, trained users in the course of performing the work of our firm. Failure to comply with the following guidelines and prohibitions may result in disciplinary action, including dismissal.

EMPLOYEE INTERNET AND E-MAIL USAGE POLICY

As part of Norsat’s commitment to the utilization of new technologies, our employees have access to the Internet including e-mail. This technology is the property of Norsat, and any personal use is subject to scrutiny and disciplinary action.

In order to ensure compliance with existing copyright laws, and to protect us from being victimized by the threat of viruses or hacking into our systems, the following policy has been established.

1.	It is expected that, at all times, Norsat employees will behave in a decent, responsible and respectful manner when accessing the network, internet and email.
2.	It is Norsat’s policy to limit Internet and e-mail access to official business. Employees are authorized to access the Internet and e-mail for personal use during lunch or after-hours, and in strict compliance with the other terms of this policy. The introduction of viruses, or malicious tampering with any computer system, is expressly prohibited. Any such activity will result in disciplinary action that may include termination of employment.
3.	Employees will not use the Norsat’s Internet access for any illegal or unauthorized act, including any defamatory, harassing, offensive or discriminatory conduct. Keeping documents which are considered obscene or discriminatory can result in disciplinary action.
4.	Employees using Norsat’s accounts are acting as representatives of the firm. As such, employees should act accordingly so as not to damage the reputation of the firm.
5.	Employee email signatures are limited to information specific to the individual’s corporate role.
6.	Employees will not use the company Internet connection for private commercial purposes unrelated to Norsat business.

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7.	Employees will not use Norsat email to distribute non-corporate information. When broad distribution of corporate information is required email of a full attachment to each recipient may not be the most efficient distribution path. Consideration should always be given to saving the file to the file server and emailing a link (shortcut) to the file, particularly when sending to LAN users in the Burnaby office.
8.	Files downloaded from the Internet must be scanned with virus detection software before installation or execution. All appropriate precautions should be taken to detect viruses and to prevent the infection of other machines.
9.	Any software or files downloaded via the Internet into the company network become the property of Norsat. Any such files or software may be used only in ways that are consistent with their licenses or copyrights.
10.	No employee may use company facilities knowingly to download or distribute pirated software or data.
11.	The truth or accuracy of information on the Internet and in email should be considered suspect until confirmed by a separate and reliable source.
12.	Employees shall not place company material (copyrighted software, internal correspondence, etc.) on any publicly accessible Internet computer without prior permission.
13.	VPN connection to the Norsat network must be authorized by management and approved and configured by MIS. All VPN must run encryption.
14.	The Internet does not guarantee the privacy and confidentiality of information. Sensitive material transferred over the Internet may be at risk of detection by a third party. Employees must exercise caution and care when transferring such material in any form.
15.	The company has software and systems in place that can monitor and record all Internet and e-mail usage. We want you to be aware that our security systems are capable of recording (for each and every user) each World Wide Web site visit, each chat, newsgroup or email message, and each file transfer into and out of our internal networks, and we reserve the right to do so at any time. No employee should have any expectation of privacy as to his or her Internet usage. MIS may review Internet activity and analyze usage patterns, and they may choose to publicize this data to assure that company Internet resources are devoted to maintaining the highest levels of productivity. Norsat reserves the right to inspect an employee’s computer system for violations of this policy.

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16. Access to, distribution of, or downloading of pornographic or offensive content may result in immediate termination.

USE OF UNAUTHORIZED PROGRAMS AND SOFTWARE PROHIBITED

Computer “viruses”, programs that corrupt and destroy information systems, have caused serious and, in some cases, irreparable damage to the information stored on computer systems at many organizations. Generally these viruses are transmitted through email attachments, or are embedded in programs or files obtained from outside sources and brought in on floppy diskettes or CDs. Viruses have also been found on commercially sold and authorized software diskettes and CDs.

In connection with its work, Norsat provides certain licensed software products. In order to protect our information resources from possible corruption or destruction as described above, user installation or use of any software not provided by Norsat, or obtained from any other source whatsoever is strictly prohibited without prior approval and assistance from MIS. Any media from outside sources must be scanned using the most recent virus definitions prior to being loaded on any Norsat computer.

This prohibition specifically includes, but is not limited to, the use of programs obtained directly or indirectly from bulletin board services, enhancement programs to Norsat’s authorized applications or software, Internet access products or browsers, and games of any kind. Any questions which you may have in this regard must be addressed directly to the Help Desk at helpdesk@norsat.com.

CERTIFICATION OF ALL COMPUTER-READABLE DEVICES REQUIRED

In order to prevent the importing of a computer virus, all diskettes, CD’s or other computer-readable devices received from sources outside of our company, including, but not limited to devices received from our clients, must be certified virus-free before they are used on any of our computers or drives. Additionally, to prevent us from spreading a computer virus to any of our clients or other parties, all diskettes, CDs, or other computer-readable devices created or used at our company must be certified virus-free before being released to a third party. This certification must be performed by our LAN Administrator.

UNAUTHORIZED ACCESS TO NETWORK OR APPLICATIONS PROHIBITED

Norsat employees may have access only to those computer applications for which they have been trained, and which they are authorized to use. Employees who are not authorized to do so may not attempt to gain access to Norsat’s computers or network, nor may employees who are authorized to access specific applications attempt to access other applications which they have not been specifically authorized to use. Any questions which you may have in this regard must be addressed directly to MIS.

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CONFIDENTIALITY OF NETWORK PASSWORDS REQUIRED

Network users are responsible for any network activity performed under their user name and password. Passwords should be kept confidential and not divulged to any other individuals, including other employees, so as to prevent unauthorized access. Certain network activities are recorded by user name in activity audit logs which are reviewed by the manager of information systems and LAN administrator. Your disclosure of your password — even to a trusted office colleague — will interfere with computer security and compromise our information systems. Don’t do it.

Users must periodically change their passwords as instructed by a member of our Information Systems Department. Requests for specific user names and passwords will not be considered.

ALLOWING ACCESS TO CONFIDENTIAL INFORMATION PROHIBITED

Information stored on our computer system is for the exclusive use of employees as required in the course of performing the work of our company. When you leave your work area for any extended period of time, including lunch hours and/or any time you leave Norsat’s offices, you must log out of the network to prevent unauthorized access to confidential information.

SECURITY OF LAPTOPS

Laptops are issued with Defcon Security cables. It is the responsibility of all Laptop users to insure that the Defcon is used at all times. This includes while at the office and whenever traveling. If you require clarification on the use of the Defcon contact MIS HELP DESK.

If you have any questions or require clarification of any information contained in this Policy, please contact MIS.

I have read and understand this “PROTECTION OF NORSAT’S COMPUTERIZED INFORMATION RESOURCES POLICY” and agree to abide by the policies as written.

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APPENDIX “B”

EMPLOYEE AGREEMENT RESPECTING CONFIDENTIALITY AND
INTELLECTUAL PROPERTY AND AGREEMENT TO ASSIGN INVENTIONS

I, the undersigned, acknowledge that Norsat International Inc. and any of its affiliates, subsidiaries and branches (“Norsat”) possesses and may hereafter acquire valuable technical and non-technical information, that, to protect its legitimate interests, it is necessary for Norsat to protect such information by maintaining the same as secret or confidential, that Norsat does protect such information by maintaining it as secret or confidential, and that, through my employment with Norsat, I may be exposed to or generate additional information which requires such protection.

     Accordingly, in consideration of Norsat engaging me as an Employee, I covenant and agree that:

1.	I will not, either during the continuance of my employment by Norsat or at any time thereafter, divulge, publish or otherwise reveal, either directly or indirectly or through any person, firm or corporation, any information concerning the business affairs of Norsat or any secrets of Norsat (including, without limiting the generality of the foregoing, any information, whether written or oral, pertaining to technology, know-how, trade secrets, data, processes, inventions, developments, formulations, applications, methods of manufacture, information pertaining to existing or potential customers, suppliers, markets, contracts, prices, programs, strategies and products, or information pertaining to Norsat employees) to any person or persons, without the prior written consent of Norsat;
2.	I will not, either during the continuance of my employment by Norsat or at any time thereafter, use, for my own purposes or for any purposes other than those of Norsat, any information which I may acquire with respect to the business and affairs of Norsat;
3.	I will, during the term of my employment and at all times thereafter, keep confidential all information and materials provided to me by Norsat, excepting only such information as is already or hereafter becomes known to the public, including any such information and materials relating to any customer, supplier or other party transacting business with Norsat, and not to release, use or disclose the same without the prior written consent of Norsat; and
4.	Each of the above covenants shall survive the termination of my employment by Norsat, even if occasioned by a breach or wrongful termination by Norsat.
5.	Any and all inventions, discoveries, developments, modifications, procedures, practices, ideas, innovations, systems, programs, know-how or designs which I may develop during my employment by Norsat shall be the property of Norsat and I will execute applications for patents or copyrights in respect thereof, if and when requested by Norsat, and/or assign the same to Norsat on request, and that all such inventions, practices, ideas, innovations, systems, programs, know-how or designs shall be subject to the confidentiality, non-use and non-disclosure restrictions specified above.

DATED this                      day of                                , 2001.

SIGNED AND DELIVERED
in the presence of:

Signature of Witness
Name of Witness (Print)	Employee Signature
	Employee Name (Print)

Norsat Confidentiality Agreement October 2001. Version 2

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APPENDIX “C”

*NORSAT INTERNATIONAL INC.

INSIDER TRADING POLICY — SUMMARY

Insider Trading: Subject to the general guidelines and the specific rules that follow, all employees, directors, officers and other Insiders permit trading in Norsat’s shares throughout the year.

Guidelines: The policy contains two general guidelines as follows:

1.	An Insider should not deal in securities of Norsat at any time if he or she is in possession of information which would reasonably be expected to have a significant effect on the market price of such securities and the public does not have the same information; and
2.	Information which would reasonably be expected to have a significant effect on the market price, which such Insider has by reason of his or her position with Norsat and which has not been generally disclosed should not be communicated to any other person or used for any other purpose than to carry out such person’s duties to Norsat.

Specific Rules: The policy contains the following specific rules, among others. Please read the entire Policy attached for the complete rules.

1.	Financial Staff: No trading is permitted by employees and officers directly involved in the preparation of annual and quarterly financial statements within a period commencing from the beginning of the preparation of the statements until after one business day following the date of issuance of a press release by the Company announcing its annual or quarterly financial results.
2.	Directors, Officers, Employees: No trading is permitted within a period commencing from the time an employee, director or officer receives draft annual or quarterly financial statements and ending after one business day following the date of issuance of a press release by the Company announcing its annual or quarterly financial results.
3.	All Insiders: No trading is permitted during times of unusual activity (e.g. material acquisitions or divestitures) or during any “black-out period” announced by the Company. Trading may commence after one business day following the date of issuance of a press release by the Company announcing a material change or specific public announcement or on advice from the Company that the “black-out period” has ended.

No Insider who has actual knowledge of material undisclosed information relating to the Company is permitted to trade, either directly or indirectly, in the Company’s shares or to disclose that information except as required in the necessary course of business. Any concern over the interpretation of this rule should be referred to either the President or Chief Financial Officer of the Company.

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Procedures for Reporting: Where a named Insider for reporting purposes makes a change in his ownership of securities, it is important that Insider Trading Reports are filed immediately (within 7 calendar days of the ownership change).

1.	INSIDER TRADING & PUBLIC NON-DISCLOSURE POLICY
1.1	Policy Summary

Norsat’s Common Shares are listed and traded on The Toronto Stock Exchange (the “TSE”) and NASDAQ. Because Norsat is a reporting issuer and listed on the TSE and NASDAQ, it is subject to Canadian and Unites States securities laws, including those that impose penalties for “insider trading”. This term refers to trading by “insiders” of a company (or persons who, because of the nature of their job, come into contact with or become aware of important or confidential information concerning Norsat or its operations) when they have knowledge of matters which have not been generally disclosed (i.e., by a press release to the market). Any trading by a person who has such information may lead to civil and quasi-criminal liability.

In order to protect you and Norsat from any violation of applicable insider trading laws, the Board of Directors of Norsat adopted this Insider Trading Policy in 2000. This Policy is reviewed and revised periodically. Every director, officer and employee is required to comply with the rules and procedures set out in this Policy in respect of insider trading. This document is to assist directors, officers and employees in complying with the requirements and is not intended to be an exhaustive summary of the applicable legislative requirements. Underlying all of this — use your common sense and be prudent. Any questions should be directed to the Chief Financial Officer.

1. Trading in Securities and Tipping

a)	No trading is permitted by employees and officers directly involved in the preparation of annual and quarterly financial statements within a period commencing from the beginning of the preparation of the statements until after one business day following the date of issuance of a press release by the Company announcing its annual or quarterly financial results.
b)	No trading is permitted within a period commencing from the time an employee, director or officer receives draft annual or quarterly financial statements and ending after one business day following the date of issuance of a press release by the Company announcing its annual or quarterly financial results.
c)	No trading is permitted during times of unusual activity (e.g. material acquisitions or divestitures) or during any “black-out period” announced by the Company. Trading may commence after one business day following the date of issuance of a press release by the Company announcing a material change or specific public announcement or on advice from the Company that the “black-out period” has ended.
d)	Notwithstanding paragraph (a) above, no director, officer or employee who has actual knowledge of material undisclosed information relating to the Company is permitted to trade, either directly or indirectly, in the Company’s shares or to

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	disclose that information except as required in the necessary course of business. Any concern over the interpretation of this rule should be referred to the Chief Financial Officer of the Company.
e)	Subject to (a) (b) (c) and (d) above, trading in the Company’s shares is permitted throughout the year by all employees, directors and officers.
f)	All trades of the Company’s securities by “reporting insiders” (any director or senior officer as defined in the Policy) must be reported within seven days to the Chief Financial Officer of the Company.
g)	“Trading” includes the receipt or exercise of stock options granted by the Company.

IF YOU FAIL TO OBSERVE THIS POLICY, YOU AND NORSAT MAY BE LEGALLY LIABLE UNDER APPLICABLE SECURITIES LAWS.

1.2 Overview

When may a director, officer or employee properly buy or sell shares in Norsat? There is no simple, uniform answer to this question, but it underscores the importance of a policy of adequate and timely disclosure both for the benefit of the investing public and for the protection of management and the Company. Public disclosure at the earliest stages of new developments may be premature, and the best interests of Norsat and its shareholders may require secrecy about new developments before they reach the stage where public disclosure is appropriate. Still, hindsight is remarkably keen and the accusation can always be made that a purchase or sale of shares by a director, officer or employee was made because of inside knowledge of a future favourable or unfavourable development.

Liability arises for trading securities on the basis of information which has not been disclosed to the public or for disclosing information to persons who use it for the purpose of trading or pass it on to others (“tipping”), if the information is “material” within the meaning of the securities laws. Do not rely solely on your own judgment but seek advice when needed from the President or Chief Financial Officer as to whether particular information is material. Information which may be material includes financial and operating results; negotiations concerning contracts with outside parties; possible dispositions or acquisitions of properties, information on other significant assets or other corporations or businesses; decisions concerning dividends; important business developments; financing; important personnel changes; litigation and labour negotiations.

