F-1 1 o32735fv1.htm F-1 fv1
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As filed with the Securities and Exchange Commission on August 29, 2006
Registration No. 333-            
 
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PHOTOWATT TECHNOLOGIES INC.
(Exact name of Registrant as specified in its charter)
         
Canada   3674   Not Applicable
(State or other jurisdiction of   (Primary Standard Industrial   (I.R.S. Employer
incorporation or organization)   Classification Code Number)   Identification No.)
Photowatt Technologies Inc.
25 Reuter Drive, Cambridge, Ontario, Canada N3E 1A9
(1-519-650-6505)
(Address, including zip code, and telephone number,
including area code, of registrant’s principal executive offices)
 
Matrix Solar Technologies, Inc.
540-A Silver Creek NW, Albuquerque, New Mexico 87121
(1-505-833-0100)
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
 
With copies to:
             
Christopher J. Cummings   Chris Hewat   Riccardo A. Leofanti   D. Shawn McReynolds
Shearman & Sterling LLP   Blake, Cassels & Graydon LLP   Skadden, Arps, Slate, Meagher & Flom LLP   Davies Ward Phillips & Vineberg LLP
199 Bay Street, Suite 4405   199 Bay Street, Suite 2800   222 Bay Street, Suite 1750   1 First Canadian Place, 44th Floor
Toronto, ON Canada M5L 1E8   Toronto, ON Canada M5L 1A9   Toronto, ON Canada M5K 1J5   Toronto, ON Canada M5X 1B1
      Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.
      If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, please check the following box.     o
      If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o
      If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o
      If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o
CALCULATION OF REGISTRATION FEE
             
             
             
      Proposed Maximum     Amount of
Title of Each Class of     Aggregate Offering     Registration
Securities to be Registered     Price(1)(2)     Fee
             
Common Shares
    $250,000,000     $26,750
             
             
(1)  Includes common shares that may be purchased by the underwriters pursuant to an over-allotment option.
 
(2)  Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
 
      The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act, or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
 
 


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The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion. Dated August 29, 2006.
PRELIMINARY PROSPECTUS
(PHOTOWATT TECHNOLOGIES INC. LOGO)
                             Shares
PHOTOWATT TECHNOLOGIES INC.
Common Shares
        This is an initial public offering of our common shares in the United States and Canada. The           common shares are being offered by us. Prior to this offering, there has been no public market for our common shares.
      The initial public offering price of our common shares is expected to be between $          and $           per share. We intend to apply to list our common shares on The Nasdaq Global Market under the symbol “PHWT” and on the Toronto Stock Exchange under the symbol “PHW.” Any such listing will be subject to the approval of the relevant stock exchange, and any such approval would not be given unless all of the original listing requirements were met.
       Investing in our common shares involves a high degree of risk. Before buying any shares, you should read the discussion of material risks of investing in our common shares in “Risk Factors” beginning on page 12 of this prospectus.
       Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
                 
    Per Share   Total
         
Initial public offering price
  $       $    
Underwriting commissions
  $       $    
Proceeds, before expenses, to us
  $       $    
      The underwriters may also purchase up to an additional                     common shares from our parent company, ATS Automation Tooling Systems Inc., at the public offering price, less underwriting commissions, to cover over-allotments, if any, within 30 days from the date of this prospectus.
      The underwriters are offering the common shares as set forth under “Underwriting.” Delivery of the common shares will be made on or about                     , 2006.
Joint Book-running Managers
BMO Capital Markets UBS Investment Bank
The date of this prospectus is                     , 2006.


 

      You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized anyone to provide you with additional or different information. We are not, and the underwriters are not, offering to sell these securities in any jurisdiction where the offer or sale is not permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common shares. Our business, financial condition, results of operations and prospects may have changed since the date of this prospectus.
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 EX-23.2
      Unless the context otherwise requires, any references in this prospectus to “we,” “our,” “us,” the “Company” and “Photowatt” refer to Photowatt Technologies Inc. and its subsidiaries as in effect on the closing date of this offering. Any references in this prospectus to “ATS” refer to our parent company, ATS Automation Tooling Systems Inc. and its subsidiaries, other than us.
      Following is a description of certain units of measure or power used in this prospectus:
  “g” grams
 
  “W” watt
 
  “g/ W” grams per watt
 
  “kW” kilo-watt, or one thousand watts
 
  “mm” millimeters
 
  “MW” mega-watt, or one million watts
 
  “GW” giga-watt, or one billion watts
 
  “kWh” kilo-watt hour, or the power of one kilo-watt operating for one hour
 
  “Wp” watt peak, or the output of a solar module as measured under an industry standardized light test
      We present our combined financial statements in United States dollars. In this prospectus, references to “$,” “U.S.$,” “dollars” or “U.S. dollars” are to United States dollars, references to “C$” are to Canadian dollars, and references to “” are to euro. Amounts are stated in U.S. dollars unless otherwise indicated.

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      Any references in this prospectus to our production capacity assume the use of polysilicon at currently experienced levels of efficiency, in the case of Photowatt International, and assume the use of polysilicon at expected levels of efficiency, in the case of Spheral Solar.
      As used in this prospectus, “efficiency” is the percentage of incident energy that is converted into electrical energy in a solar cell. Solar cells with lower efficiencies need to be larger than solar cells with higher efficiencies to generate the same power output.
      As used in this prospectus, “silicon” refers to a variety of silicon feedstock, including polysilicon, refined metallurgical silicon and polysilicon powders and fines.
      This prospectus contains statistical data that we obtained from government and industry publications and reports generated by Solarbuzz LLC, or Solarbuzz, a market research firm specializing in the solar industry. These government and industry publications and reports generally indicate that they have obtained their information from sources believed to be reliable, but do not guarantee the accuracy and completeness of their information. Although we believe that the publications and reports are reliable, we have not independently verified their data.
      Through and including                     , 2006 (the 25th day after the date of this prospectus), U.S. federal securities law may require all dealers that effect transactions in these securities, whether or not participating in this offering, to deliver a prospectus. This requirement is in addition to the dealers’ obligations to deliver a prospectus when acting as an underwriter and with respect to unsold allotments or subscriptions.

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PROSPECTUS SUMMARY
      You should read the following summary together with the more detailed information regarding our company contained in this prospectus, including the risk factors and the combined financial statements and notes thereto included elsewhere in this prospectus.
Our Company
      We design, manufacture and sell photovoltaic products, commonly referred to as solar cells and modules. Solar cells and modules provide clean, renewable energy by converting sunlight into electricity through a process known as the photovoltaic effect. We operate through two segments, Photowatt International and Spheral Solar.
      Photowatt International designs, manufactures and sells solar modules and installation kits, and provides solar power system design and other value-added services, principally in Western Europe. Photowatt International also manufactures wafers and solar cells, primarily for use in manufacturing its modules and for sale to third parties on an opportunistic basis. Most of Photowatt International’s products are manufactured in our Photowatt France facility outside of Lyon, France. Photowatt USA, our facility in Albuquerque, New Mexico, performs certain module assembly operations for Photowatt International. Solar modules manufactured by Photowatt International are used by businesses, institutions and homeowners to generate electric power. Photowatt International sells its products under the Photowatt and Matrix brands to a network of independent solar power systems distributors and installers. Photowatt International’s revenue for the fiscal year ended March 31, 2006 was $121.9 million.
      Spheral Solar is developing a technology for a light weight, flexible crystalline solar module designed to compete with both conventional crystalline and thin film technologies. Our Spheral Solar technology incorporates thousands of tiny silicon spheres, bonded between thin, flexible aluminum foil substrates to form solar cells. We believe that our Spheral Solar technology, if we are able to successfully develop it, would have advantages over conventional crystalline solar cells, including better aesthetics, greater durability, less use of silicon, lighter weight, multiple available colors, more applications and physical flexibility. Spheral Solar is committing significant resources to development and process engineering in an effort to commercially manufacture products using our Spheral Solar technology. Our target efficiency for our Spheral Solar technology at commercialization is approximately 11%. However, the technological challenges in achieving commercial production and this target efficiency are substantial, and there can be no assurance as to when we will be able to commercialize our Spheral Solar technology or achieve this target efficiency, if at all. Spheral Solar had no revenue for the fiscal year ended March 31, 2006.
Our Competitive Strengths
Photowatt International
      We believe that Photowatt International has the following competitive strengths:
  •  Integrated manufacturing capabilities. We participate in each of the ingot, wafer, cell and module stages of the solar module production process. We believe that being an integrated manufacturer gives us several advantages relative to many of our competitors, including:
  —  the ability to capture a greater portion of the profits available by participating across a significant portion of the solar value chain;
 
  —  reduced dependence on third-party suppliers for ingots, wafers and cells;
 
  —  enhanced research and development capabilities to increase cell efficiency levels;
 
  —  the ability to process a wide variety of silicon feedstock; and
 
  —  improved process development capabilities by allowing us to continually evaluate the impact of changes throughout the production process.

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  •  Proprietary silicon processing technologies. Polysilicon, a specially processed form of silicon, is the primary raw material used to make crystalline solar cells and currently there is not enough available to meet industry demand. The supply shortage has led to sharply higher prices for polysilicon and has adversely impacted many solar cell manufacturers’ sales growth and profitability. While all forms of silicon are in short supply, we have developed processes to make solar cells from lower grades of silicon that we believe we can acquire more easily and at lower cost per kilogram than polysilicon, including:
  —  Processing of refined metallurgical silicon. We are currently producing solar cells using refined metallurgical silicon and expect that by the fourth quarter of fiscal 2007, in excess of 25% of the solar cells we make will be produced using refined metallurgical silicon. While all forms of silicon are in short supply, we believe we can acquire refined metallurgical silicon more easily and at a lower cost per kilogram than polysilicon. Currently, solar cells that we make using refined metallurgical silicon have lower efficiencies than solar cells we make using polysilicon. However, we believe the capability to make solar cells from refined metallurgical silicon will allow us to meet customer demand and mitigate the effects on our business of the current polysilicon shortage. We believe that approximately 90% of our total silicon requirement during fiscal 2008 could be met with refined metallurgical silicon. We are also currently evaluating a further refined type of metallurgical silicon that we believe has the potential to yield solar cells that have efficiencies consistent with what we currently obtain using polysilicon. We refer to this material as enhanced metallurgical silicon.
 
  —  Processing of polysilicon powder and fines. Polysilicon powder and fines are by-products of the polysilicon production process that many manufacturers have limited use for. Spheral Solar has developed a proprietary process called optically fused powder, or OFP, technology to convert polysilicon powder and fines into polysilicon clusters that can be used, together with conventional polysilicon, by Photowatt International to make solar cells. We purchase dry polysilicon powder and fines from polysilicon manufacturers at significantly lower prices than we purchase polysilicon on the spot market. Purchasing and converting polysilicon powder and fines is significantly less costly for us than purchasing polysilicon in the current market environment, and using polysilicon powder and fines in combination with conventional polysilicon does not decrease the efficiency of our cells. We are about to begin selling solar cells that include polysilicon clusters made using OFP technology. We believe that polysilicon clusters produced by us from powder and fines could be used to satisfy approximately 20% of our fiscal 2007 ingot production capacity.
  •  Advanced wafer sawing capabilities. Wafers used in solar cells are cut from silicon bricks using specialized wire saws. In general, thinner wafers result in lower production costs because more wafers can be produced from each brick. However, very thin wafers are difficult to process because they are more brittle, and substantial technical expertise is required to develop processes that ensure acceptable yields. Wire thickness is also important because it determines how much silicon is lost during the cutting process. Photowatt International was a pioneer of the wafer sawing process used by many wafer manufacturers today and was one of the first companies to develop saws using wire less than 200 microns thick. Today, Photowatt International produces wafers with thicknesses ranging from 180 to 220 microns using a wire 160 microns thick. Photowatt International used approximately 10 grams of polysilicon per watt of power in our solar cells in 2005, which compares to an average of approximately 12 grams for the industry in 2005 as reported by Solarbuzz. Our current usage is approximately 9 grams per watt, which we believe remains below the current industry average.
 