A purchase or sale of securities by persons who are “insiders” of the Company or who are in a “special relationship” with the Company may result in such person incurring substantial liability if use is made of confidential information which has not been generally disclosed to the public, and such liability may extend to Norsat itself. Norsat is anxious to avoid any breach of securities laws and to avoid any action, which might appear to be taken on the basis of an improper use of confidential information.

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1.3 Insiders

The following guidelines apply to “insiders” and others in a “special relationship” with Norsat (an “insider” or anyone in a “special relationship” with Norsat is hereinafter referred to as an “Insider”). It should be noted that Insider includes directors, officers, and employees of Norsat, anyone who engages in any business or professional activity with Norsat, certain relatives and partners of Insiders, a trust in which an Insider has a substantial beneficial interest and trusts as to which an Insider serves as Trustee. A person who receives confidential information from an Insider and who has knowledge that such person is an Insider shall also be deemed to be an Insider.

1.	Insider Trading
	a)	Definition of Insider
		While the definition of an Insider differs in the various jurisdictions, the definition of an Insider includes:
		•	The Board of Directors and Officers, e.g. (CEO and Vice Presidents) of Norsat.
		•	All employees of Norsat.
		•	Anyone who engages in any business or professional activity with Norsat.
		•	Any director, officer, or employee of such person or company.
		•	“Tippees”, i.e., people who receive confidential information from Insiders or other “tippees”
	b)	Guidelines
		The policy contains two general guidelines as follows:
		An Insider should not deal in securities of Norsat at any time if he/she is in possession of information which would reasonably be expected to have a significant effect on the market price of such securities and the public does not have the same information; and
		Information which would reasonably be expected to have a significant effect on the market price which such Insider has by reason of his or her position with Norsat and which has not been generally disclosed should not be communicated to any other person or used for any other purpose than to carry out such person’s duties to Norsat.
	c)	Specific Rules
		In addition to the one general guidelines set out above, the following specific rules should be observed:
		1.	No trading in securities of the Company by Insiders directly involved in the preparation of the Company’s, quarterly or annual financial statements can take place from the beginning of the preparation of the statements until after one

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	business day has elapsed from the date on which the Company’s press release announcing the results for the fiscal period was disseminated.
2.	No trading in securities of the Company by Insiders is permitted within a period commencing from the time an employee, director or officer receives draft annual or quarterly financial statements and ending after one business day following the date of issuance of a press release by the Company announcing its annual or quarterly financial results.
3.	If the Company announces a “black-out period” or if an Insider knows that Norsat is about to make a news release of material information, at any time, the Insider should not trade from the time of such knowledge of the release (or announcement of the “black-out period”) until after one business day has elapsed from the date of dissemination of the material change.
4.	No Insider may at any time sell short the securities of Norsat.
5.	No Insider may at any time buy or sell a call or put option in respect of a security of Norsat.
6.	In order to avoid possible inadvertent conflict with these guidelines, standing sell orders or standing purchase orders should not be left with a broker.

Securities include, without limitation, the shares and options of Norsat.

In addition, all Insiders and persons associated and affiliated with them, are restricted from making use, for their own advantage, of any specific confidential information which, if generally known, might reasonably be expected to materially affect the value of the securities. Persons doing so may be subject to criminal prosecution and may also be liable to compensate any other person for any direct loss suffered as a result of the transaction, and will also be accountable to Norsat for any direct benefit or advantage received as a result of the transaction.

It is customary for Norsat to provide selected employees with monthly financial results. Each such Insider will have to determine the materiality of such results in light of the first general guideline.

There is a prohibition for anyone in a special relationship with a company from buying or selling securities of the company with the knowledge of a material fact or material change in the affairs of the company which he or she knew or ought reasonably to have known had not been generally disclosed. Persons in a special relationship with a corporation are also prohibited from informing (other than in the ordinary course of business) another person about a material fact or material change before such fact or change has been generally disclosed. The scope of persons having a “special relationship” with a company is very broad, and includes Insiders.

2.	Insider Reporting
	a)	Insiders For Reporting Purposes
		Norsat, on advice of counsel, considers an Insider for reporting purposes, to be any member of the Board of Directors, a 10% or greater shareholder, or senior officer.

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	The statutory requirements provide that a person must file a report, other than a nil report on becoming an Insider for reporting purposes, and must report when a change occurs in his or her direct or indirect beneficial ownership of securities of Norsat, including any transfer of any securities into the name of an agent, nominee or custodian, and RRSP.
b)	Procedures for Reporting
	Where a named Insider for reporting purposes acquires or makes a change in his or her ownership of securities of Norsat, it is important that Insider Trading Reports are filed immediately (within 7 calendar days of the ownership change) in order to comply with securities legislation in each of the relevant provinces. Insider Trading Reports must be filed in the provinces of Quebec, Ontario, Alberta, and British Columbia
	The Chief Financial Officer (CFO) will coordinate the filing of Insider Reports. Accordingly, the CFO must be advised promptly of any changes (direct or indirect) in an Insider’s ownership of Norsat securities so that the necessary reports may be completed and filed on behalf of the Insider. Please fax or e-mail the following information to the Chief Financial Officer:
	•	The trade date of the transaction (not the settlement date);
	•	The nature of the transaction (acquired/disposed, etc.)
	•	The number of securities acquired/disposed of; and
	•	The unit price paid or received on the day of the transaction.
	Each Insider is responsible for the accuracy and timeliness of their Insider Trading Reports.

1.4	Public Non-Disclosure:
	1. No insider may speculate about any rumors concerning Norsat to any “outsiders”, as defined in 7.5 below.
	2. No insider may discuss confidential Norsat business, pending contracts, mergers or acquisitions, or other material events of Norsat with any outside parties, except in the normal course of business and with approval of senior management.
	3. No insider may make statements about the future that have not been pre-qualified by senior management and protected by safe harbour provision.
	4. No insider may initiate or respond to comments on Internet chat groups about Norsat’s confidential business.

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1.5 Definition of “Outsider”

Any individual who is not a Director or Officer of Norsat; and any individual who is not an employee of Norsat.
 

Gaetano Manti Chairman of the Board Norsat International Inc.
SIGNED AND DELIVERED in the presence of:
Signature of Witness
Name of Witness (Print)	Employee Signature
	Employee Name (Print)

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APPENDIX “D”

SEVERANCE AGREEMENT

If Norsat International Inc. (“Norsat”) terminates the Executive other than for just cause, before June 30, 2005, Norsat shall give the Executive 12 months written notice, plus a further month of written notice for each full year of service, (and prorated if notice of termination is given during a partial year of service) that the Executive has with Norsat.

If Norsat terminates the Executive other than for just cause, after June 30, 2005, Norsat shall pay the Executive only the greater of the following:

(a)	1 week’s pay or 1 week’s notice in lieu of pay, or a combination of 1 week’s notice and pay, for each year of continuous service; or
(b)	The minimum notice or pay, or combination of notice and pay, if any, required by the provisions of the employment standards legislation that governs your employment.

In the event of termination, with or without cause, the terms of the stock option agreement the Executive signs will govern the disposition of all stock options to which the Executive is entitled.

In the event of termination, with or without cause, all stock options will vest immediately and the Executive will have two years from the date on which he is given notice of termination within which to exercise all the vested stock options.

Signed:	Yutaka Ueda
Date:
Witnessed by:
Signed:
Date:

19 EX-6.2 5 o09662exv6w2.htm EMPLOYMENT CONTRACT TROY BULLOCK

Exhibit 6.2

THIS EMPLOYMENT AGREEMENT, dated as of October 23, 2001 is made between Norsat International Inc., a company incorporated under the laws of British Columbia (“Norsat”) and Troy Bullock (the “Executive”).

A.	WHEREAS Norsat is engaged in the business of design, manufacture, sales and servicing of satellite technology and communication products;
B.	AND WHEREAS the Executive has agreed to accept Norsat’s offer of employment as Vice President of Finance, upon the terms and conditions hereinafter set forth;

THE PARTIES HERETO COVENANT AND AGREE AS FOLLOWS:

1.	POSITION AND DUTIES
1.4	Norsat will employ the Executive as its Vice President of Finance.
1.4	Norsat may, by mutual agreement, change the position in which the Executive is employed.
1.4	The Executive will report to the President & C.E.O. of Norsat.
1.4	The Executive will perform the duties and responsibilities that are reasonably assigned to him or her from time to time.
1.4	The Executive agrees to faithfully and to the best of his ability to serve Norsat and to devote his or her full time, skill and effort to Norsat as a full-time employee. The Executive shall not, without the prior consent in writing of Norsat, engage in any other business, profession or occupation without the express written consent of Norsat.
1.4	It is essential to the continued success of Norsat that all transactions are conducted with integrity and the Executive agrees to adhere to sound ethical and honest business practices, comply with applicable laws and conduct his activities in a manner that shall reflect favourably on the Executive and Norsat.
2.	COMPENSATION AND BENEFITS
1.4	Norsat will pay the Executive an annual base salary of $150,000 (Cdn.)

1.4	The Executive shall be entitled to participate, at the Vice President level, in any bonus, profit sharing and incentive compensation programs established by Norsat.
1.4	Norsat will grant the Executive stock options in accordance with the terms of Norsat’s stock option plan.
1.4	The Executive will be entitled to participate in all benefit plans that may be provided by Norsat to its employees.
1.4	The Executive shall be entitled to receive a monthly car allowance of $500.00.
1.4	Norsat shall reimburse the Executive for all reasonable and customary business expenses incurred by him in the performance of his duties hereunder, provided that the Executive shall submit vouchers and other supporting data to substantiate the amount of said expenses in accordance with Norsat’s corporate policies as implemented from time to time.
1.4	The Executive shall be entitled to five (5) weeks of vacation each calendar year to be taken at such times as are reasonably acceptable to Norsat.
3.	CONFIDENTIAL INFORMATION
1.4	Without restricting any other provision of this Agreement, all confidential, proprietary and trade secret information of Norsat and its subsidiary, associated and affiliated entities, including, but without limiting the generality of the foregoing, information concerning the technology, research, test procedures and results, machinery, equipment, hardware, software, programs, manufacturing processes and products, assembly, services used, identity and description of components, purchasing, accounting, engineering, marketing, selling and servicing or business methods used, manufactured or developed by or for Norsat and information concerning suppliers or customers thereof (all herein called “Confidential Information”) disclosed or otherwise revealed to the Executive from time to time, shall be and remain the property of Norsat or its subsidiaries or affiliates (as the case may be) and shall be held by the Executive in strict confidence for the sole benefit of Norsat. The Executive shall not use, disclose, reveal, copy nor appropriate any Confidential Information whatsoever, nor cause or permit any other person to do so except as specifically permitted by Norsat, either during the term of this Agreement or following the termination thereof. The foregoing shall not prevent the Executive from using or disclosing any portion of the Confidential Information which:

(a) was known to the Executive prior to his receipt of the Confidential Information from Norsat and was not originally learned by or disclosed to

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	Norsat in his capacity or in connection with his duties as an employee of Norsat;
(b)	was or becomes generally available to the public independently of Norsat; or
(c)	is rightfully disclosed to the Executive by any third party independently of Norsat.

1.4	The Executive acknowledges and covenants to observe and be bound by the terms of Norsat’s Employment Internet and E-Mail Usage Policy, a copy of which is attached hereto as Appendix “A”, Norsat’s Employee Agreement Respecting Confidentiality and Intellectual Property as Appendix “B”: and Agreement to Assign Inventions and Norsat’s Insider Trading Policy as Appendix “C” which form a part of this Agreement.
4.	UNFAIR COMPETITION
1.4	The Executive covenants and agrees that he will not during the term of this agreement and for a period of one year following the date of termination of this Agreement, directly or indirectly,

(a)	be connected as an officer, employee, consultant, owner, partner or otherwise of any business within Canada or the United States that directly or indirectly competes with the business carried on by Norsat or any of its associated, affiliated or subsidiary entities;
(b)	assist any other person or entity to hire or otherwise seek to induce employees of Norsat, or any of its associated, affiliated and subsidiary entities, to terminate their employment;
(c)	solicit or induce, or assist any other person or entity to solicit or induce, any customer of Norsat, or any of its associated, affiliated and subsidiary companies, to buy goods and services similar in function or nature to goods and services supplied by Norsat or any of its associated, affiliated or subsidiary entities;
(d)	submit, or assist any other person or entity to submit, a tender for the supply of goods or services if Norsat, or any of its associated, affiliated and subsidiary entities, is also submitting a tender for the supply of such goods or services.

1.4 The Executive confirms and agrees that the covenants and restrictions contained in the preceding Article 4.1, are reasonable and valid and that Norsat would suffer irreparable injury in the event of any breach of the Executive’s obligations therein. Accordingly, the Executive acknowledges and agrees that damages would

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	be an inadequate remedy at law in connection with any such breach and that Norsat shall be entitled to obtain, in addition to any other remedy at law or equity, temporary and permanent injunctive relief enjoining and restraining the Executive from any such breach.
1.4	Any claim or cause of action by the Executive against Norsat, whether predicated on this Agreement or otherwise, shall not constitute a defence to the enforcement by Norsat of the covenants and restrictions set out in Article 4.1 hereof.
1.4	In the event a Court of competent jurisdiction determines that the period and geographical area set out in Article 4.1 hereof is unreasonable and that such provision would for that reason be void and unenforceable, the parties will request the Court to substitute such shorter period or such other geographical area as would provide the maximum protection to Norsat consistent with the enforceability of that provision.
1.4	In the event a Court of competent jurisdiction should hold the covenants and restrictions set out in Article 4.1 hereof to be illegal, invalid or unenforceable in any jurisdiction, such decision shall not affect any other covenant or provision of this Agreement or the application of any other covenant or provision.
5.	TERMINATION
1.4	The Executive may terminate his employment by giving six weeks of written notice to Norsat. On receipt of such notice, Norsat may waive the notice period in whole or in part, and set an earlier date on which the Executive’s resignation shall become effective. In such case, Norsat will compensate the Executive for the balance of the resignation notice.
1.4	Norsat may terminate the Executive’s employment forthwith in the event of Just Cause for dismissal, in which case the Executive is not entitled to notice or payment in lieu thereof. When used in this Agreement, the term “just cause” includes a) the Executive’s failure to perform his employment duties hereunder after reasonable notice to the Executive by the Board, specifying such failure and providing the Executive with a reasonable opportunity to cure such failure given the content of the circumstances, as determined by the Board in the exercise of its reasonable discretion, b) the Executive’s breach of covenants or agreements contained in this Agreement, the Proprietary Rights Agreement, or any of the other material agreement or undertaking of the Executive, c) the Executive’s commission of a felony or any crime involving moral turpitude, fraud or misrepresentation, whether or not related to the business or property of Norsat, d) any act of the Executive against Norsat intended to enrich the Executive in derogation of his duties to Norsat, or e) any wilful or purposeful act or omission (or any act or omission taken in bad faith) of the Executive having the effect of injuring the business or business relationships of Norsat.

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1.4	In the absence of Just Cause, Norsat may terminate the Executive’s employment in accordance with the terms outlined in the Severance Agreement (Appendix “D”).
6.	MISCELLANEOUS
1.4	This Agreement shall be interpreted in accordance with and governed by the laws of the Province of British Columbia.
1.4	This Agreement constitutes the entire agreement between the parties hereto and supersedes all previous communications, representations and agreements, whether oral or written, between the parties with respect to the subject matter of this Agreement, and without limiting the generality of the foregoing, this Agreement supersedes any previous agreements of employment entered into between Norsat (or any of its predecessor, subsidiary or associated companies or divisions) and the Executive.
1.4	No delay, omission or forbearance on the part of Norsat with respect to the enforcement of any of the provisions of this Agreement, or any renewal thereof, in relation to an act or omission by the Executive, shall constitute a waiver of the right of Norsat to enforce such provision in relation to that act or omission.
1.4	This Agreement may not be amended or modified except by written agreement of the parties.
1.4
1.4	6.5 Either party may, after attempting to resolve a dispute by negotiation, submit such dispute to arbitration in Vancouver, British Columbia, in accordance with the rules of the Commercial Arbitration Act (British Columbia).

IN WITNESS WHEREOF, the parties have executed and delivered this Agreement and agree that it is to be effective on the date first above written.

	NORSAT INTERNATIONAL INC.
	By:
Executive:		Mark Ahrens-Townsend President & CEO

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APPENDIX “A”

PROTECTION OF NORSAT’S COMPUTERIZED
INFORMATION RESOURCES POLICY

Effective November 17, 2000

Norsat information resources, client information, research, design and administration files, are its most valuable assets. It is important that access to, and use of, our firm’s computers and network systems be limited to authorized, trained users in the course of performing the work of our firm. Failure to comply with the following guidelines and prohibitions may result in disciplinary action, including dismissal.

EMPLOYEE INTERNET AND E-MAIL USAGE POLICY

As part of Norsat’s commitment to the utilization of new technologies, our employees have access to the Internet including e-mail. This technology is the property of Norsat, and any personal use is subject to scrutiny and disciplinary action.

In order to ensure compliance with existing copyright laws, and to protect us from being victimized by the threat of viruses or hacking into our systems, the following policy has been established.

1.	It is expected that, at all times, Norsat employees will behave in a decent, responsible and respectful manner when accessing the network, internet and email.
2.	It is Norsat’s policy to limit Internet and e-mail access to official business. Employees are authorized to access the Internet and e-mail for personal use during lunch or after-hours, and in strict compliance with the other terms of this policy. The introduction of viruses, or malicious tampering with any computer system, is expressly prohibited. Any such activity will result in disciplinary action that may include termination of employment.
3.	Employees will not use the Norsat’s Internet access for any illegal or unauthorized act, including any defamatory, harassing, offensive or discriminatory conduct. Keeping documents which are considered obscene or discriminatory can result in disciplinary action.
4.	Employees using Norsat’s accounts are acting as representatives of the firm. As such, employees should act accordingly so as not to damage the reputation of the firm.
5.	Employee email signatures are limited to information specific to the individual’s corporate role.
6.	Employees will not use the company Internet connection for private commercial purposes unrelated to Norsat business.

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7.	Employees will not use Norsat email to distribute non-corporate information. When broad distribution of corporate information is required email of a full attachment to each recipient may not be the most efficient distribution path. Consideration should always be given to saving the file to the file server and emailing a link (shortcut) to the file, particularly when sending to LAN users in the Burnaby office.
8.	Files downloaded from the Internet must be scanned with virus detection software before installation or execution. All appropriate precautions should be taken to detect viruses and to prevent the infection of other machines.
9.	Any software or files downloaded via the Internet into the company network become the property of Norsat. Any such files or software may be used only in ways that are consistent with their licenses or copyrights.
10.	No employee may use company facilities knowingly to download or distribute pirated software or data.
11.	The truth or accuracy of information on the Internet and in email should be considered suspect until confirmed by a separate and reliable source.
12.	Employees shall not place company material (copyrighted software, internal correspondence, etc.) on any publicly accessible Internet computer without prior permission.
13.	VPN connection to the Norsat network must be authorized by management and approved and configured by MIS. All VPN must run encryption.
14.	The Internet does not guarantee the privacy and confidentiality of information. Sensitive material transferred over the Internet may be at risk of detection by a third party. Employees must exercise caution and care when transferring such material in any form.
15.	The company has software and systems in place that can monitor and record all Internet and e-mail usage. We want you to be aware that our security systems are capable of recording (for each and every user) each World Wide Web site visit, each chat, newsgroup or email message, and each file transfer into and out of our internal networks, and we reserve the right to do so at any time. No employee should have any expectation of privacy as to his or her Internet usage. MIS may review Internet activity and analyze usage patterns, and they may choose to publicize this data to assure that company Internet resources are devoted to maintaining the highest levels of productivity. Norsat reserves the right to inspect an employee’s computer system for violations of this policy.

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16. Access to, distribution of, or downloading of pornographic or offensive content may result in immediate termination.

USE OF UNAUTHORIZED PROGRAMS AND SOFTWARE PROHIBITED

Computer “viruses”, programs that corrupt and destroy information systems, have caused serious and, in some cases, irreparable damage to the information stored on computer systems at many organizations. Generally these viruses are transmitted through email attachments, or are embedded in programs or files obtained from outside sources and brought in on floppy diskettes or CDs. Viruses have also been found on commercially sold and authorized software diskettes and CDs.

In connection with its work, Norsat provides certain licensed software products. In order to protect our information resources from possible corruption or destruction as described above, user installation or use of any software not provided by Norsat, or obtained from any other source whatsoever is strictly prohibited without prior approval and assistance from MIS. Any media from outside sources must be scanned using the most recent virus definitions prior to being loaded on any Norsat computer.

This prohibition specifically includes, but is not limited to, the use of programs obtained directly or indirectly from bulletin board services, enhancement programs to Norsat’s authorized applications or software, Internet access products or browsers, and games of any kind. Any questions which you may have in this regard must be addressed directly to the Help Desk at helpdesk@norsat.com.

CERTIFICATION OF ALL COMPUTER-READABLE DEVICES REQUIRED

In order to prevent the importing of a computer virus, all diskettes, CD’s or other computer-readable devices received from sources outside of our company, including, but not limited to devices received from our clients, must be certified virus-free before they are used on any of our computers or drives. Additionally, to prevent us from spreading a computer virus to any of our clients or other parties, all diskettes, CDs, or other computer-readable devices created or used at our company must be certified virus-free before being released to a third party. This certification must be performed by our LAN Administrator.

UNAUTHORIZED ACCESS TO NETWORK OR APPLICATIONS PROHIBITED

Norsat employees may have access only to those computer applications for which they have been trained, and which they are authorized to use. Employees who are not authorized to do so may not attempt to gain access to Norsat’s computers or network, nor may employees who are authorized to access specific applications attempt to access other applications which they have not been specifically authorized to use. Any questions which you may have in this regard must be addressed directly to MIS.

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CONFIDENTIALITY OF NETWORK PASSWORDS REQUIRED

Network users are responsible for any network activity performed under their user name and password. Passwords should be kept confidential and not divulged to any other individuals, including other employees, so as to prevent unauthorized access. Certain network activities are recorded by user name in activity audit logs which are reviewed by the manager of information systems and LAN administrator. Your disclosure of your password — even to a trusted office colleague — will interfere with computer security and compromise our information systems. Don’t do it.

Users must periodically change their passwords as instructed by a member of our Information Systems Department. Requests for specific user names and passwords will not be considered.

ALLOWING ACCESS TO CONFIDENTIAL INFORMATION PROHIBITED

Information stored on our computer system is for the exclusive use of employees as required in the course of performing the work of our company. When you leave your work area for any extended period of time, including lunch hours and/or any time you leave Norsat’s offices, you must log out of the network to prevent unauthorized access to confidential information.

SECURITY OF LAPTOPS

Laptops are issued with Defcon Security cables. It is the responsibility of all Laptop users to insure that the Defcon is used at all times. This includes while at the office and whenever traveling. If you require clarification on the use of the Defcon contact MIS HELP DESK.

If you have any questions or require clarification of any information contained in this Policy, please contact MIS.

I have read and understand this “PROTECTION OF NORSAT’S COMPUTERIZED INFORMATION RESOURCES POLICY” and agree to abide by the policies as written.

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APPENDIX “B”

EMPLOYEE AGREEMENT RESPECTING CONFIDENTIALITY AND
INTELLECTUAL PROPERTY AND AGREEMENT TO ASSIGN INVENTIONS

I, the undersigned, acknowledge that Norsat International Inc. and any of its affiliates, subsidiaries and branches (“Norsat”) possesses and may hereafter acquire valuable technical and non-technical information, that, to protect its legitimate interests, it is necessary for Norsat to protect such information by maintaining the same as secret or confidential, that Norsat does protect such information by maintaining it as secret or confidential, and that, through my employment with Norsat, I may be exposed to or generate additional information which requires such protection.

     Accordingly, in consideration of Norsat engaging me as an Employee, I covenant and agree that:

1.	I will not, either during the continuance of my employment by Norsat or at any time thereafter, divulge, publish or otherwise reveal, either directly or indirectly or through any person, firm or corporation, any information concerning the business affairs of Norsat or any secrets of Norsat (including, without limiting the generality of the foregoing, any information, whether written or oral, pertaining to technology, know-how, trade secrets, data, processes, inventions, developments, formulations, applications, methods of manufacture, information pertaining to existing or potential customers, suppliers, markets, contracts, prices, programs, strategies and products, or information pertaining to Norsat employees) to any person or persons, without the prior written consent of Norsat;
2.	I will not, either during the continuance of my employment by Norsat or at any time thereafter, use, for my own purposes or for any purposes other than those of Norsat, any information which I may acquire with respect to the business and affairs of Norsat;
3.	I will, during the term of my employment and at all times thereafter, keep confidential all information and materials provided to me by Norsat, excepting only such information as is already or hereafter becomes known to the public, including any such information and materials relating to any customer, supplier or other party transacting business with Norsat, and not to release, use or disclose the same without the prior written consent of Norsat; and
4.	Each of the above covenants shall survive the termination of my employment by Norsat, even if occasioned by a breach or wrongful termination by Norsat.
5.	Any and all inventions, discoveries, developments, modifications, procedures, practices, ideas, innovations, systems, programs, know-how or designs which I may develop during my employment by Norsat shall be the property of Norsat and I will execute applications for patents or copyrights in respect thereof, if and when requested by Norsat, and/or assign the same to Norsat on request, and that all such inventions, practices, ideas, innovations, systems, programs, know-how or designs shall be subject to the confidentiality, non-use and non-disclosure restrictions specified above.

DATED this ___________________________ day of ______________________________, 2001.

SIGNED AND DELIVERED in the presence of:
Signature of Witness
Name of Witness (Print)	Employee Signature
	Employee Name (Print)

Norsat Confidentiality Agreement October 2001. Version 2

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APPENDIX “C”

*NORSAT INTERNATIONAL INC.

INSIDER TRADING POLICY — SUMMARY

Insider Trading: Subject to the general guidelines and the specific rules that follow, all employees, directors, officers and other Insiders permit trading in Norsat’s shares throughout the year.

Guidelines: The policy contains two general guidelines as follows:

1.	An Insider should not deal in securities of Norsat at any time if he or she is in possession of information which would reasonably be expected to have a significant effect on the market price of such securities and the public does not have the same information; and
2.	Information which would reasonably be expected to have a significant effect on the market price, which such Insider has by reason of his or her position with Norsat and which has not been generally disclosed should not be communicated to any other person or used for any other purpose than to carry out such person’s duties to Norsat.

Specific Rules: The policy contains the following specific rules, among others. Please read the entire Policy attached for the complete rules.

1.	Financial Staff: No trading is permitted by employees and officers directly involved in the preparation of annual and quarterly financial statements within a period commencing from the beginning of the preparation of the statements until after one business day following the date of issuance of a press release by the Company announcing its annual or quarterly financial results.
2.	Directors, Officers, Employees: No trading is permitted within a period commencing from the time an employee, director or officer receives draft annual or quarterly financial statements and ending after one business day following the date of issuance of a press release by the Company announcing its annual or quarterly financial results.
3.	All Insiders: No trading is permitted during times of unusual activity (e.g. material acquisitions or divestitures) or during any “black-out period” announced by the Company. Trading may commence after one business day following the date of issuance of a press release by the Company announcing a material change or specific public announcement or on advice from the Company that the “black-out period” has ended.

No Insider who has actual knowledge of material undisclosed information relating to the Company is permitted to trade, either directly or indirectly, in the Company’s shares or to disclose that information except as required in the necessary course of business. Any concern over the interpretation of this rule should be referred to either the President or Chief Financial Officer of the Company.

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Procedures for Reporting: Where a named Insider for reporting purposes makes a change in his ownership of securities, it is important that Insider Trading Reports are filed immediately (within 7 calendar days of the ownership change).

1. INSIDER TRADING & PUBLIC NON-DISCLOSURE POLICY

1.1 Policy Summary

Norsat’s Common Shares are listed and traded on The Toronto Stock Exchange (the “TSE”) and NASDAQ. Because Norsat is a reporting issuer and listed on the TSE and NASDAQ, it is subject to Canadian and Unites States securities laws, including those that impose penalties for “insider trading”. This term refers to trading by “insiders” of a company (or persons who, because of the nature of their job, come into contact with or become aware of important or confidential information concerning Norsat or its operations) when they have knowledge of matters which have not been generally disclosed (i.e., by a press release to the market). Any trading by a person who has such information may lead to civil and quasi-criminal liability.

In order to protect you and Norsat from any violation of applicable insider trading laws, the Board of Directors of Norsat adopted this Insider Trading Policy in 2000. This Policy is reviewed and revised periodically. Every director, officer and employee is required to comply with the rules and procedures set out in this Policy in respect of insider trading. This document is to assist directors, officers and employees in complying with the requirements and is not intended to be an exhaustive summary of the applicable legislative requirements. Underlying all of this — use your common sense and be prudent. Any questions should be directed to the Chief Financial Officer.

1. Trading in Securities and Tipping

a)	No trading is permitted by employees and officers directly involved in the preparation of annual and quarterly financial statements within a period commencing from the beginning of the preparation of the statements until after one business day following the date of issuance of a press release by the Company announcing its annual or quarterly financial results.
b)	No trading is permitted within a period commencing from the time an employee, director or officer receives draft annual or quarterly financial statements and ending after one business day following the date of issuance of a press release by the Company announcing its annual or quarterly financial results.
c)	No trading is permitted during times of unusual activity (e.g. material acquisitions or divestitures) or during any “black-out period” announced by the Company. Trading may commence after one business day following the date of issuance of a press release by the Company announcing a material change or specific public announcement or on advice from the Company that the “black-out period” has ended.
d)	Notwithstanding paragraph (a) above, no director, officer or employee who has actual knowledge of material undisclosed information relating to the Company is permitted to trade, either directly or indirectly, in the Company’s shares or to

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	disclose that information except as required in the necessary course of business. Any concern over the interpretation of this rule should be referred to the Chief Financial Officer of the Company.
e)	Subject to (a) (b) (c) and (d) above, trading in the Company’s shares is permitted throughout the year by all employees, directors and officers.
f)	All trades of the Company’s securities by “reporting insiders” (any director or senior officer as defined in the Policy) must be reported within seven days to the Chief Financial Officer of the Company.
g)	“Trading” includes the receipt or exercise of stock options granted by the Company.