  •  Established market positions and relationships with key distributors and installers. We have successfully sold solar products in Europe for over 20 years. We enjoy established market positions in several Western European countries that have well developed and growing solar markets, including Germany, which is currently the world’s largest market for solar power. We are also developing a presence in emerging growth markets for solar power in Europe, including Spain, Italy and Greece, as well as in the United States and Canada. We believe we have well-established relationships with key distributors and installers and that we are differentiated from our competitors by our timely delivery as

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  a result of our vertical integration capabilities, our technical expertise and our reputation for quality solar modules with competitive price and efficiency levels.
Spheral Solar
      If we are able to successfully develop and commercialize our Spheral Solar technology, we believe that it would have the following competitive strengths relative to conventional crystalline solar products: physical flexibility and more applications; greater durability; better aesthetics; and less use of silicon.
Our Business Strategy
      Our objective is to be a market leader in the development and manufacturing of solar products. We intend to achieve this objective through the following strategies:
  •  Expand integrated annual manufacturing capacity of Photowatt International and Spheral Solar to approximately 390 MW by the end of calendar 2010. Demand for our products is currently greater than our capacity to produce them. We intend to capitalize on the demand for our products by increasing Photowatt International’s annual integrated manufacturing capacity to approximately 250 MW by the end of calendar 2010. If we are able to successfully complete the development and process engineering required to commercialize our Spheral Solar technology, we intend to increase our Spheral Solar technology manufacturing capacity to approximately 140 MW by the end of calendar 2010.
  We intend to implement our Photowatt International capacity expansion strategy in three phases:
  —  In May 2006, we announced the first phase of our capacity expansion plan, which includes the expansion of Photowatt International’s annual ingot, wafer, cell and module manufacturing capacity from approximately 31 MW, 32 MW, 40 MW and 54 MW, respectively, to approximately 60 MW of integrated manufacturing capacity by March 2007.
 
  —  The second phase of our capacity expansion plan provides for construction of a second facility near Lyon, France on land immediately adjacent to our existing facility and the construction of a module assembly facility in Eastern Europe or another low-cost region that will increase our annual integrated manufacturing capacity to 100 MW. We plan to begin this phase of our expansion in calendar 2006 and complete it in calendar 2008. In addition, we also intend to increase our annual integrated manufacturing capacity in calendar 2008 by 50 MW. In connection with this, we are considering a joint venture with a mandate to develop a new automated manufacturing facility for the production of high efficiency solar cells and constructing module assembly facilities in low-cost regions.
 
  —  The third phase of our expansion plan provides for an additional 100 MW of annual integrated manufacturing capacity in calendar 2009 and 2010 either through the expansion of existing facilities or construction of new facilities.
  If we are successful in completing the development and process engineering required to commercialize our Spheral Solar technology, we plan to expand Spheral Solar’s existing production line to an annual capacity of 20 MW and build a second line to add another 20 MW of annual production capacity. We would also build a 100 MW Spheral Solar technology facility by the end of 2010, which would bring our annual capacity for Spheral Solar technology products to 140 MW.
 
  We plan to use proceeds from this offering to finance the first and second phases of our Photowatt International capacity expansion plan and the development and process engineering for our Spheral Solar technology. We will need to raise additional capital to fund the third phase of our Photowatt International capacity expansion plan and the expansion of our Spheral Solar technology manufacturing capacity, assuming we successfully complete our development and process engineering.

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  •  Establish reliable, long-term silicon supply. The increase in demand for solar modules has led to an industry-wide silicon shortage. Continued growth in our business requires access to polysilicon or polysilicon alternatives such as refined metallurgical silicon. Our strategy is to establish a long-term supply of polysilicon and polysilicon alternatives from a variety of sources to support our continued growth. We plan to:
  —  enter into long term supply agreements for refined metallurgical silicon and polysilicon;
 
  —  secure a supply of polysilicon powder and fines through agreements with companies that produce these by-products, and use our OFP technology to process the powder and fines into polysilicon feedstock for use in our Photowatt International operations; we also intend to explore the possibility of licensing OFP technology to third-parties in exchange for long-term polysilicon supply agreements; and
 
  —  purchase silicon, including polysilicon ingots and wafers, on the spot market, to the extent available and subject to appropriate pricing.
  We believe that this approach will enable us to establish a long-term silicon supply sufficient to support the planned expansion of our manufacturing capacity.
  •  Continue to invest in research and development to improve cell efficiency. We expect to continue to devote substantial resources to our research and development efforts aimed at increasing the efficiency of our solar cells. We believe that higher efficiencies will enable us to produce cells that use less silicon per watt and reduce the cost of the products we manufacture and sell. In addition to our own research and development activities, we may engage in collaborative research and development activities focusing on increasing cell efficiency with leading industry participants and other research organizations. We expect to finance our research and development expenditures with internally generated cash flows, funding from government organizations and a portion of the proceeds from this offering.
 
  •  Commercialize our Spheral Solar technology and leverage synergies between our Photowatt International and Spheral Solar segments. We are working on development and process engineering in an effort to commercialize our Spheral Solar technology. We expect to use the technical expertise of internal resources as well as external consultants to assist us in commercializing Spheral Solar technology. For example, we have engaged SRI International, formerly known as Stanford Research Institute, a leading independent contract research institute, to evaluate certain process problems we are experiencing in our Spheral Solar business. However, there is uncertainty as to whether we can resolve these problems and we cannot determine when we will be able to commercialize our Spheral Solar technology or if we will be able to do so at all. We believe that if our Spheral Solar technology can be made commercially viable, there are significant market opportunities for Spheral Solar products, including commercial roofing membranes and residential applications, such as solar shingles, as well as consumer/recreational applications, such as boating or recreational vehicles, or backpacking, where aesthetics, physical flexibility and low weight are critical product characteristics. Additionally, we believe that Photowatt International will benefit from developments in our Spheral Solar technology, and we intend to leverage operational synergies between our two segments with respect to marketing, sales, and the processing and sourcing of silicon feedstock.
Our Silicon Supply
      Polysilicon is the primary raw material used in the production of our solar cells and modules. Silicon is currently in short supply and its price has increased significantly over the past 18 months. Without an adequate supply of polysilicon or an alternative, such as refined metallurgical silicon, which we have developed the capacity to process, we are not able to manufacture our products. As of June 30, 2006, we had approximately 287 metric tonnes of polysilicon, including polysilicon fines and powder, and 23 metric tonnes of refined metallurgical silicon in inventory. At August 29, 2006, we had commitments from suppliers to deliver an additional 40 metric tonnes of polysilicon and 130 metric tonnes of refined metallurgical silicon

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during the remainder of fiscal 2007. At August 29, 2006, we also had commitments from suppliers to deliver 48 metric tonnes of polysilicon and 120 metric tonnes of refined metallurgical silicon during fiscal 2008. We believe that our existing inventory and supplier commitments are sufficient to satisfy our planned capacity until the end of fiscal 2007. We intend to meet our silicon requirements in fiscal 2008 through a combination of existing commitments, purchases of polysilicon on an opportunistic basis, purchases of refined metallurgical silicon and purchases of polysilicon fines and powders that we can upgrade into polysilicon clusters that can be used in combination with conventional polysilicon to make solar cells. We believe that approximately 90% of our total silicon requirement during fiscal 2008 could be met with refined metallurgical silicon.
Our Industry
      Solar power systems are used for a variety of residential, commercial and industrial applications generally described as either “on-grid” or “off-grid” in nature. The market for “on-grid” applications, where solar power is used to supplement electricity purchased from the utility network, represents the largest and fastest growing segment of the market. According to Solarbuzz, in 2005, the global on-grid segment grew by 42% to 1,262 MW, and since 2001, the on-grid segment has grown at an average annual rate of approximately 55%. We believe the majority of our products are used in on-grid applications.
      “Off-grid” markets, where access to utility networks is not physically feasible or economical, offer additional opportunities for solar technology. Off-grid industrial applications include road signs, highway call boxes, communications support along remote pipelines and telecommunications equipment, as well as rural residential applications. Off-grid consumer applications include portable recreational power modules, garden lights, marine lighting and camping equipment. As reported by Solarbuzz, the off-grid market grew 2% in 2005, to 198 MW, and has grown at an average of 12% per annum since 2001.
      According to Solarbuzz, between 2001 and 2005, total annual solar power system installations increased globally from 345 MW to 1,460 MW, representing a compound annual growth rate of 43%, and global installations of solar power systems are expected to grow at a compound annual growth rate of 17% from 1,460 MW in 2005 to 3,250 MW by 2010. Solarbuzz forecasts continued strong growth globally, with sales increasing from $9.8 billion in 2005 to an estimated $18.6 billion by 2010, a 14% compound annual growth rate. Despite this rapid growth, solar energy constitutes only a small fraction of the world’s energy output.
      The development and increased usage of solar power is, and for the foreseeable future will be, affected by the existence of government incentives. A growing number of countries have established attractive incentive programs for the development of solar and other renewable energy sources. In 2005, two of the three largest markets for solar products, as measured by total installations per annum, were Germany and the United States, each having significant government subsidy programs for solar power. Other countries in which we sell our products such as Spain, France and Italy also have significant government subsidy programs for solar power.
Our Relationship With ATS
      ATS currently owns, either directly or indirectly through its subsidiaries, substantially all of our assets and operations. Upon the completion of this offering, ATS will establish our business as a separate, publicly traded company. To accomplish the separation of our business from the other businesses of ATS, ATS will undertake, subject to ATS shareholder approval of not less than two-thirds of the votes entitled to be cast by holders of ATS shares present in person or represented by proxy at a meeting of ATS shareholders to be held prior to the date of this offering, a corporate reorganization upon the closing of this offering under which ATS will transfer our assets and operations to us. For further information on this reorganization, see “Our Relationship with ATS — General — ATS reorganization relating to our company.” Immediately following this offering, ATS will own of record and beneficially approximately           % of our common shares. If the underwriters exercise their over-allotment option in full, immediately following this offering ATS will own of record and beneficially approximately           % of our common shares. As long as ATS continues to control more than 50% of the voting power of our common shares, ATS will be able to direct the election of all of

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the members of our board and exercise a controlling influence over our business and affairs. As well, provisions in our Shareholder Agreement with ATS provide ATS with certain rights for so long as ATS owns a significant percentage of our common shares.
Corporate Information
      We are a Canadian corporation. Our principal executive offices are located at 25 Reuter Drive, Cambridge, Ontario, Canada N3E 1A9, and our telephone number is (519) 650-6505.
Presentation of Financial Information
      We present our combined financial statements in United States dollars. In this prospectus, references to “$,” “U.S.$,” “dollars” or “U.S. dollars” are to United States dollars, references to “C$” are to Canadian dollars, and references to “” are to euro. Amounts are stated in U.S. dollars unless otherwise indicated.
      On August 29, 2006, the noon buying rate in New York for cable transfers payable in Canadian dollars and euros, as certified for customs purposes by the Federal Reserve Bank of New York, was $1.00 = C$1.1110 and 1.00 = $1.2768, respectively.
      Our combined financial statements included in this prospectus have been prepared in accordance with Canadian generally accepted accounting principles, or Canadian GAAP, which conform in all material respects with United States generally accepted accounting principles, or U.S. GAAP, as applied to our combined financial statements, except as presented in note 20 to our combined financial statements.
      Our combined financial statements present our historical financial position, results of operations, changes in net investment and cash flows on a “carve-out” basis from ATS as if we had operated as a stand-alone entity. However, the combined financial statements may not necessarily be indicative of the results that would have been attained if we had operated as a stand-alone entity, or our results for any future periods.

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THE OFFERING
Common shares we are offering                      shares
 
Common shares to be held by ATS immediately after this offering (assuming no exercise of the over-allotment option)                      shares
 
Common shares outstanding immediately after this offering                      shares
 
Over-allotment option ATS has granted the underwriters an over-allotment option exercisable for a period of 30 days from the date of this prospectus to purchase up to an additional                     common shares from ATS (representing 15% of the common shares offered hereby) at the initial public offering price to cover over-allotments, if any. We will not receive any of the proceeds from the shares sold pursuant to any exercise of the over-allotment option. See “Underwriting.”
 
Use of proceeds We estimate that the net proceeds to be received by us from this offering will be approximately $           million. We intend to use the net proceeds from this offering to invest $           million in additional manufacturing capacity at Photowatt International, to repay $                                owed to ATS under an intercompany loan, and the balance for general corporate purposes, including further development and process engineering associated with our Spheral Solar technology, the procurement of silicon supply contracts and investments that will enhance our manufacturing, silicon supply or research and development capabilities. See “Use of Proceeds.”
 
Risk factors See “Risk Factors” beginning on page 12 and the other information included in this prospectus for a discussion of the risks you should carefully consider before deciding to invest in our common shares.
 
Nasdaq Global Market and Toronto Stock Exchange Listings We intend to apply to list our common shares on The Nasdaq Global Market under the symbol “PHWT” and the Toronto Stock Exchange under the symbol “PHW.” Any such listing will be subject to the approval of the relevant stock exchange, and any such approval would not be given unless all of the original listing requirements were met.
 