IF YOU FAIL TO OBSERVE THIS POLICY, YOU AND NORSAT MAY BE LEGALLY LIABLE UNDER APPLICABLE SECURITIES LAWS.

1.2 Overview

When may a director, officer or employee properly buy or sell shares in Norsat? There is no simple, uniform answer to this question, but it underscores the importance of a policy of adequate and timely disclosure both for the benefit of the investing public and for the protection of management and the Company. Public disclosure at the earliest stages of new developments may be premature, and the best interests of Norsat and its shareholders may require secrecy about new developments before they reach the stage where public disclosure is appropriate. Still, hindsight is remarkably keen and the accusation can always be made that a purchase or sale of shares by a director, officer or employee was made because of inside knowledge of a future favourable or unfavourable development.

Liability arises for trading securities on the basis of information which has not been disclosed to the public or for disclosing information to persons who use it for the purpose of trading or pass it on to others (“tipping”), if the information is “material” within the meaning of the securities laws. Do not rely solely on your own judgment but seek advice when needed from the President or Chief Financial Officer as to whether particular information is material. Information which may be material includes financial and operating results; negotiations concerning contracts with outside parties; possible dispositions or acquisitions of properties, information on other significant assets or other corporations or businesses; decisions concerning dividends; important business developments; financing; important personnel changes; litigation and labour negotiations.

A purchase or sale of securities by persons who are “insiders” of the Company or who are in a “special relationship” with the Company may result in such person incurring substantial liability if use is made of confidential information which has not been generally disclosed to the public, and such liability may extend to Norsat itself. Norsat is anxious to avoid any breach of securities laws and to avoid any action, which might appear to be taken on the basis of an improper use of confidential information.

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1.3 Insiders

The following guidelines apply to “insiders” and others in a “special relationship” with Norsat (an “insider” or anyone in a “special relationship” with Norsat is hereinafter referred to as an “Insider”). It should be noted that Insider includes directors, officers, and employees of Norsat, anyone who engages in any business or professional activity with Norsat, certain relatives and partners of Insiders, a trust in which an Insider has a substantial beneficial interest and trusts as to which an Insider serves as Trustee. A person who receives confidential information from an Insider and who has knowledge that such person is an Insider shall also be deemed to be an Insider.

1. Insider Trading

a)	Definition of Insider
	While the definition of an Insider differs in the various jurisdictions, the definition of an Insider includes:

• The Board of Directors and Officers, e.g. (CEO and Vice Presidents) of Norsat.

• All employees of Norsat.

• Anyone who engages in any business or professional activity with Norsat.

• Any director, officer, or employee of such person or company.

• “Tippees”, i.e., people who receive confidential information from Insiders or other “tippees”.

b)	Guidelines
	The policy contains two general guidelines as follows:
	An Insider should not deal in securities of Norsat at any time if he/she is in possession of information which would reasonably be expected to have a significant effect on the market price of such securities and the public does not have the same information; and
	Information which would reasonably be expected to have a significant effect on the market price which such Insider has by reason of his or her position with Norsat and which has not been generally disclosed should not be communicated to any other person or used for any other purpose than to carry out such person’s duties to Norsat.
c)	Specific Rules
	In addition to the one general guidelines set out above, the following specific rules should be observed:

1. No trading in securities of the Company by Insiders directly involved in the preparation of the Company’s, quarterly or annual financial statements can take place from the beginning of the preparation of the statements until after one

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	business day has elapsed from the date on which the Company’s press release announcing the results for the fiscal period was disseminated.
2.	No trading in securities of the Company by Insiders is permitted within a period commencing from the time an employee, director or officer receives draft annual or quarterly financial statements and ending after one business day following the date of issuance of a press release by the Company announcing its annual or quarterly financial results.
3.	If the Company announces a “black-out period” or if an Insider knows that Norsat is about to make a news release of material information, at any time, the Insider should not trade from the time of such knowledge of the release (or announcement of the “black-out period) until after one business day has elapsed from the date of dissemination of the material change.
4.	No Insider may at any time sell short the securities of Norsat.
5.	No Insider may at any time buy or sell a call or put option in respect of a security of Norsat.
6.	In order to avoid possible inadvertent conflict with these guidelines, standing sell orders or standing purchase orders should not be left with a broker.

Securities include, without limitation, the shares and options of Norsat.

In addition, all Insiders and persons associated and affiliated with them, are restricted from making use, for their own advantage, of any specific confidential information which, if generally known, might reasonably be expected to materially affect the value of the securities. Persons doing so may be subject to criminal prosecution and may also be liable to compensate any other person for any direct loss suffered as a result of the transaction, and will also be accountable to Norsat for any direct benefit or advantage received as a result of the transaction.

It is customary for Norsat to provide selected employees with monthly financial results. Each such Insider will have to determine the materiality of such results in light of the first general guideline.

There is a prohibition for anyone in a special relationship with a company from buying or selling securities of the company with the knowledge of a material fact or material change in the affairs of the company which he or she knew or ought reasonably to have known had not been generally disclosed. Persons in a special relationship with a corporation are also prohibited from informing (other than in the ordinary course of business) another person about a material fact or material change before such fact or change has been generally disclosed. The scope of persons having a “special relationship” with a company is very broad, and includes Insiders.

2. Insider Reporting

a)	Insiders For Reporting Purposes
	Norsat, on advice of counsel, considers an Insider for reporting purposes, to be any member of the Board of Directors, a 10% or greater shareholder, or senior officer.

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	The statutory requirements provide that a person must file a report, other than a nil report on becoming an Insider for reporting purposes, and must report when a change occurs in his or her direct or indirect beneficial ownership of securities of Norsat, including any transfer of any securities into the name of an agent, nominee or custodian, and RRSP.
b)	Procedures for Reporting
	Where a named Insider for reporting purposes acquires or makes a change in his or her ownership of securities of Norsat, it is important that Insider Trading Reports are filed immediately (within 7 calendar days of the ownership change) in order to comply with securities legislation in each of the relevant provinces. Insider Trading Reports must be filed in the provinces of Quebec, Ontario, Alberta, and British Columbia.
	The Chief Financial Officer (CFO) will coordinate the filing of Insider Reports. Accordingly, the CFO must be advised promptly of any changes (direct or indirect) in an Insider’s ownership of Norsat securities so that the necessary reports may be completed and filed on behalf of the Insider. Please fax or e-mail the following information to the Chief Financial Officer:

• The trade date of the transaction (not the settlement date);

• The nature of the transaction (acquired/disposed, etc.)

• The number of securities acquired/disposed of; and

• The unit price paid or received on the day of the transaction.

Each Insider is responsible for the accuracy and timeliness of their Insider Trading Reports.

1.4	Public Non-Disclosure:
	1.	No insider may speculate about any rumors concerning Norsat to any “outsiders”, as defined in 7.5 below.
	2.	No insider may discuss confidential Norsat business, pending contracts, mergers or acquisitions, or other material events of Norsat with any outside parties, except in the normal course of business and with approval of senior management.
	3.	No insider may make statements about the future that have not been pre-qualified by senior management and protected by safe harbour provision.
	4.	No insider may initiate or respond to comments on Internet chat groups about Norsat’s confidential business.

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1.5	Public Non-Disclosure:
	Any individual who is not a Director or Officer of Norsat; and any individual who is not an employee of Norsat.

Mark Ahrens-Townsend
September 28, 2001
President & Chief Executive Officer
Norsat International Inc.

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APPENDIX “D”
SEVERANCE AGREEMENT

The Employee may select either of the options set out below:

Option A:
1.1        If Norsat International Inc. (“Norsat”) terminates the Executive other than for just cause, Norsat shall give the Executive reasonable notice, or severance in lieu thereof.

Option B:
1.2        If Norsat terminates the Executive other than for just cause, Norsat shall give the Executive 6 months notice, (based on the Executive’s base salary at the time of termination), plus a further month of notice, (based on the Executive’s base salary at the time of termination), for each full year of service — and prorated if notice of termination is given during a partial year of service — that the Executive has with Norsat. “Base salary”, for the purposes of this agreement, is not reflective of any salary reductions, whether short-or long-term, i.e. salary reductions will have no effect on the Executive’s severance.

1.3	Upon receipt of written termination:
	Stock options allocated to the Executive will continue to vest for two years from the date on which he is given notice of termination and he will have two years from the date on which he is given notice of termination within which to exercise any stock options that have vested.
1.4	Employees who select option B, will also be entitled to the extended vesting and exercise periods set out in paragraph 1.3 if they subsequently resign from Norsat.

Please Sign and indicate whether you wish to have Option A or Option B.

Option A [ ]
Option B [ ]

Signed:

Date:

Witnessed by:

Signed:

Date:

18 EX-6.3 6 o09662exv6w3.htm EMPLOYMENT CONTRACT MICHAEL HEAVEN

Exhibit 6.3

THIS EMPLOYMENT AGREEMENT, dated as of October 16, 2002 is made between Norsat International Inc., a company incorporated under the laws of British Columbia (“Norsat”) and Michael Heaven (the “Executive”).

A.	WHEREAS Norsat is engaged in the business of design, manufacture, sales and servicing of satellite technology and communication products;
B.	AND WHEREAS the Executive has agreed to accept Norsat’s offer of employment as Chief Operating Officer, upon the terms and conditions hereinafter set forth;

THE PARTIES HERETO COVENANT AND AGREE AS FOLLOWS:

1. CONSIDERATION

1.1	This agreement is in consideration of an increase in salary, a change in title, and a bonus in the amount of $30,000, provided to the Executive.
1.2	This agreement supersedes the agreements dated October 3, 2001 and October 4, 2000 and it is agreed that there are no amounts due, or outstanding commitments to the Executive pursuant to either of those agreements.

2.	POSITION AND DUTIES
2.1	Norsat will employ the Executive as its Chief Operating Officer.
2.2	Norsat may, by mutual agreement, change the position in which the Executive is employed
2.3	The Executive will report to the President & C.E.O. of Norsat.
2.4	The Executive will perform the duties and responsibilities that are reasonably assigned to him or her from time to time.
2.5	The Executive agrees to faithfully and to the best of his ability to serve Norsat and to devote his or her full time, skill and effort to Norsat as a full-time employee. The

	Executive shall not, without the prior consent in writing of Norsat, engage in any other business, profession or occupation without the express written consent of Norsat.
2.6	It is essential to the continued success of Norsat that all transactions are conducted with integrity and the Executive agrees to adhere to sound ethical and honest business practices, comply with applicable laws and conduct his activities in a manner that shall reflect favourably on the Executive and Norsat.
3.	COMPENSATION AND BENEFITS
3.1	Norsat will increase the Executive annual base salary to $250,000 Cdn. effective October 16, 2002.
3.2	The Executive shall be entitled to participate, at the Chief Operating Officer level, in any bonus, profit sharing and incentive compensation programs established by Norsat.
3.3	Norsat will grant the Executive stock options in accordance with the terms of Norsat’s stock option plan.
3.4	The Executive will be entitled to participate in all benefit plans that may be provided by Norsat to its employees.
3.5	The Executive shall be entitled to receive a monthly car allowance of $600.00.
3.6	Norsat shall reimburse the Executive for all reasonable and customary business expenses incurred by him in the performance of his duties hereunder, provided that the Executive shall submit vouchers and other supporting data to substantiate the amount of said expenses in accordance with Norsat’s corporate policies as implemented from time to time.
3.7	The Executive shall be entitled to four (4) weeks of vacation each calendar year to be taken at such times as are reasonably acceptable to Norsat.
4.	CONFIDENTIAL INFORMATION
4.1	Without restricting any other provision of this Agreement, all confidential, proprietary and trade secret information of Norsat and its subsidiary, associated and affiliated

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entities, including, but without limiting the generality of the foregoing, information concerning the technology, research, test procedures and results, machinery, equipment, hardware, software, programs, manufacturing processes and products, assembly, services used, identity and description of components, purchasing, accounting, engineering, marketing, selling and servicing or business methods used, manufactured or developed by or for Norsat and information concerning suppliers or customers thereof (all herein called “Confidential Information”) disclosed or otherwise revealed to the Executive from time to time, shall be and remain the property of Norsat or its subsidiaries or affiliates (as the case may be) and shall be held by the Executive in strict confidence for the sole benefit of Norsat. The Executive shall not use, disclose, reveal, copy nor appropriate any Confidential Information whatsoever, nor cause or permit any other person to do so except as specifically permitted by Norsat, either during the term of this Agreement or following the termination thereof. The foregoing shall not prevent the Executive from using or disclosing any portion of the Confidential Information which:

(a)	was known to the Executive prior to his receipt of the Confidential Information from Norsat and was not originally learned by or disclosed to Norsat in his capacity or in connection with his duties as an employee of Norsat;
(b)	was or becomes generally available to the public independently of Norsat; or
(c)	is rightfully disclosed to the Executive by any third party independently of Norsat.

4.2	The Executive acknowledges and covenants to continue to observe and be bound by the terms of Norsat’s Employment Internet and E-Mail Usage Policy, a copy of which is attached hereto as Appendix “A”, Norsat’s Employee Agreement Respecting Confidentiality and Intellectual Property as Appendix “B”: and Agreement to Assign Inventions and Norsat’s Insider Trading Policy as Appendix “C” all of which were to that contract dated October 3, 2001 and which now are incorporated and form a part of this Agreement.
5.	UNFAIR COMPETITION
5.1	The Executive covenants and agrees that he will not during the term of this agreement and for a period of either eight months or the applicable severance period, whichever is longer following the date of termination of this Agreement, directly or indirectly,

(a)	be connected as an officer, employee, consultant, owner, partner or otherwise of any business within Canada or the United States that directly or indirectly competes with the business carried on by Norsat or any of its associated, affiliated or subsidiary entities;
(b)	assist any other person or entity to hire or otherwise seek to induce employees of Norsat, or any of its associated, affiliated and subsidiary entities, to terminate their employment;

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(c)	solicit or induce, or assist any other person or entity to solicit or induce, any customer of Norsat, or any of its associated, affiliated and subsidiary companies, to buy goods and services similar in function or nature to goods and services supplied by Norsat or any of its associated, affiliated or subsidiary entities;
(d)	submit, or assist any other person or entity to submit, a tender for the supply of goods or services if Norsat, or any of its associated, affiliated and subsidiary entities, is also submitting a tender for the supply of such goods or services.