      The number of common shares outstanding after this offering is based on                     shares outstanding as of                     , 2006 and gives effect to the corporate reorganization to be completed upon the closing of this offering as described under “Our Relationship with ATS — General — ATS reorganization relating to our company.” It does not include:
  •                      common shares issuable upon the exercise of options outstanding at a weighted average exercise price of $              per share;
 
  •                      common shares reserved for issuance under our stock option plan; or

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  •                      common shares issuable upon the exercise of options to be issued upon the closing of this offering with an exercise price equal to the initial public offering price.
      Unless otherwise indicated, the information in this prospectus:
  •  gives effect to the corporate reorganization to be completed upon the closing of this offering as described under “Our Relationship with ATS — General — ATS reorganization relating to our company”; and
 
  •  assumes the underwriters do not exercise their option to purchase up to                     additional shares from ATS to cover over-allotments, if any.

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SUMMARY COMBINED FINANCIAL DATA
      The following summary combined statements of earnings (loss) data for the three years ended March 31, 2004, 2005 and 2006 and the combined balance sheet data as of March 31, 2006 have been derived from our audited combined financial statements included elsewhere in this prospectus. Our combined financial statements have been prepared in accordance with Canadian GAAP, which conform in all material respects with U.S. GAAP as applied to our combined financial statements, except as presented in note 20 to our combined financial statements. Amounts are stated in United States dollars. The pro forma balance sheet data below give effect to the corporate reorganization to be completed upon the closing of this offering as described under “Our Relationship with ATS — General — ATS reorganization relating to our company.” The pro forma, as adjusted balance sheet data below give further effect to our sale of                     common shares in this offering at an assumed initial public offering price of $           per share, after deducting the underwriting commissions and estimated offering expenses payable by us, and the use of the net proceeds therefrom as described in “Use of Proceeds.” Other than as discussed above, the data below does not give effect to the corporate reorganization. You should read the following summary combined financial data in conjunction with our audited combined financial statements and the notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus. Our combined financial statements present our historical financial position, results of operations, changes in net investment and cash flows on a “carve-out” basis from ATS as if we had operated as a stand-alone entity. However, the combined financial statements may not necessarily be indicative of the results that would have been attained if we had operated as a stand-alone entity, or our results in any future periods.
                           
    Fiscal Year Ended March 31,
     
    2004   2005   2006
             
    (U.S. dollars in thousands, except
    share and per share data)
Combined Statements of Earnings (Loss) Data:
                       
Revenue
  $ 65,855     $ 113,019     $ 121,916  
Operating costs and expenses:
                       
 
Cost of revenue
    52,859       89,930       89,993  
 
Research and development(1)
    1,236       678       9,252  
 
Amortization
    4,466       5,420       9,680  
 
Selling and administrative
    4,708       5,855       9,088  
 
Asset impairment charge(2)
                94,290  
 
Shared corporate costs(3)
    415       589       717  
                   
      63,684       102,472       213,020  
Earnings (loss) from operations
    2,171       10,547       (91,104 )
Interest (income) expense
    (64 )     3       1,666  
Provision for income taxes
    1,130       3,761       5,610  
Minority interest
    41       125       (7 )
                   
Net earnings (loss)
  $ 1,064     $ 6,658     $ (98,373 )
                   
Pro forma net earnings (loss) per common share(4)
                       
 
Basic
  $       $       $    
 
Diluted
                       
Common shares used to compute pro forma net earnings (loss) per common share(4)
                       
 
Basic
                       
 
Diluted
                       

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    Fiscal Year Ended March 31,
     
    2004   2005   2006
             
    (U.S. dollars in thousands)
Selected Segment Data:
                       
Photowatt International:
                       
 
Revenue
  $ 65,855     $ 113,019     $ 121,916  
 
Research and development(1)
    1,236       678       619  
 
Amortization
    4,466       5,420       6,252  
 
Earnings from operations
    2,586       10,948       19,780  
 
Capital expenditures
    5,565       10,625       16,080  
Spheral Solar:
                       
 
Revenue
                 
 
Research and development(1)
                8,633  
 
Amortization
                3,428  
 
Earnings (loss) from operations(2)
          188       (110,167 )
 
Capital expenditures
    34,630       16,124       10,351  
Shared corporate costs:
                       
 
Shared corporate costs(3)
    415       589       717  
                         
    As of March 31, 2006
     
        Pro forma,
    Actual   Pro forma   as adjusted(5)
             
    (U.S. dollars in thousands)
Selected Combined Balance Sheet Data:
                       
Cash and cash equivalents
  $ 1,958     $       $    
Total assets
    103,257                  
Working capital(6)
    29,188                  
Total debt(7)
                     
Net investment
    74,724                  
Group equity
    75,182                  
Selected U.S. GAAP Data:
      The following table sets forth certain information prepared in accordance with U.S. GAAP. You should read this information in conjunction with note 20 to our combined financial statements included elsewhere in this prospectus.
                           
    Fiscal Year Ended March 31,
     
    2004   2005   2006
             
    (U.S. dollars in thousands)
Revenue
  $ 65,855     $ 113,019     $ 121,916  
Research and development(1)
    7,416       18,119       20,380  
Amortization
    4,544       5,502       9,680  
Asset impairment charge
                (52,609 )
Loss from operations
    (4,087 )     (6,976 )     (59,668 )
Net loss
    (5,194 )     (10,865 )     (66,937 )
Total assets (at period end)
    117,323       132,847       103,112  
Net investment (at period end)
    96,654       108,915       77,371  
 
Selected U.S. GAAP Segment Data:
                       
 
Photowatt International earnings from operations
    2,623       10,861       19,534  
 
Spheral Solar loss from operations
    (6,295 )     (17,248 )     (78,485 )

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(1)  Net of government grants.
 
(2)  We incurred an after-tax, non-cash asset impairment charge in fiscal 2006 of $94.3 million (pre-tax $94.3 million) against our Spheral Solar technology deferred development costs and other long-lived assets in the fourth quarter of fiscal 2006 due to the current uncertainty in resolving technological challenges and resulting delays of realizing cash flows from the investment in our Spheral Solar technology.
 
(3)  Represents allocation to us of estimated costs attributable to our business for services that were provided by ATS or one of its affiliates when we were a part of ATS.
 
(4)  Based on the number of common shares to be outstanding upon completion of the corporate reorganization and the closing of this offering as described under “Our Relationship with ATS — General — ATS reorganization relating to our company.”
 
(5)  The pro forma, as adjusted balance sheet data are illustrative only and are subject to adjustment based on the actual initial public offering price of our common shares and other terms of this offering determined at pricing. A $1.00 increase (decrease) in the assumed initial public offering price per share would increase (decrease) cash and cash equivalents, total assets, working capital and group equity by approximately $           million.
 
(6)  Working capital represents total current assets minus total current liabilities.
 
(7)  Total debt consists of debt under our intercompany loan from ATS, which was considered nil as at March 31, 2006 for the purposes of the combined financial statements. At the time of the closing of this offering we expect to owe approximately $           million to ATS pursuant to an intercompany loan for investment in additional manufacturing capacity at Photowatt International, further development and process engineering associated with our Spheral Solar technology, and other general corporate purposes.

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RISK FACTORS
      An investment in our common shares involves significant risks. You should carefully consider the risks described below and the other information elsewhere in this prospectus, including our combined financial statements and related notes, before making a decision to buy our common shares. If any of the following risks occur, our business, financial condition and results of operations could be materially harmed. In that case, the trading price of our common shares could decline and you could lose all or part of your investment in our common shares.
Risks Relating to Our Business
Failure to obtain sufficient quantities of silicon at reasonable prices or at all could constrain our revenue and production growth and decrease our gross margins.
      Silicon is the most important raw material for our production of solar wafers, cells and modules. To maintain competitive manufacturing operations, we must obtain silicon in sufficient quantities, on a timely basis and at acceptable prices as there are only a limited number of suppliers. Strong growth in demand for silicon for use in solar cell and module production and for use in the semiconductor industry has led to an industry-wide shortage of silicon and to significant price increases in silicon. Increases in silicon prices have in the past increased our manufacturing costs and may impact our manufacturing costs and net income in the future. Some suppliers of silicon also supply to silicon wafer manufacturers for the semiconductor industry, which typically have greater buying power and market influence than manufacturers for the solar cell industry. As a result, increases in the demand for silicon from the semiconductor industry may in the future result in late deliveries or supply shortages with respect to the silicon that we need as raw material. This could result in reduced manufacturing output, delayed or missed shipments, damaged customer relationships and decreased revenue and gross margins. As demand for solar cells has increased, we and many of our principal competitors have announced plans to add additional manufacturing capacity. As this manufacturing capacity becomes operational, it will increase the demand for silicon and further exacerbate the current shortage and price increases. We cannot assure you that we will be able to secure a sufficient supply of polysilicon, whether conventional or fines and powder, or refined metallurgical silicon, to meet our needs.
      Most of our silicon feedstock is currently purchased through spot market purchases. We are continuing to devote resources to secure additional supply to enable our operations to grow without interruption and we believe that we have developed a silicon supply strategy for our longer term needs. However, we cannot assure you that we will be able to realize on our current efforts or our supply strategy. An important element of our long term silicon supply strategy involves the negotiation of new supply arrangements, but they may not be finalized or become effective at all. Under these arrangements we would typically be required to pre-pay or pay deposits to our suppliers in order to secure silicon supply. If any one of our suppliers was unable to provide us with silicon, we would have difficulty finding a replacement supplier. Additionally, although we aim to enter into fixed-price, prepaid arrangements with silicon suppliers, entering into such arrangements could make us less competitive if the spot market price of silicon falls. Our inability to obtain sufficient silicon at commercially reasonable prices or at all would adversely affect our ability to meet existing and future customer demand for our products, constrain our revenue and production growth and decrease our gross margins.
The reduction or elimination of government subsidies and economic incentives for solar energy applications could cause a reduction in demand for our products and lead to a decrease in our revenue and profitability.
      Demand for solar products is driven, in part, by government incentives that make the economic cost of solar power competitive with traditional forms of electricity. The unsubsidized cost of using solar energy is currently more expensive, on a per watt basis, than the retail cost of conventional hydroelectric, nuclear or fossil fuel-generated energy sources in most industrialized regions of the world. As a result, federal, state, provincial and local governmental bodies in many countries, including Germany, France, Spain, Italy, the United States, China and Canada, have provided subsidies in the form of cost reductions, tax write-offs and

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other incentives to end users, distributors, systems integrators and manufacturers of solar cells and solar modules. Reduction or elimination of these government subsidies and economic incentives because of policy changes, fiscal tightening or other reasons may result in market volatility, including rapid changes in demand and pricing, as well as the diminished competitiveness of solar energy, and could materially and adversely affect the growth of these markets. For example, in 2005, Japan, one of the largest markets for solar products, eliminated its direct subsidies in favor of other incentive programs, which may not be as successful in promoting the adoption of solar energy in that market. Other jurisdictions, such as Germany, have subsidy programs that are designed to decline over time. Government subsidies and economic incentives may change depending on various factors including the particular political situation of the country providing the subsidy. The reduction or elimination of government subsidies and economic incentives for solar energy applications, especially those in our target markets, could decrease demand for our products and cause our revenue to decline.
Our failure to further refine our technology and develop and introduce new solar products could render our products uncompetitive or obsolete and reduce our sales and market share.
      The solar industry is rapidly evolving and is characterized by continually improving technology providing more efficient and higher power output, improved aesthetics and smaller size at competitive prices. We will need to invest significant financial resources in research and development to keep pace with technological advances in the solar industry and to effectively compete. However, research and development activities are inherently uncertain, we may encounter practical difficulties in commercializing our products under development, and our significant expenditures on research and development may not reap corresponding benefits. A variety of competing solar technologies that other companies may develop could prove to be more cost-effective and have better performance than our solar products. Therefore, our products may be rendered obsolete by the technological advances of others. See “— We may not be able to fully develop and commercialize our Spheral Solar technology, and products using that technology may not gain market acceptance.”
Our future success substantially depends on our ability to significantly increase both our manufacturing capacity and output. Our ability to achieve our expansion goals is subject to a number of risks and uncertainties.
      At Photowatt International, we currently have annual capacity to manufacture approximately 40 MW of solar cells and 54 MW of solar modules, whereas some of our larger competitors have claimed that they can annually produce over 400 MW of solar cells and solar modules. In addition, many of our competitors have greater financial resources and strategic access to greater amounts of silicon than we do, which could enable them to grow faster than we do. Our future success depends on our ability to significantly increase both our manufacturing capacity and output. If we are unable to do so, we may be unable to expand our business, decrease our costs per watt and maintain our competitive position. Our ability to establish additional manufacturing capacity and increase output is subject to significant risks and uncertainties, including:
  •  the need to raise significant additional funds to purchase raw materials and equipment or to build additional manufacturing facilities;
 
  •  delays and cost overruns as a result of a number of factors, many of which may be beyond our control, such as increases in raw materials prices and problems with equipment vendors;
 
  •  delays or denial of required approvals by relevant government authorities;
 