5.2	The Executive confirms and agrees that the covenants and restrictions contained in the preceding Article 5.1, are reasonable and valid and that Norsat would suffer irreparable injury in the event of any breach of the Executive’s obligations therein. Accordingly, the Executive acknowledges and agrees that damages would be an inadequate remedy at law in connection with any such breach and that Norsat shall be entitled to obtain, in addition to any other remedy at law or equity, temporary and permanent injunctive relief enjoining and restraining the Executive from any such breach.
5.3	Any claim or cause of action by the Executive against Norsat, whether predicated on this Agreement or otherwise, shall not constitute a defence to the enforcement by Norsat of the covenants and restrictions set out in Article 5.1 hereof.
5.4	In the event a Court of competent jurisdiction determines that the period and geographical area set out in Article 5.1 hereof is unreasonable and that such provision would for that reason be void and unenforceable, the parties will request the Court to substitute such shorter period or such other geographical area as would provide the maximum protection to Norsat consistent with the enforceability of that provision.
5.5	In the event a Court of competent jurisdiction should hold the covenants and restrictions set out in Article 5.1 hereof to be illegal, invalid or unenforceable in any jurisdiction, such decision shall not affect any other covenant or provision of this Agreement or the application of any other covenant or provision.
6.	TERMINATION
6.1	The Executive may terminate his employment by giving six weeks of written notice to Norsat. On receipt of such notice, Norsat may waive the notice period in whole or in part, and set an earlier date on which the Executive’s resignation shall become effective. In such case, Norsat will compensate the Executive for the balance of the resignation notice.
6.2	Norsat may terminate the Executive’s employment forthwith in the event of Just Cause for dismissal, in which case the Executive is not entitled to notice or payment in lieu thereof. When used in this Agreement, the term “just cause” includes a) the Executive’s failure to perform his employment duties hereunder after reasonable notice to the Executive by the Board, specifying such failure and providing the Executive with a reasonable opportunity to cure such failure given the content of the circumstances, as determined by the Board in the exercise of its reasonable discretion, b) the Executive’s breach of covenants or agreements

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	contained in this Agreement, the Proprietary Rights Agreement, or any of the other material agreement or undertaking of the Executive, c) the Executive’s commission of a felony or any crime involving moral turpitude, fraud or misrepresentation, whether or not related to the business or property of Norsat, d) any act of the Executive against Norsat intended to enrich the Executive in derogation of his duties to Norsat, or e) any willful or purposeful act or omission (or any act or omission taken in bad faith) of the Executive having the effect of injuring the business or business relationships of Norsat.
6.3	In the absence of Just Cause, Norsat may terminate the Executive’s employment in accordance with the terms outlined in the Severance Agreement (Appendix “D”).
7.	MISCELLANEOUS
7.1	This Agreement shall be interpreted in accordance with and governed by the laws of the Province of British Columbia.
7.2	This Agreement constitutes the entire agreement between the parties hereto and supersedes all previous communications, representations and agreements, whether oral or written, between the parties with respect to the subject matter of this Agreement, and without limiting the generality of the foregoing, this Agreement supersedes any previous agreements of employment entered into between Norsat (or any of its predecessor, subsidiary or associated companies or divisions) and the Executive.
7.3	No delay, omission or forbearance on the part of Norsat with respect to the enforcement of any of the provisions of this Agreement, or any renewal thereof, in relation to an act or omission by the Executive, shall constitute a waiver of the right of Norsat to enforce such provision in relation to that act or omission.
7.4	This Agreement may not be amended or modified except by written agreement of the parties.
7.5	Either party may, after attempting to resolve a dispute by negotiation, submit such dispute to arbitration in Vancouver, British Columbia, in accordance with the rules of the Commercial Arbitration Act (British Columbia).

IN WITNESS WHEREOF, the parties have executed and delivered this Agreement and agree that it is to be effective on the date first above written.

	NORSAT INTERNATIONAL INC.
	By:
Executive: E. Michael Heaven		Yutaka Ueda,
		President & CEO

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APPENDIX “A”

PROTECTION OF NORSAT’S COMPUTERIZED
INFORMATION RESOURCES POLICY

Effective November 17, 2000

Norsat information resources, client information, research, design and administration files, are its most valuable assets. It is important that access to, and use of, our firm’s computers and network systems be limited to authorized, trained users in the course of performing the work of our firm. Failure to comply with the following guidelines and prohibitions may result in disciplinary action, including dismissal.

EMPLOYEE INTERNET AND E-MAIL USAGE POLICY

As part of Norsat’s commitment to the utilization of new technologies, our employees have access to the Internet including e-mail. This technology is the property of Norsat, and any personal use is subject to scrutiny and disciplinary action.

In order to ensure compliance with existing copyright laws, and to protect us from being victimized by the threat of viruses or hacking into our systems, the following policy has been established.

1.	It is expected that, at all times, Norsat employees will behave in a decent, responsible and respectful manner when accessing the network, internet and email.
2.	It is Norsat’s policy to limit Internet and e-mail access to official business. Employees are authorized to access the Internet and e-mail for personal use during lunch or after-hours, and in strict compliance with the other terms of this policy. The introduction of viruses, or malicious tampering with any computer system, is expressly prohibited. Any such activity will result in disciplinary action that may include termination of employment.
3.	Employees will not use the Norsat’s Internet access for any illegal or unauthorized act, including any defamatory, harassing, offensive or discriminatory conduct. Keeping documents which are considered obscene or discriminatory can result in disciplinary action.
4.	Employees using Norsat’s accounts are acting as representatives of the firm. As such, employees should act accordingly so as not to damage the reputation of the firm.

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5.	Employee email signatures are limited to information specific to the individual’s corporate role.
6.	Employees will not use the company Internet connection for private commercial purposes unrelated to Norsat business.
7.	Employees will not use Norsat email to distribute non-corporate information. When broad distribution of corporate information is required email of a full attachment to each recipient may not be the most efficient distribution path. Consideration should always be given to saving the file to the file server and emailing a link (shortcut) to the file, particularly when sending to LAN users in the Burnaby office.
8.	Files downloaded from the Internet must be scanned with virus detection software before installation or execution. All appropriate precautions should be taken to detect viruses and to prevent the infection of other machines.
9.	Any software or files downloaded via the Internet into the company network become the property of Norsat. Any such files or software may be used only in ways that are consistent with their licenses or copyrights.
10.	No employee may use company facilities knowingly to download or distribute pirated software or data.
11.	The truth or accuracy of information on the Internet and in email should be considered suspect until confirmed by a separate and reliable source.
12.	Employees shall not place company material (copyrighted software, internal correspondence, etc.) on any publicly accessible Internet computer without prior permission.
13.	VPN connection to the Norsat network must be authorized by management and approved and configured by MIS. All VPN must run encryption.
14.	The Internet does not guarantee the privacy and confidentiality of information. Sensitive material transferred over the Internet may be at risk of detection by a third party. Employees must exercise caution and care when transferring such material in any form.
15.	The company has software and systems in place that can monitor and record all Internet and e-mail usage. We want you to be aware that our security systems are capable of

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recording (for each and every user) each World Wide Web site visit, each chat, newsgroup or email message, and each file transfer into and out of our internal networks, and we reserve the right to do so at any time. No employee should have any expectation of privacy as to his or her Internet usage. MIS may review Internet activity and analyze usage patterns, and they may choose to publicize this data to assure that company Internet resources are devoted to maintaining the highest levels of productivity. Norsat reserves the right to inspect an employee’s computer system for violations of this policy.

16.

Access to, distribution of, or downloading of pornographic or offensive content may result in immediate termination.

USE OF UNAUTHORIZED PROGRAMS AND SOFTWARE PROHIBITED

Computer “viruses”, programs that corrupt and destroy information systems, have caused serious and, in some cases, irreparable damage to the information stored on computer systems at many organizations. Generally these viruses are transmitted through email attachments, or are embedded in programs or files obtained from outside sources and brought in on floppy diskettes or CDs. Viruses have also been found on commercially sold and authorized software diskettes and CDs.

In connection with its work, Norsat provides certain licensed software products. In order to protect our information resources from possible corruption or destruction as described above, user installation or use of any software not provided by Norsat, or obtained from any other source whatsoever is strictly prohibited without prior approval and assistance from MIS. Any media from outside sources must be scanned using the most recent virus definitions prior to being loaded on any Norsat computer.

This prohibition specifically includes, but is not limited to, the use of programs obtained directly or indirectly from bulletin board services, enhancement programs to Norsat’s authorized applications or software, Internet access products or browsers, and games of any kind. Any questions which you may have in this regard must be addressed directly to the Help Desk at helpdesk@norsat.com.

CERTIFICATION OF ALL COMPUTER-READABLE DEVICES REQUIRED

In order to prevent the importing of a computer virus, all diskettes, CD’s or other computer-readable devices received from sources outside of our company, including, but not limited to devices received from our clients, must be certified virus-free before they are used on any of our computers or drives. Additionally, to prevent us from spreading a computer virus to any of our clients or other parties, all diskettes, CDs, or other computer-readable devices created or used at our company must be certified virus-free before being released to a third party. This certification must be performed by our LAN Administrator.

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UNAUTHORIZED ACCESS TO NETWORK OR APPLICATIONS PROHIBITED

Norsat employees may have access only to those computer applications for which they have been trained, and which they are authorized to use. Employees who are not authorized to do so may not attempt to gain access to Norsat’s computers or network, nor may employees who are authorized to access specific applications attempt to access other applications which they have not been specifically authorized to use. Any questions which you may have in this regard must be addressed directly to MIS.

CONFIDENTIALITY OF NETWORK PASSWORDS REQUIRED

Network users are responsible for any network activity performed under their user name and password. Passwords should be kept confidential and not divulged to any other individuals, including other employees, so as to prevent unauthorized access. Certain network activities are recorded by user name in activity audit logs which are reviewed by the manager of information systems and LAN administrator. Your disclosure of your password — even to a trusted office colleague — will interfere with computer security and compromise our information systems. Don’t do it.

Users must periodically change their passwords as instructed by a member of our Information Systems Department. Requests for specific user names and passwords will not be considered.

ALLOWING ACCESS TO CONFIDENTIAL INFORMATION PROHIBITED

Information stored on our computer system is for the exclusive use of employees as required in the course of performing the work of our company. When you leave your work area for any extended period of time, including lunch hours and/or any time you leave Norsat’s offices, you must log out of the network to prevent unauthorized access to confidential information.

SECURITY OF LAPTOPS

Laptops are issued with Defcon Security cables. It is the responsibility of all Laptop users to insure that the Defcon is used at all times. This includes while at the office and whenever traveling. If you require clarification on the use of the Defcon contact MIS HELP DESK.

If you have any questions or require clarification of any information contained in this Policy, please contact MIS.

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I have read and understand this “PROTECTION OF NORSAT’S COMPUTERIZED INFORMATION RESOURCES POLICY” and agree to abide by the policies as written.

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APPENDIX “B”

EMPLOYEE AGREEMENT RESPECTING CONFIDENTIALITY AND
INTELLECTUAL PROPERTY AND AGREEMENT TO ASSIGN INVENTIONS

I, the undersigned, acknowledge that Norsat International Inc. and any of its affiliates, subsidiaries and branches (“Norsat”) possesses and may hereafter acquire valuable technical and non-technical information, that, to protect its legitimate interests, it is necessary for Norsat to protect such information by maintaining the same as secret or confidential, that Norsat does protect such information by maintaining it as secret or confidential, and that, through my employment with Norsat, I may be exposed to or generate additional information which requires such protection.

	Accordingly, in consideration of Norsat engaging me as an Employee, I covenant and agree that:
1.	I will not, either during the continuance of my employment by Norsat or at any time thereafter, divulge, publish or otherwise reveal, either directly or indirectly or through any person, firm or corporation, any information concerning the business affairs of Norsat or any secrets of Norsat (including, without limiting the generality of the foregoing, any information, whether written or oral, pertaining to technology, know-how, trade secrets, data, processes, inventions, developments, formulations, applications, methods of manufacture, information pertaining to existing or potential customers, suppliers, markets, contracts, prices, programs, strategies and products, or information pertaining to Norsat employees) to any person or persons, without the prior written consent of Norsat;
2.	I will not, either during the continuance of my employment by Norsat or at any time thereafter, use, for my own purposes or for any purposes other than those of Norsat, any information which I may acquire with respect to the business and affairs of Norsat;
3.	I will, during the term of my employment and at all times thereafter, keep confidential all information and materials provided to me by Norsat, excepting only such information as is already or hereafter becomes known to the public, including any such information and materials relating to any customer, supplier or other party transacting business with Norsat, and not to release, use or disclose the same without the prior written consent of Norsat; and
4.	Each of the above covenants shall survive the termination of my employment by Norsat, even if occasioned by a breach or wrongful termination by Norsat.
5.	Any and all inventions, discoveries, developments, modifications, procedures, practices, ideas, innovations, systems, programs, know-how or designs which I may develop during my employment by Norsat shall be the property of Norsat and I will execute applications for patents or copyrights in respect thereof, if and when requested by Norsat, and/or assign the same to Norsat on request, and that all such inventions, practices, ideas, innovations,

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systems, programs, know-how or designs shall be subject to the confidentiality, non-use and non-disclosure restrictions specified above.

DATED this            day of                      , 2002

SIGNED AND DELIVERED
in the presence of:

Signature of Witness
Name of Witness (Print)		Employee Signature
	Employee Name (Print)

Norsat Confidentiality Agreement October 2001. Version 2

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APPENDIX “C”

*NORSAT INTERNATIONAL INC.

INSIDER TRADING POLICY — SUMMARY

Insider Trading: Subject to the general guidelines and the specific rules that follow, all employees, directors, officers and other Insiders permit trading in Norsat’s shares throughout the year.

Guidelines: The policy contains two general guidelines as follows:

1.	An Insider should not deal in securities of Norsat at any time if he or she is in possession of information which would reasonably be expected to have a significant effect on the market price of such securities and the public does not have the same information; and
2.	Information which would reasonably be expected to have a significant effect on the market price, which such Insider has by reason of his or her position with Norsat and which has not been generally disclosed should not be communicated to any other person or used for any other purpose than to carry out such person’s duties to Norsat.

Specific Rules: The policy contains the following specific rules, among others. Please read the entire Policy attached for the complete rules.

1.	Financial Staff: No trading is permitted by employees and officers directly involved in the preparation of annual and quarterly financial statements within a period commencing from the beginning of the preparation of the statements until after one business day following the date of issuance of a press release by the Company announcing its annual or quarterly financial results.
2.	Directors, Officers, Employees: No trading is permitted within a period commencing from the time an employee, director or officer receives draft annual or quarterly financial statements and ending after one business day following the date of issuance of a press release by the Company announcing its annual or quarterly financial results.
3.	All Insiders: No trading is permitted during times of unusual activity (e.g. material acquisitions or divestitures) or during any “black-out period” announced by the Company. Trading may commence after one business day following the date of issuance of a press release by the Company announcing a material change or specific public announcement or on advice from the Company that the “black-out period” has ended.

No Insider who has actual knowledge of material undisclosed information relating to the Company is permitted to trade, either directly or indirectly, in the Company’s shares or to disclose that information except as required in the necessary course of business. Any concern over the interpretation of this rule should be referred to either the President or Chief Financial Officer of the Company.

Procedures for Reporting: Where a named Insider for reporting purposes makes a change in his ownership of securities, it is important that Insider Trading Reports are filed immediately (within 7 calendar days of the ownership change).