  •  diversion of significant management attention and other resources;
 
  •  shortages of equipment or skilled labor; and
 
  •  failure to execute our business plan effectively.
      If we are unable to establish and operate additional manufacturing capacity, or increase manufacturing output, or if we encounter any of the risks described above, we may be unable to expand our business as

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planned. Moreover, we cannot assure you that if we do expand our manufacturing capacity and output we will be able to generate sufficient customer demand for our solar power products to support our increased production levels.
We face intense competition from other companies producing solar and other renewable energy products and conventional power generation. Because many of our competitors have greater resources than us, we may not be able to compete successfully and we may lose or be unable to gain market share which could affect our future revenue and profitability.
      The market for solar power products is intensely competitive and continually evolving. Industry participants compete with each other for supplies of silicon. As well, industry participants compete for sales primarily on the basis of their products’ design, efficiency and aesthetics, the strength of their distribution networks, branding, price, reliability and capacity. Many of our competitors have established a stronger market position than ours, and if we fail to attract and retain customers and establish successful distribution networks in our target markets for our products, we will be unable to compete. We compete with a large number of competitors in the solar market, including Sharp, Q-Cells, Kyocera, Sanyo, Mitsubishi, Schott, Suntech, Sunpower and BP Solar. We expect to compete with future entrants to the solar market that offer new technological solutions which could cause our products to become obsolete or uncompetitive. The solar power market in general also competes with other sources of renewable energy and conventional power generation.
      Many of our current and potential competitors have longer operating histories, greater brand name recognition, more established distribution networks, access to larger customer bases and substantially greater financial, distribution, technical, sales and marketing, manufacturing and other resources than we do. As a result, they may be able to respond more quickly to changing customer demands or to devote greater resources to the development, promotion and sales of their products than we can. Our business relies principally on sales of our solar modules and our competitors with more diversified product offerings may be better positioned to withstand a decline in the demand for solar modules. Our competitors’ greater size in some cases provides them with a competitive advantage with respect to manufacturing costs because of their economies of scale and their ability to purchase raw materials at lower prices. As a result, those competitors may have stronger bargaining power with suppliers and have an advantage over us in negotiating favorable pricing, as well as securing silicon at times of shortages.
If solar technology is not suitable for widespread adoption, or sufficient demand for solar products does not develop or takes longer to develop than we anticipate, our sales could decline, and we may be unable to operate profitably.
      The solar market is at a relatively early stage of development, and the extent to which solar products will be widely adopted is uncertain. Market data on the solar industry is not as readily available as is data in more established industries where trends can be assessed more reliably from data gathered over a longer period of time. If solar technology proves unsuitable for widespread adoption or if demand for solar products fails to develop sufficiently, we may not be able to grow our business or generate sufficient revenue to operate profitably. In addition, demand for solar products in our targeted markets may not develop or may develop to a lesser extent than we anticipated. Many factors may affect the viability of widespread adoption of solar technology and demand for solar products, including:
  •  cost-effectiveness of solar products compared to conventional and other non-solar energy sources and products;
 
  •  performance and reliability of solar products compared to conventional and other non-solar energy sources and products;
 
  •  availability of government subsidies and incentives to support the development of the solar industry;
 
  •  success of other alternative energy generation technologies, such as fuel cells, wind power and biomass;

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  •  fluctuations in economic and market conditions that affect the viability of conventional and non-solar alternative energy sources, such as increases or decreases in the prices of oil and other fossil fuels;
 
  •  capital expenditures by end users of solar products, which tend to decrease when the economy slows down;
 
  •  nature and rate of advances in solar technologies; and
 
  •  deregulation of the electric power industry and broader energy industry.
Solar cells made using alternatives to polysilicon, such as refined metallurgical silicon, are new to the market and if they are not accepted, we could be unable to fulfill our contracts and could lose customers.
      We intend to use refined metallurgical silicon to manufacture over 25% of our solar cells by the fourth quarter of fiscal 2007 and believe that approximately 90% of our total silicon requirement could be met with refined metallurgical silicon during fiscal 2008. The cells we currently manufacture using refined metallurgical silicon have lower efficiencies than solar cells we make using polysilicon. Cell efficiency is important to our customers as lower cell efficiency can result in the need for larger and more expensive modules. Our customers have not used solar products made using refined metallurgical silicon in the past and we cannot be certain that they will view them as acceptable alternatives to solar products made using polysilicon. If there is resistance to our products made using refined metallurgical silicon, we may be required to charge less on a per watt basis for these products, which would adversely affect our revenue and results of operations. We cannot assure you that our customers will accept products made using refined metallurgical silicon at all. If a significant number of our customers were to object to our products made using refined metallurgical silicon, we could be required to obtain polysilicon at much higher cost to us to fulfill our contracts with these customers. If we were unable to obtain polysilicon due to insufficient supply in the market or otherwise, we would not be able to fulfill our obligations to our customers, which could result in financial damages to us, loss of customers and damage to our reputation.
If we do not achieve satisfactory yields or quality in manufacturing our solar cells, our sales could decrease and our relationships with our customers and our reputation may be harmed.
      The manufacture of solar cells is a highly complex process. Minor deviations in the manufacturing process can cause substantial decreases in yield and in some cases, cause production to be suspended or yield no output. We have from time to time experienced lower than anticipated manufacturing yields. This often occurs during the production of new products or the installation and start-up of new process technologies or equipment. As we expand our manufacturing capacity and bring additional lines or facilities into production, we may experience lower yields as is typical with any new equipment or process. We also expect to achieve lower yields initially as we increase our use of refined metallurgical silicon and use increasingly thinner wafers. If we do not achieve planned yields, our sales could decrease and our relationships with our customers and our reputation may be harmed.
We expect that we will need to obtain significant additional financing to expand our business, particularly our manufacturing facilities and developing our Spheral Solar technology, and if we are not able to secure such financing on reasonable terms or at all, our ability to expand our business could suffer.
      Our industry is highly capital intensive and our success depends to a significant degree on our ability to develop and update our facilities and technology. We expect to make significant capital expenditures related to increasing our capacity at our manufacturing facilities, and our research and development efforts, including our efforts to develop and commercialize our Spheral Solar technology, and we expect that our expenses will increase significantly as we expand our manufacturing operations, continue our research and development efforts, hire additional personnel, pay more for or make advance payments for raw materials (especially silicon), and increase our marketing and sales efforts. As a stand-alone entity, we will not be able to rely on ATS to fund our capital requirements. We expect to require significant financing in order to realize our

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growth plans. Our ability to obtain adequate financing depends significantly on our financial condition and results of operations, as well as the conditions of the markets for solar power products and the financial markets. We may not be able to obtain financing when we need it or on reasonable terms. Additional equity financing may result in substantial dilution to our shareholders, including purchasers of the common shares in this offering. If we raise additional funds through debt financing, we could incur significant borrowing costs and the terms of the instruments governing our indebtedness could impose restrictions on our ability to operate our business. If adequate funds are not available when we need them and on reasonable terms, our ability to fund our operations, develop and expand our manufacturing operations and distribution network, invest in key partnerships, fund our research and development or otherwise respond to competitive pressures could be significantly impaired.
We may not be able to fully develop and commercialize our Spheral Solar technology, and products using that technology may not gain market acceptance.
      We are developing our Spheral Solar technology, a light weight, flexible crystalline solar module. To successfully commercialize this technology, we must also develop new production processes that are able to achieve yield, power efficiency and manufacturing throughput for this proprietary solar product. This development and process engineering work is taking longer than originally expected, and significant challenges and risks remain in achieving our development and process engineering goals. We also face significant financial and other risk of delays in commercializing this technology from unforeseen events or other factors. Other market participants could be faster in achieving cost-effective industrial production of new solar power technologies, thereby increasing cost pressure. There is no certainty when we will be able to commercialize our Spheral Solar technology or that we will be able to commercialize it at all. We incurred an after-tax, non-cash asset impairment charge in fiscal 2006 of $94.3 million (pre-tax $94.3 million) against our Spheral Solar technology deferred development costs and other long-lived assets due to the current uncertainty in resolving technological challenges and resulting delays of realizing cash flows from the investment in our Spheral Solar technology.
      Even if we are able to develop and commercially manufacture Spheral Solar products, we cannot be sure that the market will accept such Spheral Solar products. Our Spheral Solar products would require significant marketing and sales efforts to gain market acceptance. If we are able to commercially manufacture our Spheral Solar products but they are not accepted by the market, our ability to generate revenue would be adversely affected and we may not recover the significant research and development and marketing costs expended to develop the products.
Our ability to successfully commercialize our Spheral Solar technology depends in part on our ability to establish and maintain strategic relationships, and our failure to do so could have a material adverse effect on our market penetration and revenue growth.
      The commercial viability of our Spheral Solar technology has not yet been established. If our Spheral Solar technology proves to be commercially viable, we believe we would need to establish relationships with established building product manufacturers and original equipment manufacturers. In fiscal 2004, we commenced a product development relationship with Elk Corporation on a residential roofing product. We cannot assure you, however, that we will be able to maintain this relationship or establish strategic relationships with other third parties or that these relationships will be an effective method for developing or commercializing our Spheral Solar technology.
      If we are not able to establish further strategic relationships or if any or all of our existing strategic relationships terminate, our ability to generate revenue from Spheral Solar technology may be impaired and we may have to undertake product development and commercialization entirely at our own expense. Such an undertaking may:
  •  limit the number of products that we are able to develop and commercialize;
 
  •  reduce the likelihood of successful product introduction;

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  •  significantly increase our capital requirements; and
 
  •  divert our management’s attention and time.
We expect that our significant customer concentration will continue to expose us to potentially significant fluctuations or declines in our revenue and increased customer turnover.
      We currently sell a substantial portion of our solar modules and related solar products to a limited number of customers. In fiscal 2006, our ten and three largest customers represented approximately 79% and 46% of our revenue, respectively. Sales to our customers are typically made through non-exclusive, short-term purchase order arrangements. We cannot be certain that these customers will generate significant revenue for us in the future or that these customer relationships will continue. We anticipate that customer concentration will continue for the foreseeable future. Consequently, any one of the following events may cause material fluctuations or declines in our revenue and have a material adverse effect on our results of operations:
  •  reduction, delay or cancellation of orders from one or more of our significant customers;
 
  •  purchases by one or more of our significant customers of products competitive with ours;
 
  •  the loss of one or more of our significant customers and our failure to identify additional or replacement customers; and
 
  •  failure of any of our significant customers to make timely payment for our products.
Because we operate on a purchase order basis with our largest customers, our financial results, including gross margins, may suffer if purchase orders were changed or cancelled.
      Sales to our customers are typically made through non-exclusive, short-term purchase order arrangements. Our customers may cancel or reschedule purchase orders with us on relatively short notice. Cancellations or rescheduling of customer orders could result in the delay or loss of anticipated sales without allowing us sufficient time to reduce, or delay the incurrence of, our corresponding inventory and operating expenses. In addition, changes in forecasts or the timing of orders from these or other customers expose us to the risks of inventory shortages or excess inventory. This in turn could cause our operating results to fluctuate.
We have incurred losses in recent prior periods and may not be profitable in the future.
      Our industry is characterized by long and variable delays between expenses incurred for research and development and the generation of revenue, if any, from such expenditures. We incurred a combined net loss of $98.4 million in fiscal 2006, including an after-tax, non-cash asset impairment charge of $94.3 million (pre-tax $94.3 million) against our Spheral Solar technology deferred development costs and other long-lived assets. Beginning October 1, 2005, operating losses related to developing our Spheral Solar technology were included in our combined results of operations. We expect to continue to incur losses relating to the development of our Spheral Solar technology for the foreseeable future. We cannot assure you that we will be able to achieve profitability in the future, or that, if achieved, such profitability can be sustained. Our future success in attaining profitability and growing our revenue and market share for our products will depend upon our ability to develop products that have a competitive advantage, build our brand image and reputation, attract orders and increase efficiency in our production process. If we do not achieve or sustain profitability or otherwise meet the expectations of securities analysts or investors, the market price of our common shares may decline.
We may not be able to manage our expansion of operations effectively.
      We anticipate significant continued expansion of our business to address growth in demand for our solar products and services, as well as to capture new market opportunities. We also intend to expand our business by entering into strategic alliances with third parties. To manage the potential growth of our operations, we will need to improve our operational and financial systems, procedures and controls, increase manufacturing

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capacity and output, and expand, train and manage our growing employee base. Furthermore, our management will be required to maintain and expand our relationships with our customers, suppliers, joint venture partners and other third parties. We cannot assure you that our current and planned operations, personnel, systems, internal procedures and controls will be adequate to support our future growth or that we have made adequate allowances for the costs and risks associated with our expansion of operations. If we are unable to manage our growth effectively, we may not be able to take advantage of market opportunities, execute our business strategies or respond to competitive pressures.
We are exposed to risks in connection with joint ventures and strategic alliances with third parties.
      We intend to enter into joint ventures and strategic alliances with third parties. These joint ventures and strategic alliances may subject us to a number of risks, including risks associated with sharing proprietary information, access to cash flows, disputes concerning business issues, disputes concerning the ownership of intellectual property and not having 100% ownership of our operations. Moreover, joint ventures and strategic alliances may subject us to the risk of non-performance by a counterparty, which may in turn lead to monetary losses that materially and adversely affect our business.
We expect to continue to have a limited number of suppliers of our customized manufacturing equipment and a limited number of suppliers of key components of our solar products. Any significant damage to our customized manufacturing equipment, or a failure to develop or maintain our relationships with these suppliers, could cause material interruptions to our operations and could have a material adverse effect on our business, financial condition and results of operations.
      Certain of our manufacturing tools, equipment and fixtures have been designed and made specifically for us, and certain of the components that we use in manufacturing, such as certain encapsulating plastics as well as silicon carbide, which is used in the wafer-sawing process, are procured from a limited number of third-party suppliers. As a result, such tools, fixtures and components are not readily available from multiple vendors and would be difficult to repair or replace. We are therefore susceptible to price pressure from these suppliers, and if one of these suppliers were unable or unwilling to supply us with our customized equipment or manufacturing components, we would have difficulty finding a replacement supplier. If we fail to maintain relationships with these suppliers, we may be unable to manufacture our products and could be prevented from delivering our products to our customers in the required quantities or at competitive prices, which could result in order cancellations and loss of market share. Similarly, any significant damage to, or break down of, our customized equipment, or any inability of our suppliers to supply us with replacement equipment or to repair our equipment, could cause material interruptions to our operations, revenue loss and increased expenses and consequently could have a material adverse effect on our business, financial condition and results of operations.
Our reliance on Photowatt France’s manufacturing facility could have a material adverse impact on our business.
      Nearly all of our solar products are produced at our Photowatt France facility near Lyon, and our business therefore relies to a significant degree on the efficient and uninterrupted operation of that facility. Our Photowatt France facility is vulnerable to damage or interruption from a variety of sources. A natural disaster or other unanticipated problems that leads to disruption at our Photowatt France facility could have a material adverse effect on our business, financial condition and results of operations.
Labor disturbances could disrupt our business.
      As of July 31, 2006 we employed 711 active employees globally, including 604 in France. Certain of our non-management employees in France belong to the CFDT (the Confédération Française Démocratique du Travail), a trade union, and all of our non-management employees are covered by a collective bargaining agreement. Future industrial action, or the threat of future industrial action, by our employees in response to any future efforts by our management to reduce labor costs, restrain wage increases or modify work practices

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could adversely affect our business by disrupting production or constraining our ability to carry out any such efforts.
Our business depends substantially on the continuing efforts of our key officers and our ability to maintain a skilled labor force, and our business may be materially adversely affected if we lose any of our key officers or employees or if we are unable to attract, train and retain skilled personnel.
      Our business is dependent upon our ability to attract, train and retain key employees with the specialized skills we require. There is substantial competition for qualified skilled personnel, and we may not be able to attract or retain highly qualified personnel. If we are unable to attract and retain qualified employees, our business may be materially and adversely affected. Our future success also depends upon a number of key members of our senior management. The unexpected loss or departure of any of our key officers or employees could disrupt our operations and impair our ability to compete effectively.
Changes to existing regulations concerning the utility sector and the solar industry may present technical, regulatory and economic barriers to the purchase and use of solar products, which may significantly reduce demand for our products.
      The market for power generation products is heavily influenced by government regulations and policies concerning the electric utility industry, as well as the internal policies of electric utilities companies. These regulations and policies often relate to electricity pricing and technical interconnection of end user-owned power generation. In a number of countries, these regulations and policies are being modified and may continue to be modified. End users’ purchases of alternative energy sources, including solar products, could be deterred by these regulations and policies, which could result in a significant reduction in the potential demand for our solar products. For example, utility companies commonly charge fees to larger, industrial customers for disconnecting from the electricity transmission grid or for having the capacity to use power from the electricity transmission grid for back-up purposes. These fees could increase end users’ costs of using our solar products and make our products less desirable, thereby having an adverse effect on our business, financial condition and results of operations.
      We anticipate that our solar products and their installation will be subject to oversight and regulation in accordance with national and local ordinances relating to building codes, safety, environmental protection, utility interconnection and metering and related matters in various countries. It is also burdensome to track the requirements of individual localities and design equipment to comply with the varying standards. Any new government regulations or utility policies pertaining to our solar products may result in significant additional expenses to us, our distributors and end users and, as a result, could cause a significant reduction in demand for our solar products.
We have relied on government grants to partially fund our research and development and if we are unable to obtain grants in the future, our expenses would increase and our results of operation may be adversely affected.
      In fiscal 2004, 2005 and 2006, we received government grants to fund research and development in the amounts of $5.7 million, $12.8 million and $3.4 million, respectively. However, these grants are subject to the satisfaction of certain requirements in connection with our research and development activities, and they are subject to governmental audits to ensure compliance. If we apply funding received under a government grant for a research and development project that is determined not to satisfy the relevant requirements, we would have to refund the grant. As well, technology that we develop using government funding may be subject to limitations on how we may deploy it, and certain details regarding this technology may be required to be publicly disclosed, which exposes us to the risk of loss of confidential information. We cannot be certain that grants will be available to us in the future. If we cannot obtain grants, our research and development costs could be more significant and our results of operations could be adversely affected.

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Our quarterly revenue and results of operations may vary from quarter to quarter, and if we fail to meet quarterly financial expectations, our stock price will likely decline.
      Our quarterly revenue and results of operations are difficult to predict and fluctuate from quarter to quarter and our results of operations in some quarters may be below market expectations. Our quarterly results of operations may be substantially affected by a number of factors, many of which are outside of our control, including:
  •  the availability and pricing of raw materials, particularly silicon, and customized manufacturing tools and fixtures;
 
  •  seasonal trends, including the annual summer shutdown of our operations in France in the second quarter as well as the possibility of our having slower sales in the winter months, when the weather may impair the ability to install our products in certain geographical areas;
 
  •  timing, availability and changes in government subsidy and incentive programs;
 
  •  variations in capital expenditures and unplanned additional expenses such as manufacturing failures, defects, and changes in our manufacturing costs;
 
  •  unpredictable volume and timing of customer orders or the loss of, or a significant reduction or postponement in orders from, one or more key customers;
 
  •  unanticipated manufacturing downtime;
 
  •  fluctuations in the selling prices of solar cells and modules;
 
  •  foreign currency fluctuations, particularly in the relationships amongst the Canadian dollar, the euro and the U.S. dollar;
 
  •  timing of research and development expenditures;
 
  •  changes in the mix of selling solar modules, cells and value-added services; and
 
  •  the timing of new product or technology announcements or introductions by our competitors and other developments in the competitive environment.
      We base our planned operating expenses in part on our expectations of future revenue, and a significant portion of our expenses are relatively fixed in the short term. If revenue for a particular quarter is lower than we expect, we likely will be unable to proportionately reduce our operating expenses for that quarter, which will harm our results of operations for that quarter. If we fail to meet or exceed analyst or investor expectations, the price of our common shares may materially decline.
Our failure to protect our intellectual property rights may undermine our competitive position.
      Our success depends in part upon our ability to protect our intellectual property and our proprietary technology. We rely primarily on patent, trademark, trade secret, copyright law and other contractual restrictions to protect our intellectual property. Nevertheless, these afford only limited protection and the actions we take to protect our intellectual property rights may not be adequate. It is possible that:
  •  some or all of our confidentiality agreements will not be honored;
 
  •  disputes will arise with our consultants, strategic partners or others concerning the ownership of intellectual property;
 
  •  unauthorized disclosure of our know-how, trade secrets and other confidential information will occur; or
 
  •  third parties may copy, infringe, misappropriate or reverse engineer our proprietary technologies or other intellectual property rights.

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      We generally do not require our employees (including research and development personnel) to sign confidentiality or other agreements in respect of our intellectual property, nor do we require our contractors to sign general agreements in respect of intellectual property developed for us. This could adversely affect our ability to secure, protect and/or enforce intellectual property developed by and/or for us. Any inability to adequately secure, protect and/or enforce our proprietary rights could harm our ability to compete, generate revenue and grow our business, which could have a material adverse effect on our business, financial condition and results of operations.
      Policing unauthorized use of proprietary technology can be difficult and expensive. Also, litigation may be necessary to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of the proprietary rights of others. We cannot assure you that the outcome of any such potential litigation would be in our favor. Such litigation may be costly and may divert management attention away from our business as well as expend other resources. In certain situations, we may have to bring such suit in foreign jurisdictions, in which case we are subject to additional risk associated with the result of the proceedings and the amount of damage that we can recover. Certain foreign jurisdictions may not provide protection to intellectual property comparable to that in the United States and Canada. An adverse determination in any such litigation would impair our intellectual property rights and may harm our business, financial condition and results of operations.
We may not obtain sufficient patent protection on the technology embodied in the solar products we currently manufacture and market or in our new products, which could harm our competitive position and increase our expenses.
      Our success and ability to compete is impacted by the patent protection we obtain for our proprietary technology. We hold a number of patents, primarily in connection with various aspects of our Spheral Solar technology and also in connection with our ability to convert and use silicon powder and fines, which is significant to our silicon supply strategy. The patents that we consider to be of material importance to our business will expire between 2008 and 2023 and have been issued primarily in the United States, although we also have patent protection in certain jurisdictions in Europe and Asia for some of the same technology that is covered by our U.S. patents. Our patent applications may not result in issued patents, and even if they result in issued patents, the patents may not have claims of the scope we seek. In addition, any issued patents may be challenged, invalidated or declared unenforceable. In general, the term of any patents, including any patents issued from applications recently filed in the United States, would be 20 years from their filing date and if our applications are pending for a long time period, we may have a correspondingly shorter term for any patent that may be issued. Our present and future patents may provide only limited protection for our technology and may not be sufficient to provide competitive advantages to us. For example, competitors could be successful in challenging any issued patents or, alternatively, could develop similar or more advantageous technologies on their own or design around our patents. Also, patent protection in certain foreign countries may not be available or may be limited in scope and any patents obtained may not be as readily enforceable as in the United States or Canada, making it difficult for us to effectively protect our intellectual property from misuse or infringement by other companies in these countries. Our inability to obtain and enforce our intellectual property rights in some countries may harm our business. In addition, given the costs of obtaining patent protection, we may choose not to protect certain innovations that later turn out to be important.
If the effective term of our patents is decreased or if we need to refile some of our patent applications, the value of our patent portfolio and the revenue we derive from products protected by the patents may be decreased.
      The value of our patents depends in part on their duration. Shorter periods of patent protection are relatively less valuable. Because the period between the filing of a patent application to the issuance of a patent is often longer than three years, a twenty year patent term from the filing date may result in substantially shorter patent protection. In some cases, we may need to refile some of our patent applications and, in these situations, the patent term will be measured from the filing date of the earliest prior application to which benefit of earlier filing date in the applicable jurisdiction is claimed in such a patent application.