1. INSIDER TRADING & PUBLIC NON-DISCLOSURE POLICY

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1.1 Policy Summary

Norsat’s Common Shares are listed and traded on The Toronto Stock Exchange (the “TSE”) and NASDAQ. Because Norsat is a reporting issuer and listed on the TSE and NASDAQ, it is subject to Canadian and Unites States securities laws, including those that impose penalties for “insider trading”. This term refers to trading by “insiders” of a company (or persons who, because of the nature of their job, come into contact with or become aware of important or confidential information concerning Norsat or its operations) when they have knowledge of matters which have not been generally disclosed (i.e., by a press release to the market). Any trading by a person who has such information may lead to civil and quasi-criminal liability.

In order to protect you and Norsat from any violation of applicable insider trading laws, the Board of Directors of Norsat adopted this Insider Trading Policy in 2000. This Policy is reviewed and revised periodically. Every director, officer and employee is required to comply with the rules and procedures set out in this Policy in respect of insider trading. This document is to assist directors, officers and employees in complying with the requirements and is not intended to be an exhaustive summary of the applicable legislative requirements. Underlying all of this — use your common sense and be prudent. Any questions should be directed to the Chief Financial Officer.

1 Trading in Securities and Tipping

a)	No trading is permitted by employees and officers directly involved in the preparation of annual and quarterly financial statements within a period commencing from the beginning of the preparation of the statements until after one business day following the date of issuance of a press release by the Company announcing its annual or quarterly financial results.
b)	No trading is permitted within a period commencing from the time an employee, director or officer receives draft annual or quarterly financial statements and ending after one business day following the date of issuance of a press release by the Company announcing its annual or quarterly financial results.
c)	No trading is permitted during times of unusual activity (e.g. material acquisitions or divestitures) or during any “black-out period” announced by the Company. Trading may commence after one business day following the date of issuance of a press release by the Company announcing a material change or specific public announcement or on advice from the Company that the “black-out period” has ended.
d)	Notwithstanding paragraph (a) above, no director, officer or employee who has actual knowledge of material undisclosed information relating to the Company is permitted to trade, either directly or indirectly, in the Company’s shares or to disclose that information except as required in the necessary course of business. Any concern over the interpretation of this rule should be referred to the Chief Financial Officer of the Company.
e)	Subject to (a) (b) (c) and (d) above, trading in the Company’s shares is permitted throughout the year by all employees, directors and officers.
f)	All trades of the Company’s securities by “reporting insiders” (any director or senior officer as defined in the Policy) must be reported within seven days to the Chief Financial Officer of the Company.

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g) “Trading” includes the receipt or exercise of stock options granted by the Company.

IF YOU FAIL TO OBSERVE THIS POLICY, YOU AND NORSAT MAY BE LEGALLY LIABLE UNDER APPLICABLE SECURITIES LAWS.

1.2 Overview

When may a director, officer or employee properly buy or sell shares in Norsat? There is no simple, uniform answer to this question, but it underscores the importance of a policy of adequate and timely disclosure both for the benefit of the investing public and for the protection of management and the Company. Public disclosure at the earliest stages of new developments may be premature, and the best interests of Norsat and its shareholders may require secrecy about new developments before they reach the stage where public disclosure is appropriate. Still, hindsight is remarkably keen and the accusation can always be made that a purchase or sale of shares by a director, officer or employee was made because of inside knowledge of a future favourable or unfavourable development.

Liability arises for trading securities on the basis of information which has not been disclosed to the public or for disclosing information to persons who use it for the purpose of trading or pass it on to others (“tipping”), if the information is “material” within the meaning of the securities laws. Do not rely solely on your own judgment but seek advice when needed from the President or Chief Financial Officer as to whether particular information is material. Information which may be material includes financial and operating results; negotiations concerning contracts with outside parties; possible dispositions or acquisitions of properties, information on other significant assets or other corporations or businesses; decisions concerning dividends; important business developments; financing; important personnel changes; litigation and labour negotiations.

A purchase or sale of securities by persons who are “insiders” of the Company or who are in a “special relationship” with the Company may result in such person incurring substantial liability if use is made of confidential information which has not been generally disclosed to the public, and such liability may extend to Norsat itself. Norsat is anxious to avoid any breach of securities laws and to avoid any action, which might appear to be taken on the basis of an improper use of confidential information.

1.3 Insiders

The following guidelines apply to “insiders” and others in a “special relationship” with Norsat (an “insider” or anyone in a “special relationship” with Norsat is hereinafter referred to as an “Insider”). It should be noted that Insider includes directors, officers, and employees of Norsat, anyone who engages in any business or professional activity with Norsat, certain relatives and partners of Insiders, a trust in which an Insider has a substantial beneficial interest and trusts as to which an Insider serves as Trustee. A person who receives confidential information from an Insider and who has knowledge that such person is an Insider shall also be deemed to be an Insider.

     1. Insider Trading

a)	Definition of Insider
	While the definition of an Insider differs in the various jurisdictions, the definition of an Insider includes:

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• The Board of Directors and Officers, e.g. (CEO and Vice Presidents) of Norsat.

• All employees of Norsat.

• Anyone who engages in any business or professional activity with Norsat.

• Any director, officer, or employee of such person or company.

• “Tippees”, i.e., people who receive confidential information from Insiders or other “tippees”.

b)	Guidelines
	The policy contains two general guidelines as follows:
	An Insider should not deal in securities of Norsat at any time if he/she is in possession of information which would reasonably be expected to have a significant effect on the market price of such securities and the public does not have the same information; and
	Information which would reasonably be expected to have a significant effect on the market price which such Insider has by reason of his or her position with Norsat and which has not been generally disclosed should not be communicated to any other person or used for any other purpose than to carry out such person’s duties to Norsat.
c)	Specific Rules
	In addition to the one general guidelines set out above, the following specific rules should be observed:

1.	No trading in securities of the Company by Insiders directly involved in the preparation of the Company’s, quarterly or annual financial statements can take place from the beginning of the preparation of the statements until after one business day has elapsed from the date on which the Company’s press release announcing the results for the fiscal period was disseminated.
2.	No trading in securities of the Company by Insiders is permitted within a period commencing from the time an employee, director or officer receives draft annual or quarterly financial statements and ending after one business day following the date of issuance of a press release by the Company announcing its annual or quarterly financial results.
3.	If the Company announces a “black-out period” or if an Insider knows that Norsat is about to make a news release of material information, at any time, the Insider should not trade from the time of such knowledge of the release (or announcement of the “black-out period”) until after one business day has elapsed from the date of dissemination of the material change.
4.	No Insider may at any time sell short the securities of Norsat.
5.	No Insider may at any time buy or sell a call or put option in respect of a security of Norsat.
6.	In order to avoid possible inadvertent conflict with these guidelines, standing sell orders or standing purchase orders should not be left with a broker.

Securities include, without limitation, the shares and options of Norsat.

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In addition, all Insiders and persons associated and affiliated with them, are restricted from making use, for their own advantage, of any specific confidential information which, if generally known, might reasonably be expected to materially affect the value of the securities. Persons doing so may be subject to criminal prosecution and may also be liable to compensate any other person for any direct loss suffered as a result of the transaction, and will also be accountable to Norsat for any direct benefit or advantage received as a result of the transaction.

It is customary for Norsat to provide selected employees with monthly financial results. Each such Insider will have to determine the materiality of such results in light of the first general guideline.

There is a prohibition for anyone in a special relationship with a company from buying or selling securities of the company with the knowledge of a material fact or material change in the affairs of the company which he or she knew or ought reasonably to have known had not been generally disclosed. Persons in a special relationship with a corporation are also prohibited from informing (other than in the ordinary course of business) another person about a material fact or material change before such fact or change has been generally disclosed. The scope of persons having a “special relationship” with a company is very broad, and includes Insiders.

2. Insider Reporting

a)	Insiders For Reporting Purposes
	Norsat, on advice of counsel, considers an Insider for reporting purposes, to be any member of the Board of Directors, a 10% or greater shareholder, or senior officer.
	The statutory requirements provide that a person must file a report, other than a nil report on becoming an Insider for reporting purposes, and must report when a change occurs in his or her direct or indirect beneficial ownership of securities of Norsat, including any transfer of any securities into the name of an agent, nominee or custodian, and RRSP.
b)	Procedures for Reporting
	Where a named Insider for reporting purposes acquires or makes a change in his or her ownership of securities of Norsat, it is important that Insider Trading Reports are filed immediately (within 7 calendar days of the ownership change) in order to comply with securities legislation in each of the relevant provinces. Insider Trading Reports must be filed in the provinces of Quebec, Ontario, Alberta, and British Columbia.
	The Chief Financial Officer (CFO) will coordinate the filing of Insider Reports. Accordingly, the CFO must be advised promptly of any changes (direct or indirect) in an Insider’s ownership of Norsat securities so that the necessary reports may be completed and filed on behalf of the Insider. Please fax or e-mail the following information to the Chief Financial Officer:

• The trade date of the transaction (not the settlement date);

• The nature of the transaction (acquired/disposed, etc.)

• The number of securities acquired/disposed of; and

• The unit price paid or received on the day of the transaction.

Each Insider is responsible for the accuracy and timeliness of their Insider Trading Reports.

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1.4 Public Non-Disclosure:

1. No insider may speculate about any rumors concerning Norsat to any “outsiders”, as defined in 7.5 below.

2. No insider may discuss confidential Norsat business, pending contracts, mergers or acquisitions, or other material events of Norsat with any outside parties, except in the normal course of business and with approval of senior management.

3. No insider may make statements about the future that have not been pre-qualified by senior management and protected by safe harbour provision.

4. No insider may initiate or respond to comments on Internet chat groups about Norsat’s confidential business.

1.5	Definition of “Outsider”
	Any individual who is not a Director or Officer of Norsat; and any individual who is not an employee of Norsat.

                                                         
Yutaka Ueda
President & CEO
Norsat International Inc.

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APPENDIX “D”
SEVERANCE AGREEMENT

The Employee may select either of the options set out below:

Option A:

1.1 If Norsat International Inc. (“Norsat”) terminates the Executive other than for just cause, Norsat shall give the Executive reasonable notice, or severance in lieu thereof.

Option B:

1.2 If Norsat terminates the Executive other than for just cause, Norsat shall give the Executive 8 months notice (based on the Executive’s base salary at the time of termination), plus a further month of notice, (based on the Executive’s base salary at the time of termination), for each full year of service — and prorated if notice of termination is given during a partial year of service - that the Executive has with Norsat, “Base salary”, for the purposes of this agreement, is not reflective of any salary reductions, whether short-or long-term, i.e. salary reductions will have no effect on the Executive’s severance.

1.3	Upon receipt of written termination:
	Stock options allocated to the Executive will continue to vest for two years from the date on which he is given notice of termination and he will have two years from the date on which he is given notice of termination within which to exercise any stock options that have vested.
1.4	Employees who select option B, will also be entitled to the extended vesting and exercise periods set out in paragraph 1.3 if they subsequently resign from Norsat.

Please Sign and indicate whether you wish to have Option A or Option B.

Option A	o
Option B	o

Signed:

Date:

Witnessed by:

Signed:

Date:

19 EX-6.4 7 o09662exv6w4.htm EMPLOYMENT CONTRACT MARK AHRENS-TOWNSEND

Exhibit 6.4

THIS EMPLOYMENT AGREEMENT, dated as of October 23, 2001 is made between Norsat International Inc., a company incorporated under the laws of British Columbia (“Norsat”) and Mark Ahrens-Townsend (the “Executive”).

A.	WHEREAS Norsat is engaged in the business of design, manufacture, sales and servicing of satellite technology and communication products;
B.	AND WHEREAS the Executive has agreed to accept Norsat’s offer of employment as President and Chief Executive Officer upon the terms and conditions hereinafter set forth;

THE PARTIES HERETO COVENANT AND AGREE AS FOLLOWS:

1.	POSITION AND DUTIES
1.1	Norsat will employ the Executive as its President and Chief Executive Officer.

1.2     Norsat may, by mutual agreement, change the position in which the Executive is employed.

1.3     The Executive will report to the Chairman of the Board of Norsat.

1.4     The Executive will perform the duties and responsibilities that are reasonably assigned to him or her from time to time.

1.5     The Executive agrees to faithfully and to the best of his ability to serve Norsat and to devote his or her full time, skill and effort to Norsat as a full-time employee. The Executive shall not, without the prior consent in writing of Norsat, engage in any other business, profession or occupation without the express written consent of Norsat.

1.6     It is essential to the continued success of Norsat that all transactions are conducted with integrity and the Executive agrees to adhere to sound ethical and honest business practices, comply with applicable laws and conduct his activities in a manner that shall reflect favourably on the Executive and Norsat.

2.	COMPENSATION AND BENEFITS
2.1	Norsat will pay the Executive an annual base salary of $225,000.00 (Cdn.)

2.2     The Executive shall be entitled to participate, at the President & CEO level, in any bonus, profit sharing and incentive compensation programs established by Norsat.

2.3     Norsat will grant the Executive stock options in accordance with the terms of Norsat’s stock option plan.

2.4     The Executive will be entitled to participate in all benefit plans that may be provided by Norsat to its employees.

2.5     The Executive shall be entitled to receive a monthly car allowance of $500.00.

2.6     Norsat shall reimburse the Executive for all reasonable and customary business expenses incurred by him in the performance of his duties hereunder, provided that the Executive shall submit vouchers and other supporting data to substantiate the amount of said expenses in accordance with Norsat’s corporate policies as implemented from time to time.

2.7     The Executive shall be entitled to five (5) weeks of vacation each calendar year to be taken at such times as are reasonably acceptable to Norsat.

2.8     Norsat shall reimburse the Executive an amount of $2,000 to cover the additional air expenses incurred to change his summer holiday plans in June 2001. The Executive is to provide a receipt.

2.9     Norsat shall reimburse the Executive for two (2) trips per year for the Executive’s family consisting of five (5) members at the Family Discount Airfare rate of $400 per family member per trip for a total of $4,000 per year. Executive to submit expense account with receipts.

3.0     The Executive shall have the option to purchase a property in Vancouver, B.C., provided it is for the use of authorized out of town Norsat employees on business. The Executive will be reimbursed on an after tax basis by Norsat at the same rate as Norsat is presently paying for the condominium suite at the Executive Hotel on 1379 Howe Street, in Vancouver, B.C. This amount is currently $2,800 per month. The Executive would assume the real estate risk of this property. The property would be fully available for use by Norsat authorized employees as long as Norsat employs the Executive and Norsat reimburses the Executive.

3.1     Norsat to provide interest free loan to the Executive in the amount of fifteen (15%) of the purchase price of a property in Vancouver, B.C. The interest free loan amount is not to exceed $45,000. The tax effects of the deemed interest benefits of the tax-free loan are to be covered by Norsat. The Executive agrees to put a second charge on the property payable to Norsat should the property be sold and the interest free loan be outstanding. Should the Executive leave Norsat’s employ, the $45,000 loan is due in full and payable within ninety (90) days of the last day of employment.

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3.2     The Executive shall have the option until December 31, 2004, to relocate his family and domicile to Vancouver, B.C. and to have Norsat reimburse him for the related moving expenses, including real estate fees. These expenses would not exceed $50,000. The Executive shall submit receipts.