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This would also shorten our period of patent exclusivity. Similarly, because of the extensive time required for the development and commercialization of products based on our technologies, it is possible that, before some products can be commercialized, any related patents may expire or remain in force for only a short period following commercialization, thereby reducing any advantages of these patents and making it unlikely that we will be able to recover investments we have made to develop our technologies and products based on our technologies. A shortened period of patent exclusivity, resulting from a change in patent laws, the passage of time, or otherwise, may negatively impact our revenue protected by our patents.
We may be exposed to infringement or misappropriation claims by third parties, causing costly litigation and the loss of significant rights.
      Our success also depends largely on our ability to use and develop our technology and know-how without infringing the intellectual property rights of third parties. The validity and scope of claims relating to solar technology patents involve complex scientific, legal and factual questions and analysis and, therefore, may be highly uncertain. We may be unaware that we infringe third-party intellectual property rights, in particular process-related patents. We may become subject to litigation involving claims of patent infringement or violation of intellectual property rights of third parties. The defense and prosecution of intellectual property suits, patent opposition proceedings and related legal and administrative proceedings can be both costly and time consuming and may significantly divert the efforts and resources of our technical and management personnel. An adverse determination in any such litigation or proceedings to which we may become a party could subject us to significant liability to third parties, divert our management’s attention and resources, require us to seek licenses from third parties, to pay ongoing royalties, or to redesign our products, or subject us to injunctions prohibiting the manufacture and sale of our products or the use of our technologies. Protracted litigation could also result in our customers or potential customers deferring or limiting their purchases or use of our products until resolution of such litigation. All these judgments could materially damage our business. We believe that as technology develops, we may have to develop non-infringing technology, and our failure in doing so or obtaining licenses to the proprietary rights on a timely basis or on desired terms could have a material adverse effect on our business, financial condition and results of operations.
Problems with product quality or product performance, including defects, in our solar products could result in a decrease in customers and revenue, unexpected expenses and loss of market share.
      Our solar products are complex and must meet stringent quality requirements. Products as complex as ours may contain undetected errors or defects, especially when first introduced. These defects could cause us to incur significant re-engineering costs, divert the attention of our engineering personnel from product development efforts and significantly affect our customer relations and business reputation. If we deliver solar products with errors or defects, or if there is a perception that our solar products contain errors or defects, our credibility and the market acceptance and sales of our solar products could be harmed. The possibility of future product failures could cause us to incur substantial expense to repair or replace defective products. Widespread product failures may damage our market reputation and reduce our market share and cause sales to decline.
Since we cannot test our solar products for the full duration of our applicable warranty periods, we may be subject to unexpected warranty expense.
      Our standard product warranty provides for a five-year limited warranty in connection with module malfunctions and additional limited warranties in connection with modules’ loss of power over time that, depending on the product and its use, range from five to 25 years. These limited warranties apply only in the event that our materials and/or workmanship is defective, and require us at our option either to repair, replace or (except in connection with loss of power) provide a refund in respect of the products affected. We believe our warranty periods are consistent with industry practice. Due to the long warranty period and our proprietary technology, we bear the risk of extensive warranty claims long after we have shipped product and

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recognized revenue. Although we conduct accelerated testing of our solar products, such testing cannot simulate the full warranty period.
      As a result of these factors, we may be subject to unexpected warranty expense, which in turn would harm our financial results. Any increase in the defect rate of our products would cause us to increase the amount of warranty reserves and have a corresponding negative impact on our combined financial statements.
Product liability claims against us could result in adverse publicity and potentially significant monetary damages.
      As with other solar product manufacturers, we are exposed to risks associated with product liability claims in the event that the use of the solar products we sell results in injury. Because our products are electricity producing devices, it is possible that users could be injured or killed by our products, whether by product malfunctions, defects, improper installation or other causes. The effectiveness of the steps we take to contractually reduce the risk of product liability-related claims depends, to a significant degree, on judicial decisions and the application of ever-developing jurisprudence in each of the jurisdictions in which we operate. An alleged product defect that results in direct injury or loss may result in significant liability to us that may exceed the limits of our liability insurance. We may not have adequate resources in the event of a successful claim against us, and such a liability may have a material adverse effect on our financial condition and results of operations.
If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud. As a result, current and potential shareholders could lose confidence in our financial reporting, which could harm our business and the trading price of our common shares.
      Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. In connection with our annual report for the fiscal year ending March 31, 2008, Section 404 of the Sarbanes-Oxley Act of 2002 will require us to evaluate and report on our internal controls over financial reporting and have our independent registered public accounting firm attest to our evaluation. Under Canadian securities law requirements, commencing with the fiscal year ending March 31, 2007, our Chief Executive Officer and Chief Financial Officer will be required to certify that they have designed internal control over financial reporting and caused certain changes in internal control over financial reporting to be disclosed. In addition, under proposed Canadian securities law requirements, our Chief Executive Officer and Chief Financial Officer will be required to certify annually that they have evaluated the effectiveness of our internal controls over financial reporting commencing with the fiscal year ending March 31, 2008. We intend to prepare for compliance with Section 404 and the Canadian requirements by strengthening, assessing and testing our system of internal controls to provide the basis for our report. However, the continuous process of strengthening our internal controls and complying with Section 404 and the Canadian requirements is expensive and time consuming, and requires significant management attention. We cannot be certain that these measures will ensure that we will maintain adequate control over our financial processes and reporting. Furthermore, as we grow our business, our internal controls will become more complex and will require significantly more resources to ensure our internal controls overall remain effective. Failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our results of operations or cause us to fail to meet our reporting obligations. If we or our independent registered public accounting firm discover a material weakness, the disclosure of that fact, even if quickly remedied, could reduce the market’s confidence in our combined financial statements and harm our share price. In addition, future non-compliance with Section 404 and the Canadian requirements could subject us to a variety of administrative sanctions, including the suspension or delisting of our common shares and the inability of registered broker-dealers to make a market in our common shares, which would further reduce our share price.

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Compliance with environmental regulations can be expensive, and noncompliance with these regulations may result in adverse publicity and potentially significant monetary damages and fines.
      We are required to comply with all foreign, national and local laws and regulations regarding the operation of industrial facilities, pollution control, environmental protection, and health and safety. In addition, under some statutes and regulations, a government agency or other parties may seek recovery and response costs from operators of facilities where releases of hazardous substances have occurred or are ongoing, even if the operator was not responsible for such release or otherwise at fault. We use, store, generate and discharge toxic, volatile and otherwise hazardous chemicals and wastes in our research and development and manufacturing activities. Failure to comply with present or future environmental laws, rules and regulations may result in substantial fines, suspension of production or cessation of operations. In addition, if more stringent laws and regulations are adopted in the future, the costs of compliance with these new laws and regulations could be substantial or could impose significant changes in our manufacturing process.
Fluctuations in exchange rates could have a material adverse effect on our business, financial condition and results of operations.
      We are exposed to foreign exchange risk because a substantial portion of our sales are currently denominated in a number of foreign currencies, primarily the euro. Changes in exchange rates on the translation of the earnings of our French subsidiary into dollars is directly reflected in our combined earnings. To the extent net foreign currency cash inflows are not fully hedged, strengthening of the U.S. dollar against these foreign currencies will negatively impact our revenues stated in U.S. dollars. In addition, strengthening of the euro against other foreign currencies will make our products manufactured in France more expensive for international customers. To the extent our operations are not able to adjust to changes in exchange rates by reducing costs, or by providing more valuable products that command higher prices, revenue and earnings will be negatively impacted. We cannot predict the impact of future exchange rate fluctuations on our results of operations and may incur net foreign currency losses in the future. Therefore, fluctuations in currency exchange rates could have a material adverse effect on our business, financial condition and results of operations.
We depend on the performance of our subsidiaries and their ability to make distributions to us.
      Our principal assets are the equity interests we own in our operating subsidiaries. As a result, we are dependent upon cash dividends, distributions or other transfers we receive from our subsidiaries in order to repay any debt we may incur and to meet our other obligations. The ability of our subsidiaries to pay dividends and make payments to us will depend on their results of operations and may be restricted by, among other things, applicable corporate, tax and other laws and regulations and agreements of those subsidiaries. Our subsidiaries are separate and distinct legal entities. Any right that we have to receive any assets of or distributions from any subsidiary upon its bankruptcy, dissolution, liquidation or reorganization, or to realize proceeds from the sale of the assets of any subsidiary, will be junior to the claims of that subsidiary’s creditors, including trade creditors. In addition, we may enter into joint ventures with third parties as a means to execute our business strategy. Our ability to access our assets, including cash in these joint ventures, may be restricted by the governing documents of any such joint ventures.
Risks Relating to Our Relationship with ATS
Our historical financial information as a business segment of ATS may not be representative of our results as a stand-alone public company and, therefore, may not be reliable as an indicator of our future financial results.
      The historical financial information we have included in this prospectus has been derived from our and ATS’ historical accounting records. We believe that the assumptions underlying the combined financial statements are reasonable. However, the combined financial statements may not reflect what our financial position, results of operations or cash flows would have been had we been a stand-alone entity during the

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historical periods presented or what our financial position, results of operations or cash flows will be in the future.
      In particular, the historical costs and expenses reflected in our combined financial statements include an allocation for certain corporate functions historically provided by ATS. These expense allocations were based on what ATS considered to be reasonable allocations of the utilization of services provided or the benefit received by us. We currently estimate that general annual corporate expenses will increase significantly when we become a stand-alone company. We have not made adjustments to our historical financial information to reflect changes that may occur in our cost structure, financing and operations as a result of our separation from ATS, including certain tax changes resulting from the reorganization to be undertaken by ATS related to this offering. These changes potentially include increased costs associated with reduced economies of scale and being a publicly traded, stand-alone company.
      As a public company, we will incur a significantly higher level of legal, accounting and other related expenses than we did as a division of ATS. In addition, the Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the Securities and Exchange Commission, or the SEC, The Nasdaq Global Market, the Toronto Stock Exchange and the Canadian securities regulatory authorities, have required changes in the corporate governance practices of public companies. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly. We cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.
Following this offering, we will continue to be dependent on ATS to provide us with many key services for our business, and our ability to operate our business effectively may suffer if we are unable to cost-effectively establish our own administrative and other support functions in order to operate as a stand-alone company after the expiration of our transitional services agreement with ATS.
      Historically, ATS has performed various corporate functions on our behalf, including accounting services; tax services; employee benefits management; financial and legal services; real estate management; risk and claims management; information management and technology services; and office administration services. Prior to the completion of this offering, we will enter into agreements with ATS related to the separation of our business operations from ATS, including a Transitional Services Agreement. Under the terms of the Transitional Services Agreement, Master Supply Agreement and Lease Agreement, ATS will provide us with many key services, and ATS will have no obligation to provide any services on our behalf other than as provided in those agreements. These services include certain:
  •  communications services such as phone, cell phone and wireless devices;
 
  •  internal audit, tax, and merger and acquisition transaction services;
 
  •  payroll;
 
  •  information technology, including access to network, systems, applications and technical support;
 
  •  human resources and employee benefits;
 
  •  travel services;
 
  •  legal services;
 
  •  insurance services;
 
  •  accounting support, treasury and general administrative services; and
 
  •  other specified services.
      We expect some of these services to be provided for longer or shorter periods than the initial term. We believe it is necessary for ATS to provide these services for us to facilitate the efficient operation of our business as we transition into a public company. We will, as a result, initially be dependent on ATS for transition services following this offering. See “Our Relationship with ATS — Agreements Between ATS and Us — Transitional Services Agreement,” “— Master Supply Agreement” and “— Lease Agreement.”

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      Once the transition periods specified in the Transitional Services Agreement have expired and are not renewed, or if ATS exercises its right to terminate the provision of any service under the Transitional Services Agreement in the event the provision becomes commercially impracticable for ATS, or if ATS does not or is unable to perform its obligations under the Transitional Services Agreement, we will be required to provide these services ourselves or to obtain substitute arrangements with third parties. We may be unable to provide these services because of financial or other constraints or be unable to implement substitute arrangements on a timely basis on terms that are favorable to us, or at all. As a result we may not be able to effectively operate our business, we may experience unexpected material costs, and our profitability may be adversely affected.
As long as ATS controls us, you will have no ability to influence the outcome of matters requiring shareholder approval.
      After the completion of this offering, ATS will own           % of our outstanding common shares, or           % if the underwriters exercise their over-allotment option in full. As long as ATS has voting control of us, ATS will have the ability to take shareholder actions irrespective of the vote of any other shareholder, including the ability to prevent any transactions that it does not believe are in ATS’ best interest. As a result, ATS will have the ability to influence or control all matters affecting us, including:
  •  the composition of our board of directors and, through our board of directors, any determination with respect to our business plans and policies, including the appointment and removal of our officers;
 
  •  any determinations with respect to acquisitions of businesses, mergers or other business combinations;
 
  •  our acquisition or disposition of assets;
 
  •  our capital structure, including all financing activities;
 
  •  compensation, option programs and other human resource policy decisions;
 
  •  changes to the transitional agreements with ATS, subject to applicable laws;
 
  •  changes to other agreements that may adversely affect us; and
 
  •  our payment or non-payment of dividends.
      This voting control may discourage transactions involving a change of control of us, including transactions in which you as a holder of our common shares might otherwise receive a premium for your shares over the then-current market price. As well, provisions in our Shareholder Agreement with ATS provide that, for so long as ATS, directly or indirectly, holds not less than 50% of our outstanding common shares, we shall not, and shall not permit any subsidiary entity to, without the affirmative vote of a majority of our board of directors and the prior, written consent of ATS as a shareholder:
  •  enter into any merger, amalgamation, plan of arrangement, consolidation, business combination, joint venture or other material corporate transaction, including the acquisition of property or assets with a fair market value in excess of C$50 million;
 
  •  sell, lease, exchange, license on an exclusive basis or dispose of property or assets with a fair market value in excess of C$50 million, other than the sale or disposition of inventory in the ordinary course of business, or sell or grant an exclusive license with respect to material intellectual property;
 
  •  adopt any plan or proposal for a complete or partial liquidation or dissolution or any reorganization or commence any case, proceeding or action seeking relief under any existing laws or future laws relating to bankruptcy or insolvency;
 
  •  take any action that could reasonably be expected to lead to or result in a material change in the nature of our business;
 
  •  issue any shares of our capital stock, or any rights, warrants or options to acquire our capital stock (excluding securities issued pursuant to benefit plans), if the issuance exceeds 5% of our outstanding common shares;

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  •  take any action limiting the rights of ATS to transfer shares of our stock it owns;
 
  •  enter into a partnership or any arrangement for the sharing of profits, union of interests, joint venture or reciprocal concession with any person if the aggregate fair market value of the assets contributed and liabilities assumed by us (and our subsidiaries) in connection therewith either exceeds on formation or at any time in the future could reasonably be expected to exceed C$50 million; or
 
  •  make any commitment or agreement to do any of the foregoing.
      See “Our Relationship with ATS — Agreements Between ATS and Us — Shareholder Agreement” for a description of the Shareholder Agreement.
      Furthermore, ATS generally has the right at any time to sell our common shares that it owns or to sell a controlling interest in us to a third party after the expiration of the 180-day lock-up period, without your approval and without providing for a purchase of your shares, subject to applicable securities laws. Accordingly, your shares may be less liquid and worth less than they would be if ATS did not have the ability to influence or control matters affecting us. See “Shares Eligible for Future Sales.” If ATS determines to sell our common shares that it owns and reduces its ownership interest to less than 50% of our outstanding common shares, ATS may be expected, through the voting rights attaching to the common shares it then owns, to continue to have significant influence over matters affecting us, and may, in connection with any matter requiring approval by two-thirds of the votes attaching to our common shares and represented by holders in attendance at a meeting of our shareholders in person or by proxy, have sufficient votes to preclude any such matter from proceeding.
We may have potential disputes and business conflicts of interest with ATS regarding our past and ongoing relationships, and because of ATS’ controlling ownership in us, the resolution of these conflicts may not be favorable to us.
      Conflicts of interest and disputes may arise between ATS and us in a number of areas relating to our past and ongoing relationships, including:
  •  labor, tax, employee benefit, indemnification and other matters arising under the transitional and separation agreements;
 
  •  intellectual property matters;
 
  •  employee recruiting and retention;
 
  •  business opportunities that may be attractive to both ATS and us;
 
  •  equipment supply arrangements;
 
  •  sales or distributions by ATS of all or any portion of its ownership interest in us, which could be to one of our competitors; and
 
  •  business combinations involving us.
      We may not be able to resolve any potential conflicts, and, even if we do so, the resolution may be less favorable to us than if we were dealing with an unaffiliated party. The agreements we entered into with ATS may be amended upon agreement between the parties, subject to applicable laws. Because we are controlled by ATS, we may not have the leverage to negotiate any required amendments to these agreements on terms as favorable to us as those we would negotiate with a third party.
We will be a “controlled company” within the meaning of the rules of The Nasdaq Global Market, and, as a result, will qualify for, and intend to rely on, exemptions from certain corporate governance requirements that provide protection to shareholders of other companies.
      After the completion of this offering, ATS will own more than           % of the total voting power of our common shares and we will be a “controlled company” within the meaning of the rules of The Nasdaq Global Market. As a controlled company, we intend to utilize certain exemptions under the rules of The

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Nasdaq Global Market that free us from the obligation to comply with certain corporate governance requirements, including the requirements:
  •  that a majority of the board of directors consists of independent directors;
 
  •  that compensation of our chief executive officer and our other executive officers be determined, or be recommended to our board of directors for determining, either by a majority of the independent directors or a compensation committee comprised solely of independent directors;
 
  •  that our director nominees be selected, or recommended for the board’s selection, either by a majority of the independent directors or a nominations committee comprised solely of independent directors; and
 
  •  that we have a written charter or board resolution addressing our director nominations process.
      We intend to use some or all of these exemptions until such time that we cease to be a “controlled company,” and, as a result, you will not have the same protection afforded to shareholders of companies that are subject to all of the corporate governance requirements of The Nasdaq Global Market.
Our transitional and separation agreements with ATS require us to assume the past, present and future liabilities related to our business and may be less favorable to us than if they had been negotiated with unaffiliated third parties.
      We will negotiate our separation agreements with ATS while we are a wholly-owned subsidiary of ATS and will enter into these agreements immediately prior to the completion of this offering. Had these agreements been negotiated with unaffiliated third parties, they might have been more favorable to us. Pursuant to these agreements, we will agree to indemnify ATS for, among other matters, all liabilities arising out of or related to our present or future business, operations or assets, and we have assumed these liabilities under the separation agreements. Such broad assumptions may include unknown liabilities that could be significant. The allocation of assets and liabilities between ATS and us may not reflect the allocation that would have been reached between two unaffiliated parties. See “Our Relationship with ATS — Agreements Between ATS and Us — Master Separation Agreement” for a description of these obligations.
ATS may enter into contracts relating to the design and manufacture of automated manufacturing and test systems with our competitors or potential competitors. Services provided by ATS under these contracts may assist those competitors in advancing their businesses.
      ATS’ principal business is the custom design, manufacture, installation, service and support of automated manufacturing and test systems. These systems are used principally by multinational companies in a broad range of industries. In the course of this business, ATS has in the past and expects in the future to enter into contracts with customers whose business is directly or indirectly competitive with ours. Pursuant to services performed under these contracts, ATS may assist our competitors or potential competitors in advancing their own businesses, with the result that our competitive position may be materially adversely affected.
After this offering, we may experience increased costs resulting from a decrease in our purchasing power and we may have difficulty obtaining new customers due to our relatively small size after our separation from ATS.
      Prior to this offering, we were able to take advantage of ATS’ size and purchasing power in procuring goods, technology and services, including insurance, banking, employee benefit support and audit services. As a result of this offering and the transactions described in “Our Relationship with ATS,” we will be a smaller company than ATS, and we cannot assure you that we will have access to financial and other resources comparable to those available to us prior to the offering. As a stand-alone company, we may be unable to obtain goods, technology and services at prices or on terms as favorable as those available to us prior to our separation from ATS, which could increase our costs and reduce our profitability. In addition, as a smaller, separate, stand-alone company, we may encounter more customer concerns about our viability as a separate entity, which could harm our business, financial condition and results of operations. Our future success

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depends on our ability to maintain our current relationships with existing customers, and the difficult task of attracting new customers.
Our directors and executive officers who own ATS common shares or options to acquire ATS common shares or who hold positions with ATS may have potential conflicts of interest.
      Ownership of ATS common shares, options to acquire ATS common shares and other equity securities of ATS by certain of our directors and officers after this offering and the presence of ATS’ directors or officers on our board of directors could create, or appear to create, potential conflicts of interest when those directors and officers are faced with decisions that could have different implications for ATS than they do for us. See “Management” for a description of the extent of the relationship between our directors and officers and ATS.
Our prior and continuing relationship with ATS exposes us to risks attributable to the businesses of ATS.
      Although ATS will indemnify us from losses suffered by us arising out of certain circumstances or events, such indemnification may not be sufficient to protect us from all risks attributable to the businesses of ATS. Immediately following this offering, any claims made against us that are properly attributable to ATS in accordance with these arrangements would require us to exercise our rights under the separation agreements to obtain payment from ATS. If those liabilities are significant and we are ultimately held liable for them, we cannot assure you that we will be able to recover the full amount of our losses from ATS.
Risks Relating to this Offering
Prior to this offering, no public market existed for our common shares. An active trading market may not develop for our common shares, and the price of our common shares may be subject to factors beyond our control. If our share price fluctuates after this offering, you could lose all or a significant part of your investment.
      Prior to this offering, no public market existed for our common shares. We intend to apply to list our common shares on The Nasdaq Global Market and the Toronto Stock Exchange. Any such listing will be subject to the approval of the relevant stock exchange, and any such approval would not be given unless all of the original listing requirements were met. An active and liquid market for the common shares may not develop following the completion of this offering, or, if developed, may not be maintained. If an active public market does not develop or is not maintained, you may have difficulty selling your common shares.
      The initial public offering price of our common shares was determined by negotiations between us, ATS and the underwriters for this offering and may not be indicative of the price at which the common shares will trade following the completion of this offering. We cannot assure you that the market price of our common shares will not materially decline below the initial public offering price.
The market price for our common shares may be volatile, and your investment could suffer a decline in value.
      The market price for our common shares may be volatile and subject to wide fluctuations in response to numerous factors, many of which are beyond our control, including the following:
  •  actual or anticipated fluctuations in our quarterly results of operations;
 
  •  actual or anticipated changes in energy prices;
 
  •  new products introduced by our competitors;
 
  •  recommendations by securities research analysts;
 
  •  changes in the economic performance or market valuations of other solar technology companies;
 
  •  addition or departure of our executive officers and other key personnel;

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  •  release or expiration of lock-up or other transfer restrictions on our outstanding common shares;
 
  •  sales or perceived sales of additional common shares;
 
  •  significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving us or our competitors;
 
  •  operating and share price performance of other companies that investors deem comparable to us; and
 
  •  news reports relating to trends, concerns, patent litigation, technological or competitive developments, regulatory changes and other related issues in our industry or target markets.
      In addition, stock markets have from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular listed companies. These market fluctuations may also have a material adverse effect on the market price of our common shares, regardless of our operating performance.
Investors purchasing common shares in this offering will incur substantial and immediate dilution.
      The initial public offering price of our common shares is substantially higher than the net tangible book value per outstanding common share. Purchasers of our common shares in this offering will incur immediate and substantial dilution of $           per common share in the net tangible book value of our common shares from an assumed initial public offering price of $           per common share. This means that if we were to be liquidated immediately after this offering, there might be no assets available for distribution to you after satisfaction of all our obligations to creditors. For further description of the effects of dilution in the net tangible book value of our common shares, see “Dilution.”
Our share price may decline because of the ability of ATS and others to sell our common shares.
      Sales of substantial amounts of our common shares after this offering, or the possibility of those sales, could adversely affect the market price of our common shares and impede our ability to raise capital through the issuance of equity securities. See “Shares Eligible for Future Sale” for a discussion of possible future sales of our common shares.
      After this offering, ATS will own           % of our outstanding common shares (          % if the underwriters exercise their over-allotment option in full). ATS has no contractual obligation to retain any of our common shares, except that, as described under “Underwriting,” it has agreed not to sell any of our common shares without the underwriters’ consent until 180 days after the date of this prospectus. Subject to applicable securities laws, after the expiration of this 180-day lock-up period, or before with consent of the representatives of the underwriters to this offering, ATS may sell any and all of our common shares that it beneficially owns and may distribute any or all of these shares to its shareholders. The registration rights agreement we will enter into with ATS grants ATS the right to require us to register our common shares it holds in specified circumstances. See “Our Relationship with ATS — Agreements Between ATS and Us — Registration Rights Agreement.” In addition, after the expiration of the 180-day lock-up period, we could issue and sell additional common shares. Any sale by ATS or us of our common shares in the public market, or the perception that sales could occur (for example, as a result of a spin-off), could adversely affect prevailing market prices for our common shares.
Our board of directors may issue, without shareholder approval, additional common shares and preference shares that have rights and preferences in priority to the common shares, which issuance may delay or prevent a change of control.
      Our board of directors may issue an unlimited number of preference shares, issuable in one or more series, and an unlimited number of common shares, without any vote or action by our shareholders. If we were to issue any preference shares or any additional common shares, the percentage ownership of existing shareholders may be reduced and diluted. In addition, our board of directors may determine the price, rights, preferences, privileges and restrictions, including voting, dividend and conversion rights, of each series of our