3. CONFIDENTIAL INFORMATION

3.1     Without restricting any other provision of this Agreement, all confidential, proprietary and trade secret information of Norsat and its subsidiary, associated and affiliated entities, including, but without limiting the generality of the foregoing, information concerning the technology, research, test procedures and results, machinery, equipment, hardware, software, programs, manufacturing processes and products, assembly, services used, identity and description of components, purchasing, accounting, engineering, marketing, selling and servicing or business methods used, manufactured or developed by or for Norsat and information concerning suppliers or customers thereof (all herein called “Confidential Information”) disclosed or otherwise revealed to the Executive from time to time, shall be and remain the property of Norsat or its subsidiaries or affiliates (as the case may be) and shall be held by the Executive in strict confidence for the sole benefit of Norsat. The Executive shall not use, disclose, reveal, copy nor appropriate any Confidential Information whatsoever, nor cause or permit any other person to do so except as specifically permitted by Norsat, either during the term of this Agreement or following the termination thereof. The foregoing shall not prevent the Executive from using or disclosing any portion of the Confidential Information which:

(a)	was known to the Executive prior to his receipt of the Confidential Information from Norsat and was not originally learned by or disclosed to Norsat in his capacity or in connection with his duties as an employee of Norsat;
(b)	was or becomes generally available to the public independently of Norsat; or
(c)	is rightfully disclosed to the Executive by any third party independently of Norsat.

3.2     The Executive acknowledges and covenants to observe and be bound by the terms of Norsat’s Employment Internet and E-Mail Usage Policy, a copy of which is attached hereto as Appendix “A”, Norsat’s Employee Agreement Respecting Confidentiality and Intellectual Property as Appendix “B”: and Agreement to Assign Inventions and Norsat’s Insider Trading Policy as Appendix “C” which form a part of this Agreement.

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4. UNFAIR COMPETITION

4.1     The Executive covenants and agrees that he will not during the term of this agreement and for a period of one year following the date of termination of this Agreement, directly or indirectly,

(a)	be connected as an officer, employee, consultant, owner, partner or otherwise of any business within Canada or the United States that directly or indirectly competes with the business carried on by Norsat or any of its associated, affiliated or subsidiary entities;
(b)	assist any other person or entity to hire or otherwise seek to induce employees of Norsat, or any of its associated, affiliated and subsidiary entities, to terminate their employment;
(c)	solicit or induce, or assist any other person or entity to solicit or induce, any customer of Norsat, or any of its associated, affiliated and subsidiary companies, to buy goods and services similar in function or nature to goods and services supplied by Norsat or any of its associated, affiliated or subsidiary entities;
(d)	submit, or assist any other person or entity to submit, a tender for the supply of goods or services if Norsat, or any of its associated, affiliated and subsidiary entities, is also submitting a tender for the supply of such goods or services.

4.2     The Executive confirms and agrees that the covenants and restrictions contained in the preceding Article 4.1, are reasonable and valid and that Norsat would suffer irreparable injury in the event of any breach of the Executive’s obligations therein. Accordingly, the Executive acknowledges and agrees that damages would be an inadequate remedy at law in connection with any such breach and that Norsat shall be entitled to obtain, in addition to any other remedy at law or equity, temporary and permanent injunctive relief enjoining and restraining the Executive from any such breach.

4.3     Any claim or cause of action by the Executive against Norsat, whether predicated on this Agreement or otherwise, shall not constitute a defence to the enforcement by Norsat of the covenants and restrictions set out in Article 4.1 hereof.

4.4     In the event a Court of competent jurisdiction determines that the period and geographical area set out in Article 4.1 hereof is unreasonable and that such provision would for that reason be void and unenforceable, the parties will request the Court to substitute such shorter period or such other geographical area as would provide the maximum protection to Norsat consistent with the enforceability of that provision.

4.5     In the event a Court of competent jurisdiction should hold the covenants and restrictions set out in Article 4.1 hereof to be illegal, invalid or unenforceable in any

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jurisdiction, such decision shall not affect any other covenant or provision of this Agreement or the application of any other covenant or provision.

5. TERMINATION

5.1     The Executive may terminate his employment by giving six weeks of written notice to Norsat. On receipt of such notice, Norsat may waive the notice period in whole or in part, and set an earlier date on which the Executive’s resignation shall become effective. In such case, Norsat will compensate the Executive for the balance of the resignation notice.

5.2     Norsat may terminate the Executive’s employment forthwith in the event of Just Cause for dismissal, in which case the Executive is not entitled to notice or payment in lieu thereof. When used in this Agreement, the term “just cause” includes a) the Executive’s failure to perform his employment duties hereunder after reasonable notice to the Executive by the Board, specifying such failure and providing the Executive with a reasonable opportunity to cure such failure given the content of the circumstances, as determined by the Board in the exercise of its reasonable discretion, b) the Executive’s breach of covenants or agreements contained in this Agreement, the Proprietary Rights Agreement, or any of the other material agreement or undertaking of the Executive, c) the Executive’s commission of a felony or any crime involving moral turpitude, fraud or misrepresentation, whether or not related to the business or property of Norsat, d) any act of the Executive against Norsat intended to enrich the Executive in derogation of his duties to Norsat, or e) any wilful or purposeful act or omission (or any act or omission taken in bad faith) of the Executive having the effect of injuring the business or business relationships of Norsat.

5.3     In the absence of Just Cause, Norsat may terminate the Executive’s employment in accordance with the terms outlined in the Severance Agreement (Appendix “D”).

6. MISCELLANEOUS

6.1     This Agreement shall be interpreted in accordance with and governed by the laws of the Province of British Columbia.

6.2     This Agreement constitutes the entire agreement between the parties hereto and supersedes all previous communications, representations and agreements, whether oral or written, between the parties with respect to the subject matter of this Agreement, and without limiting the generality of the foregoing, this Agreement supersedes any previous agreements of employment entered into between Norsat (or any of its predecessor, subsidiary or associated companies or divisions) and the Executive.

6.3     No delay, omission or forbearance on the part of Norsat with respect to the enforcement of any of the provisions of this Agreement, or any renewal thereof, in

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relation to an act or omission by the Executive, shall constitute a waiver of the right of Norsat to enforce such provision in relation to that act or omission.

6.4     This Agreement may not be amended or modified except by written agreement of the parties.

6.5     Either party may, after attempting to resolve a dispute by negotiation, submit such dispute to arbitration in Vancouver, British Columbia, in accordance with the rules of the Commercial Arbitration Act (British Columbia).

IN WITNESS WHEREOF, the parties have executed and delivered this Agreement and agree that it is to be effective on the date first above written.

	NORSAT INTERNATIONAL INC.
	By:
Executive:		John Goldsmith, Chairman of the Board

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APPENDIX “A”

PROTECTION OF NORSAT’S COMPUTERIZED
INFORMATION RESOURCES POLICY

Effective November 17, 2000

Norsat information resources, client information, research, design and administration files, are its most valuable assets. It is important that access to, and use of, our firm’s computers and network systems be limited to authorized, trained users in the course of performing the work of our firm. Failure to comply with the following guidelines and prohibitions may result in disciplinary action, including dismissal.

EMPLOYEE INTERNET AND E-MAIL USAGE POLICY

As part of Norsat’s commitment to the utilization of new technologies, our employees have access to the Internet including e-mail. This technology is the property of Norsat, and any personal use is subject to scrutiny and disciplinary action.

In order to ensure compliance with existing copyright laws, and to protect us from being victimized by the threat of viruses or hacking into our systems, the following policy has been established.

1.	It is expected that, at all times, Norsat employees will behave in a decent, responsible and respectful manner when accessing the network, internet and email.
2.	It is Norsat’s policy to limit Internet and e-mail access to official business. Employees are authorized to access the Internet and e-mail for personal use during lunch or after-hours, and in strict compliance with the other terms of this policy. The introduction of viruses, or malicious tampering with any computer system, is expressly prohibited. Any such activity will result in disciplinary action that may include termination of employment.
3.	Employees will not use the Norsat’s Internet access for any illegal or unauthorized act, including any defamatory, harassing, offensive or discriminatory conduct. Keeping documents which are considered obscene or discriminatory can result in disciplinary action.
4.	Employees using Norsat’s accounts are acting as representatives of the firm. As such, employees should act accordingly so as not to damage the reputation of the firm.
5.	Employee email signatures are limited to information specific to the individual’s corporate role.
6.	Employees will not use the company Internet connection for private commercial purposes unrelated to Norsat business.

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7.	Employees will not use Norsat email to distribute non-corporate information. When broad distribution of corporate information is required email of a full attachment to each recipient may not be the most efficient distribution path. Consideration should always be given to saving the file to the file server and emailing a link (shortcut) to the file, particularly when sending to LAN users in the Burnaby office.
8.	Files downloaded from the Internet must be scanned with virus detection software before installation or execution. All appropriate precautions should be taken to detect viruses and to prevent the infection of other machines.
9.	Any software or files downloaded via the Internet into the company network become the property of Norsat. Any such files or software may be used only in ways that are consistent with their licenses or copyrights.
10.	No employee may use company facilities knowingly to download or distribute pirated software or data.
11.	The truth or accuracy of information on the Internet and in email should be considered suspect until confirmed by a separate and reliable source.
12.	Employees shall not place company material (copyrighted software, internal correspondence, etc.) on any publicly accessible Internet computer without prior permission.
13.	VPN connection to the Norsat network must be authorized by management and approved and configured by MIS. All VPN must run encryption.
14.	The Internet does not guarantee the privacy and confidentiality of information. Sensitive material transferred over the Internet may be at risk of detection by a third party. Employees must exercise caution and care when transferring such material in any form.
15.	The company has software and systems in place that can monitor and record all Internet and e-mail usage. We want you to be aware that our security systems are capable of recording (for each and every user) each World Wide Web site visit, each chat, newsgroup or email message, and each file transfer into and out of our internal networks, and we reserve the right to do so at any time. No employee should have any expectation of privacy as to his or her Internet usage. MIS may review Internet activity and analyze usage patterns, and they may choose to publicize this data to assure that company Internet resources are devoted to maintaining the highest levels of productivity. Norsat reserves the right to inspect an employee’s computer system for violations of this policy.

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16. Access to, distribution of, or downloading of pornographic or offensive content may result in immediate termination.

USE OF UNAUTHORIZED PROGRAMS AND SOFTWARE PROHIBITED

Computer “viruses”, programs that corrupt and destroy information systems, have caused serious and, in some cases, irreparable damage to the information stored on computer systems at many organizations. Generally these viruses are transmitted through email attachments, or are embedded in programs or files obtained from outside sources and brought in on floppy diskettes or CDs. Viruses have also been found on commercially sold and authorized software diskettes and CDs.

In connection with its work, Norsat provides certain licensed software products. In order to protect our information resources from possible corruption or destruction as described above, user installation or use of any software not provided by Norsat, or obtained from any other source whatsoever is strictly prohibited without prior approval and assistance from MIS. Any media from outside sources must be scanned using the most recent virus definitions prior to being loaded on any Norsat computer.

This prohibition specifically includes, but is not limited to, the use of programs obtained directly or indirectly from bulletin board services, enhancement programs to Norsat’s authorized applications or software, Internet access products or browsers, and games of any kind. Any questions which you may have in this regard must be addressed directly to the Help Desk at helpdesk@norsat.com.

CERTIFICATION OF ALL COMPUTER-READABLE DEVICES REQUIRED

In order to prevent the importing of a computer virus, all diskettes, CD’s or other computer-readable devices received from sources outside of our company, including, but not limited to devices received from our clients, must be certified virus-free before they are used on any of our computers or drives. Additionally, to prevent us from spreading a computer virus to any of our clients or other parties, all diskettes, CDs, or other computer-readable devices created or used at our company must be certified virus-free before being released to a third party. This certification must be performed by our LAN Administrator.

UNAUTHORIZED ACCESS TO NETWORK OR APPLICATIONS PROHIBITED

Norsat employees may have access only to those computer applications for which they have been trained, and which they are authorized to use. Employees who are not authorized to do so may not attempt to gain access to Norsat’s computers or network, nor may employees who are authorized to access specific applications attempt to access other applications which they have not been specifically authorized to use. Any questions which you may have in this regard must be addressed directly to MIS.

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CONFIDENTIALITY OF NETWORK PASSWORDS REQUIRED

Network users are responsible for any network activity performed under their user name and password. Passwords should be kept confidential and not divulged to any other individuals, including other employees, so as to prevent unauthorized access. Certain network activities are recorded by user name in activity audit logs which are reviewed by the manager of information systems and LAN administrator. Your disclosure of your password — even to a trusted office colleague — will interfere with computer security and compromise our information systems. Don’t do it.

Users must periodically change their passwords as instructed by a member of our Information Systems Department. Requests for specific user names and passwords will not be considered.

ALLOWING ACCESS TO CONFIDENTIAL INFORMATION PROHIBITED

Information stored on our computer system is for the exclusive use of employees as required in the course of performing the work of our company. When you leave your work area for any extended period of time, including lunch hours and/or any time you leave Norsat’s offices, you must log out of the network to prevent unauthorized access to confidential information.

SECURITY OF LAPTOPS

Laptops are issued with Defcon Security cables. It is the responsibility of all Laptop users to insure that the Defcon is used at all times. This includes while at the office and whenever traveling. If you require clarification on the use of the Defcon contact MIS HELP DESK.

If you have any questions or require clarification of any information contained in this Policy, please contact MIS.

I have read and understand this “PROTECTION OF NORSAT’S COMPUTERIZED INFORMATION RESOURCES POLICY” and agree to abide by the policies as written.

10

APPENDIX “B”

EMPLOYEE AGREEMENT RESPECTING CONFIDENTIALITY AND INTELLECTUAL PROPERTY AND
AGREEMENT TO ASSIGN INVENTIONS

I, the undersigned, acknowledge that Norsat International Inc. and any of its affiliates, subsidiaries and branches (“Norsat”) possesses and may hereafter acquire valuable technical and non-technical information, that, to protect its legitimate interests, it is necessary for Norsat to protect such information by maintaining the same as secret or confidential, that Norsat does protect such information by maintaining it as secret or confidential, and that, through my employment with Norsat, I may be exposed to or generate additional information which requires such protection.

     Accordingly, in consideration of Norsat engaging me as an Employee, I covenant and agree that:

1.	I will not, either during the continuance of my employment by Norsat or at any time thereafter, divulge, publish or otherwise reveal, either directly or indirectly or through any person, firm or corporation, any information concerning the business affairs of Norsat or any secrets of Norsat (including, without limiting the generality of the foregoing, any information, whether written or oral, pertaining to technology, know-how, trade secrets, data, processes, inventions, developments, formulations, applications, methods of manufacture, information pertaining to existing or potential customers, suppliers, markets, contracts, prices, programs, strategies and products, or information pertaining to Norsat employees) to any person or persons, without the prior written consent of Norsat;
2.	I will not, either during the continuance of my employment by Norsat or at any time thereafter, use, for my own purposes or for any purposes other than those of Norsat, any information which I may acquire with respect to the business and affairs of Norsat;
3.	I will, during the term of my employment and at all times thereafter, keep confidential all information and materials provided to me by Norsat, excepting only such information as is already or hereafter becomes known to the public, including any such information and materials relating to any customer, supplier or other party transacting business with Norsat, and not to release, use or disclose the same without the prior written consent of Norsat; and
4.	Each of the above covenants shall survive the termination of my employment by Norsat, even if occasioned by a breach or wrongful termination by Norsat.
5.	Any and all inventions, discoveries, developments, modifications, procedures, practices, ideas, innovations, systems, programs, know-how or designs which I may develop during my employment by Norsat shall be the property of Norsat and I will execute applications for patents or copyrights in respect thereof, if and when requested by Norsat, and/or assign the same to Norsat on request, and that all such inventions, practices, ideas, innovations, systems, programs, know-how or designs shall be subject to the confidentiality, non-use and non-disclosure restrictions specified above.

DATED this ___________________________ day of ______________________________, 2001.

SIGNED AND DELIVERED in the presence of:
Signature of Witness
Name of Witness (Print)	Employee Signature
	Employee Name (Print)

Norsat Confidentiality Agreement October 2001. Version 2

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APPENDIX “C”

*NORSAT INTERNATIONAL INC.

INSIDER TRADING POLICY — SUMMARY

Insider Trading: Subject to the general guidelines and the specific rules that follow, all employees, directors, officers and other Insiders permit trading in Norsat’s shares throughout the year.

Guidelines: The policy contains two general guidelines as follows:

1.	An Insider should not deal in securities of Norsat at any time if he or she is in possession of information which would reasonably be expected to have a significant effect on the market price of such securities and the public does not have the same information; and
2.	Information which would reasonably be expected to have a significant effect on the market price, which such Insider has by reason of his or her position with Norsat and which has not been generally disclosed should not be communicated to any other person or used for any other purpose than to carry out such person’s duties to Norsat.

Specific Rules: The policy contains the following specific rules, among others. Please read the entire Policy attached for the complete rules.

1.	Financial Staff: No trading is permitted by employees and officers directly involved in the preparation of annual and quarterly financial statements within a period commencing from the beginning of the preparation of the statements until after one business day following the date of issuance of a press release by the Company announcing its annual or quarterly financial results.
2.	Directors, Officers, Employees: No trading is permitted within a period commencing from the time an employee, director or officer receives draft annual or quarterly financial statements and ending after one business day following the date of issuance of a press release by the Company announcing its annual or quarterly financial results.
3.	All Insiders: No trading is permitted during times of unusual activity (e.g. material acquisitions or divestitures) or during any “black-out period” announced by the Company. Trading may commence after one business day following the date of issuance of a press release by the Company announcing a material change or specific public announcement or on advice from the Company that the “black-out period” has ended.

No Insider who has actual knowledge of material undisclosed information relating to the Company is permitted to trade, either directly or indirectly, in the Company’s shares or to disclose that information except as required in the necessary course of business. Any concern over the interpretation of this rule should be referred to either the President or Chief Financial Officer of the Company.

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Procedures for Reporting: Where a named Insider for reporting purposes makes a change in his ownership of securities, it is important that Insider Trading Reports are filed immediately (within 7 calendar days of the ownership change).

1.	INSIDER TRADING & PUBLIC NON-DISCLOSURE POLICY
1.1	Policy Summary

Norsat’s Common Shares are listed and traded on The Toronto Stock Exchange (the “TSE”) and NASDAQ. Because Norsat is a reporting issuer and listed on the TSE and NASDAQ, it is subject to Canadian and Unites States securities laws, including those that impose penalties for “insider trading”. This term refers to trading by “insiders” of a company (or persons who, because of the nature of their job, come into contact with or become aware of important or confidential information concerning Norsat or its operations) when they have knowledge of matters which have not been generally disclosed (i.e., by a press release to the market). Any trading by a person who has such information may lead to civil and quasi-criminal liability.

In order to protect you and Norsat from any violation of applicable insider trading laws, the Board of Directors of Norsat adopted this Insider Trading Policy in 2000. This Policy is reviewed and revised periodically. Every director, officer and employee is required to comply with the rules and procedures set out in this Policy in respect of insider trading. This document is to assist directors, officers and employees in complying with the requirements and is not intended to be an exhaustive summary of the applicable legislative requirements. Underlying all of this — use your common sense and be prudent. Any questions should be directed to the Chief Financial Officer.

1. Trading in Securities and Tipping

a)	No trading is permitted by employees and officers directly involved in the preparation of annual and quarterly financial statements within a period commencing from the beginning of the preparation of the statements until after one business day following the date of issuance of a press release by the Company announcing its annual or quarterly financial results.
b)	No trading is permitted within a period commencing from the time an employee, director or officer receives draft annual or quarterly financial statements and ending after one business day following the date of issuance of a press release by the Company announcing its annual or quarterly financial results.
c)	No trading is permitted during times of unusual activity (e.g. material acquisitions or divestitures) or during any “black-out period” announced by the Company. Trading may commence after one business day following the date of issuance of a press release by the Company announcing a material change or specific public announcement or on advice from the Company that the “black-out period” has ended.
d)	Notwithstanding paragraph (a) above, no director, officer or employee who has actual knowledge of material undisclosed information relating to the Company is permitted to trade, either directly or indirectly, in the Company’s shares or to

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	disclose that information except as required in the necessary course of business. Any concern over the interpretation of this rule should be referred to the Chief Financial Officer of the Company.
e)	Subject to (a) (b) (c) and (d) above, trading in the Company’s shares is permitted throughout the year by all employees, directors and officers.
f)	All trades of the Company’s securities by “reporting insiders” (any director or senior officer as defined in the Policy) must be reported within seven days to the Chief Financial Officer of the Company.
g)	“Trading” includes the receipt or exercise of stock options granted by the Company.

IF YOU FAIL TO OBSERVE THIS POLICY, YOU AND NORSAT MAY BE LEGALLY LIABLE UNDER APPLICABLE SECURITIES LAWS.

1.2 Overview

When may a director, officer or employee properly buy or sell shares in Norsat? There is no simple, uniform answer to this question, but it underscores the importance of a policy of adequate and timely disclosure both for the benefit of the investing public and for the protection of management and the Company. Public disclosure at the earliest stages of new developments may be premature, and the best interests of Norsat and its shareholders may require secrecy about new developments before they reach the stage where public disclosure is appropriate. Still, hindsight is remarkably keen and the accusation can always be made that a purchase or sale of shares by a director, officer or employee was made because of inside knowledge of a future favourable or unfavourable development.

Liability arises for trading securities on the basis of information which has not been disclosed to the public or for disclosing information to persons who use it for the purpose of trading or pass it on to others (“tipping”), if the information is “material” within the meaning of the securities laws. Do not rely solely on your own judgment but seek advice when needed from the President or Chief Financial Officer as to whether particular information is material. Information which may be material includes financial and operating results; negotiations concerning contracts with outside parties; possible dispositions or acquisitions of properties, information on other significant assets or other corporations or businesses; decisions concerning dividends; important business developments; financing; important personnel changes; litigation and labour negotiations.

A purchase or sale of securities by persons who are “insiders” of the Company or who are in a “special relationship” with the Company may result in such person incurring substantial liability if use is made of confidential information which has not been generally disclosed to the public, and such liability may extend to Norsat itself. Norsat is anxious to avoid any breach of securities laws and to avoid any action, which might appear to be taken on the basis of an improper use of confidential information.

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1.3 Insiders

The following guidelines apply to “insiders” and others in a “special relationship” with Norsat (an “insider” or anyone in a “special relationship” with Norsat is hereinafter referred to as an “Insider”). It should be noted that Insider includes directors, officers, and employees of Norsat, anyone who engages in any business or professional activity with Norsat, certain relatives and partners of Insiders, a trust in which an Insider has a substantial beneficial interest and trusts as to which an Insider serves as Trustee. A person who receives confidential information from an Insider and who has knowledge that such person is an Insider shall also be deemed to be an Insider.

1. Insider Trading

a)	Definition of Insider
	While the definition of an Insider differs in the various jurisdictions, the definition of an Insider includes:

• The Board of Directors and Officers, e.g. (CEO and Vice Presidents) of Norsat.

• All employees of Norsat.

• Anyone who engages in any business or professional activity with Norsat.

• Any director, officer, or employee of such person or company.

• “Tippees”, i.e., people who receive confidential information from Insiders or other “tippees”.

b)	Guidelines
	The policy contains two general guidelines as follows:
	An Insider should not deal in securities of Norsat at any time if he/she is in possession of information which would reasonably be expected to have a significant effect on the market price of such securities and the public does not have the same information; and
	Information which would reasonably be expected to have a significant effect on the market price which such Insider has by reason of his or her position with Norsat and which has not been generally disclosed should not be communicated to any other person or used for any other purpose than to carry out such person’s duties to Norsat.
c)	Specific Rules
	In addition to the one general guidelines set out above, the following specific rules should be observed:

1. No trading in securities of the Company by Insiders directly involved in the preparation of the Company’s, quarterly or annual financial statements can take place from the beginning of the preparation of the statements until after one

15

	business day has elapsed from the date on which the Company’s press release announcing the results for the fiscal period was disseminated.
2.	No trading in securities of the Company by Insiders is permitted within a period commencing from the time an employee, director or officer receives draft annual or quarterly financial statements and ending after one business day following the date of issuance of a press release by the Company announcing its annual or quarterly financial results.
3.	If the Company announces a “black-out period” or if an Insider knows that Norsat is about to make a news release of material information, at any time, the Insider should not trade from the time of such knowledge of the release (or announcement of the “black-out period”) until after one business day has elapsed from the date of dissemination of the material change.
4.	No Insider may at any time sell short the securities of Norsat.
5.	No Insider may at any time buy or sell a call or put option in respect of a security of Norsat.
6.	In order to avoid possible inadvertent conflict with these guidelines, standing sell orders or standing purchase orders should not be left with a broker.

Securities include, without limitation, the shares and options of Norsat.

In addition, all Insiders and persons associated and affiliated with them, are restricted from making use, for their own advantage, of any specific confidential information which, if generally known, might reasonably be expected to materially affect the value of the securities. Persons doing so may be subject to criminal prosecution and may also be liable to compensate any other person for any direct loss suffered as a result of the transaction, and will also be accountable to Norsat for any direct benefit or advantage received as a result of the transaction.

It is customary for Norsat to provide selected employees with monthly financial results. Each such Insider will have to determine the materiality of such results in light of the first general guideline.

There is a prohibition for anyone in a special relationship with a company from buying or selling securities of the company with the knowledge of a material fact or material change in the affairs of the company which he or she knew or ought reasonably to have known had not been generally disclosed. Persons in a special relationship with a corporation are also prohibited from informing (other than in the ordinary course of business) another person about a material fact or material change before such fact or change has been generally disclosed. The scope of persons having a “special relationship” with a company is very broad, and includes Insiders.

2. Insider Reporting

a)	Insiders For Reporting Purposes
	Norsat, on advice of counsel, considers an Insider for reporting purposes, to be any member of the Board of Directors, a 10% or greater shareholder, or senior officer.

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	The statutory requirements provide that a person must file a report, other than a nil report on becoming an Insider for reporting purposes, and must report when a change occurs in his or her direct or indirect beneficial ownership of securities of Norsat, including any transfer of any securities into the name of an agent, nominee or custodian, and RRSP.
b)	Procedures for Reporting
	Where a named Insider for reporting purposes acquires or makes a change in his or her ownership of securities of Norsat, it is important that Insider Trading Reports are filed immediately (within 7 calendar days of the ownership change) in order to comply with securities legislation in each of the relevant provinces. Insider Trading Reports must be filed in the provinces of Quebec, Ontario, Alberta, and British Columbia.
	The Chief Financial Officer (CFO) will coordinate the filing of Insider Reports. Accordingly, the CFO must be advised promptly of any changes (direct or indirect) in an Insider’s ownership of Norsat securities so that the necessary reports may be completed and filed on behalf of the Insider. Please fax or e-mail the following information to the Chief Financial Officer:

• The trade date of the transaction (not the settlement date);

• The nature of the transaction (acquired/disposed, etc.)

• The number of securities acquired/disposed of; and

• The unit price paid or received on the day of the transaction.

Each Insider is responsible for the accuracy and timeliness of their Insider Trading Reports.

1.4 Public Non-Disclosure:

1. No insider may speculate about any rumors concerning Norsat to any “outsiders”, as defined in 7.5 below.

2. No insider may discuss confidential Norsat business, pending contracts, mergers or acquisitions, or other material events of Norsat with any outside parties, except in the normal course of business and with approval of senior management.

3. No insider may make statements about the future that have not been pre-qualified by senior management and protected by safe harbour provision.

4. No insider may initiate or respond to comments on Internet chat groups about Norsat’s confidential business.

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1.5	Definition of “Outsider”
	Any individual who is not a Director or Officer of Norsat; and any individual who is not an employee of Norsat.

Mark Ahrens-Townsend
September 28, 2001
President & Chief Executive Officer
Norsat International Inc.

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APPENDIX “D”

SEVERANCE AGREEMENT

Option A

1.1         If Norsat International Inc. (“Norsat”) terminates the Executive other than for just cause, Norsat shall give the Executive reasonable notice, or severance in lieu thereof.

Options B

1.2         If Norsat International Inc. (“Norsat”) terminates the Executive other than for just cause, Norsat shall give the Executive 12 months written notice, plus a further month of written notice for each full year of service, (and prorated if notice of termination is given during a partial year of service) that the Executive has with Norsat.

1.3	Upon receipt of written termination:
	Stock options allocated to the Executive will continue to vest for two years from the date on which he is given notice of termination and he will have two years from the date on which he is given notice of termination within which to exercise any stock options that have vested.

Please Sign and indicate whether you wish to have Option A or Option B.

Option A [  ]
Option B [  ]

Signed:
	Mark Ahrens-Townsend
Date:

Witnessed by:

Signed:

Date:

19 EX-99.1 8 o09662exv99w1.htm SECTION 906 CERTIFICATION CEO

Exhibit 99.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Norsat International Inc. (the “Company”) on Form 20F for the year ended September 28, 2002 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Yutaka Ueda, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1.	the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date: May  20, 2003	“Yutaka Ueda”
	Yutaka Ueda
	President and Chief Executive
	Officer

1 EX-99.2 9 o09662exv99w2.htm SECTION 906 CERTIFICATION CFO

Exhibit 99.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Norsat International Inc. (the “Company”) on Form 20F for the year ended September 28, 2002 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Troy Bullock, Vice President, Finance and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1.	the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date: May 20, 2003	“Troy Bullock”
	Troy Bullock
	Vice President, Finance and
	Chief Financial Officer

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EX-4.1

Agency Agreement

EX-6.1

Employment Contract  Yutaka Ueda

EX-6.2

Employment Contract  Troy Bullock

EX-6.3

Employment Contract  Michael Heaven

EX-6.4

Employment Contract  Mark Ahrens-Townsend

EX-99.1

Section 906 Certification  CEO

EX-99.2

Section 906 Certification  CFO