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preference shares and determine to whom they shall be issued. Immediately after the completion of this offering, there will be no preference shares outstanding and we have no present plans to issue any preference shares. However, the rights of the holders of any series of preference shares that may be issued in the future may be senior to the rights of holders of our common shares, which could preclude holders of common shares from receiving dividends, proceeds of a liquidation or other benefits. The issuance of preference shares, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could make it more difficult for a third party to acquire control of our company, for example, by discouraging an unsolicited acquisition proposal or a proxy contest, the effect of which may be to deprive our shareholders of a control premium that might otherwise be realized in connection with an acquisition of our company.
Because we are a Canadian corporation and the majority of our directors and officers are resident in Canada, it may be difficult for investors in the United States to enforce against us certain civil liabilities and judgments based solely upon the federal securities laws of the United States.
      We are organized under the laws of Canada and our principal executive offices are located in Canada. A majority of the directors and officers and the experts named in this prospectus reside principally in Canada and all or a substantial portion of their assets and all or a substantial portion of our assets may be located outside the United States. Consequently, it may be difficult for shareholders to effect service of process within the United States upon us or our directors, officers or experts who are not residents of the United States. Furthermore, it may not be possible to enforce against us or such directors, officers or experts, in the United States, judgments obtained in U.S. courts, including judgments based upon the civil liability provisions of the U.S. federal securities laws, because a substantial portion of our assets and the assets of these persons may be located outside the United States. Investors should not assume that Canadian courts (1) would enforce judgments of U.S. courts obtained in actions against us or such persons predicated upon the civil liability provisions of the U.S. federal securities laws or the securities or “blue sky” laws of any state within the United States or (2) would enforce, in original actions, liabilities against us or such persons predicated upon the U.S. federal securities laws or any such state securities or blue sky laws.
We do not anticipate paying dividends in the near future.
      Our current policy is to retain earnings. Any future determination to pay cash dividends will be at the discretion of our board of directors after taking into account such factors as our financial condition, results of operations, current and anticipated cash needs, the requirements of any future financing agreements and other factors that our board of directors may deem relevant, with a view to paying dividends whenever operational circumstances permit. Until we pay dividends our shareholders may not be able to receive a return on our common shares unless the price of our common shares appreciates and our shareholders sell them. We cannot assure you that you will receive a return on your investment when you do sell your shares or that you will not lose the entire amount of your investment.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
      This prospectus contains forward-looking statements that relate to our current expectations and views of future events. The forward-looking statements are contained principally in the sections titled “Prospectus Summary,” “Risk Factors,” “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.”
      In some cases, these forward-looking statements can be identified by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “potential,” “continue,” “is/are likely to” or the negative of these terms, or other similar expressions intended to identify forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include, among other things, statements relating to:
  •  our expectations regarding our revenue, expenses and operations;
 
  •  our anticipated cash needs and our estimates regarding our capital expenditures, capital requirements and our needs for additional financing;
 
  •  our expectations with respect to our ability to secure, and the price of, raw materials, including silicon;
 
  •  our ability to achieve increased cell efficiencies;
 
  •  our ability to use silicon sources other than polysilicon in our manufacturing process to achieve cell efficiency levels consistent with those obtained using polysilicon and significantly reduce our costs;
 
  •  our plans for and timing of expanding our manufacturing capacity;
 
  •  our plans for entering into key strategic partnership arrangements;
 
  •  our plans for developing and commercializing new products, including products based on our Spheral Solar technology;
 
  •  the acceptance by our customers of new technologies and products;
 
  •  our ability to attract customers and develop and maintain customer and supplier relationships;
 
  •  our expectations regarding the worldwide demand for electricity and the market for solar energy;
 
  •  our expectations regarding governmental support for the deployment of solar energy and the adoption of solar technologies;
 
  •  our intellectual property and our expectations with respect to advancements in our technologies;
 
  •  our competitive position and our expectations regarding competition from other manufacturers of solar products and conventional energy suppliers; and
 
  •  anticipated trends and challenges in our business and the markets in which we operate.
      Forward-looking statements involve a variety of known and unknown risks, uncertainties and other factors, including those listed under “Risk Factors,” which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements.
      The forward-looking statements made in this prospectus relate only to events or information as of the date on which the statements are made in this prospectus. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.
      You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect.

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USE OF PROCEEDS
      We estimate that the net proceeds to be received by us from the sale of           of our common shares in this offering will be approximately $           million, after deducting estimated underwriting commissions and estimated offering expenses payable by us, assuming an initial public offering price of $           per share. We intend to use the net proceeds from this offering to invest $           million in additional manufacturing capacity at Photowatt International, to repay $                    owed to ATS under an intercompany loan, and the balance for general corporate purposes, including further development and process engineering associated with our Spheral Solar technology, the procurement of silicon supply contracts and investments that will enhance our manufacturing, silicon supply or research and development capabilities.
      While we currently anticipate that we will use the net proceeds of this offering as described above, we may re-allocate the net proceeds from time to time depending upon the ultimate amount of net proceeds raised and upon changes in business conditions prevalent at the time. Pending their application in the manner described above, we intend to invest the net proceeds in short-term, interest-bearing securities such as government securities, commercial paper and other highly rated investment grade securities.

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DIVIDEND POLICY
      We have never declared or paid any dividends. We currently intend to retain any future earnings to finance the development and growth of our business and do not expect to pay any cash dividends in the foreseeable future. Any decision to pay cash dividends after this offering will be at the discretion of our board of directors after taking into account such factors as our financial condition, results of operations, current and anticipated cash needs, the requirements of any future financing agreements and other factors that our board of directors may deem relevant, with a view to paying dividends whenever operational circumstances permit.

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CAPITALIZATION
      The following table sets forth our cash and cash equivalents and capitalization as of March 31, 2006:
  •  on an actual basis;
 
  •  on a pro forma basis to give effect to the corporate reorganization to be completed upon the closing of this offering as described under “Our Relationship with ATS — General — ATS reorganization relating to our company”; and
 
  •  on a pro forma, as adjusted basis to give further effect to our sale of                     common shares in this offering at an assumed initial public offering price of $           per share, after deducting underwriting commissions and the estimated offering expenses payable by us and giving effect to the use of the net proceeds from this offering as described under “Use of Proceeds.”
      You should read this table together with our combined financial statements and the notes thereto included elsewhere in this prospectus and the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
                             
    As of March 31, 2006
     
        Pro forma,
    Actual   Pro forma   as adjusted
             
    (U.S. dollars in thousands)
Cash and cash equivalents
  $ 1,958     $            $         
                   
ATS intercompany loan(1)
  $     $       $    
                   
Group equity:
                       
Common shares(2)
  $     $       $    
Preferred shares(3)
                 
Net investment
    74,724                  
Cumulative translation adjustment
    458                  
                   
 
Total group equity
    75,182                  
                   
   
Total capitalization
  $ 75,182     $       $    
                   
 
(1)  Represents the amount invested by ATS during fiscal 2007 up to the date of closing. We intend to use a portion of the net proceeds from this offering to repay this amount.
 
(2)  Unlimited shares authorized, pro forma and pro forma, as adjusted; no shares outstanding, actual,                      shares outstanding, pro forma and                      shares outstanding, pro forma, as adjusted.
 
(3)  Unlimited preferred shares authorized, pro forma and pro forma, as adjusted; no shares outstanding, actual, pro forma and pro forma, as adjusted.
      The pro forma, as adjusted information above is illustrative only, and our capitalization following the completion of this offering is subject to adjustment based on the actual initial public offering price of our common shares and other terms of this offering to be determined at pricing. A $1.00 increase (decrease) in the assumed initial offering price per share would increase (decrease) each of cash and cash equivalents, total group equity and total capitalization by approximately $           million.

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DILUTION
      If you invest in our common shares, your ownership interest will be immediately diluted to the extent of the difference between the initial public offering price per common share and the net tangible book value per common share upon the completion of this offering. The pro forma net tangible book value per common share below represents the book value of our total tangible assets (total assets less intangible assets) less total liabilities, divided by the total number of outstanding common shares, after giving effect to the corporate reorganization to be completed upon the closing of this offering as described under “Our Relationship with ATS — General — ATS reorganization relating to our company.” Our pro forma net tangible book value as of March 31, 2006 was approximately $           million, or $           per common share. After giving effect to the sale of common shares offered by us in this offering at an assumed initial public offering price of $           per common share, the midpoint of the estimated range of the initial public offering price set forth on the cover page of this prospectus, and after deducting underwriting commissions and estimated expenses of this offering payable by us, our pro forma, as adjusted net tangible book value as of March 31, 2006 would have equaled approximately $           million, or $           per common share. This represents an immediate increase in pro forma net tangible book value of $           per common share to our existing shareholders prior to this offering, and an immediate dilution in pro forma net tangible book value of $           per common share to new investors purchasing shares in this offering. The following table illustrates this dilution per common share.
         
Assumed initial public offering price
  $    
Pro forma net tangible book value per common share as of March 31, 2006
       
       
Increase in pro forma net tangible book value per common share attributable to this offering
       
       
Pro forma, as adjusted net tangible book value per common share after this offering
       
       
Dilution per common share to new investors
  $    
       
      The pro forma, as adjusted information discussed above is illustrative only. Our pro forma net tangible book value following the completion of this offering is subject to adjustment based on the actual initial public offering price of our common shares and other terms of this offering determined at pricing. A $1.00 increase (decrease) in the assumed initial public offering price of $           per common share would increase (decrease) total consideration paid by new investors, total consideration paid by all shareholders and the average price per common share paid by all shareholders by $           million, $           million and $          , respectively, and would increase (decrease) the pro forma, as adjusted net tangible book value per common share after giving effect to this offering by $           per common share and increase (decrease) dilution in pro forma, as adjusted net tangible book value per common share to new investors in this offering by $           per common share, in each case assuming no change in the number of common shares sold by us as set forth on the cover page of this prospectus and without deducting underwriting commissions and other estimated expenses of the offering payable by us.
      The following table summarizes, on, a pro forma, as adjusted basis as of March 31, 2006, the differences between the existing shareholders and the new investors with respect to the number of common shares purchased from us, the total consideration paid and the average price per common share paid before deducting estimated underwriting commissions and estimated expenses of this offering payable by us, assuming an initial public offering price of $           per common share, the midpoint of the estimated range of the initial public offering price set forth on the cover page of this prospectus. The information in the

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following table is illustrative only and the total consideration paid and the average price per common share is subject to adjustment based on the actual initial public offering price of our common shares.
                                         
    Common Shares   Total Consideration    
            Average Price per
    Number   Percent   Amount   Percent   Share
                     
Existing shareholders
              %   $           %   $    
New investors
                                       
                               
Total
            100 %   $         100 %   $    
                               
      If the underwriters exercise in full their over-allotment option to purchase common shares from ATS, the number of common shares held by new investors will increase to                     , or           % of the total common shares outstanding after this offering, our pro forma, as adjusted net tangible book value per common share would continue to be $          , and the dilution per common share would be $          .

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SELECTED COMBINED FINANCIAL DATA
      The following selected combined statements of earnings (loss) data for the three years ended March 31, 2004, 2005 and 2006 and the combined balance sheet data as of March 31, 2005 and 2006 have been derived from our audited combined financial statements included elsewhere in this prospectus. The combined balance sheet data as of March 31, 2004 have been derived from our unaudited combined financial statements. Our combined financial statements have been prepared in accordance with Canadian GAAP, which conform in all material respects with U.S. GAAP as applied to our combined financial statements, except as presented in note 20 to our combined financial statements. Amounts are stated in U.S. dollars. The data below does not give effect to the corporate reorganization to be completed upon the closing of this offering as described under “Our Relationship with ATS — General — ATS reorganization relating to our company.” You should read the following selected combined financial data in conjunction with our audited combined financial statements and the notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus. Our combined financial statements present our historical financial position, results of operations, changes in net investment and cash flows on a “carve-out” basis from ATS as if we had operated as a stand-alone entity. However, the combined financial statements may not necessarily be indicative of the results that would have been attained if we had operated as a stand-alone entity, or our results in any future periods.
      We have not included selected combined financial data as of or for the fiscal years ended March 31, 2002 and 2003 because the selected combined financial data could not be produced without unreasonable effort and expense. We do not believe that the selected combined financial data for those earlier two years would be indicative of our future operating results or that the additional information would be useful for your review of our historical operating results.
                           
    Fiscal Year Ended March 31,
     
    2004   2005   2006
             
    (U.S. dollars in thousands, except
    share and per share data)
Combined Statements of Earnings (Loss) Data:
                       
Revenue
  $ 65,855     $ 113,019     $ 121,916  
Operating costs and expenses:
                       
 
Cost of revenue
    52,859       89,930       89,993  
 
Research and development(1)
    1,236       678       9,252  
 
Amortization
    4,466       5,420       9,680  
 
Selling and administrative
    4,708       5,855       9,088  
 
Asset impairment charge(2)
                94,290  
 
Shared corporate costs(3)
    415       589       717  
                   
      63,684       102,472       213,020  
Earnings (loss) from operations
    2,171       10,547       (91,104 )
Interest (income) expense
    (64 )     3       1,666  
Provision for income taxes
    1,130       3,761       5,610  
Minority interest
    41       125       (7 )
                   
Net earnings (loss)
  $ 1,064     $ 6,658     $ (98,373 )
                   
Pro forma net earnings (loss) per common share(4)
                       
 
Basic
  $       $       $    
 
Diluted
                       
Common shares used to compute pro forma net earnings (loss) per common share(4)
                       
 
Basic
                       
 
Diluted
                       

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    Fiscal Year Ended March 31,
     
    2004   2005   2006
             
    (U.S. dollars in thousands)
Selected Segment Data:
                       
Photowatt International:
                       
 
Revenue
  $ 65,855     $ 113,019     $ 121,916  
 
Research and development(1)
    1,236       678       619  
 
Amortization
    4,466       5,420       6,252  
 
Earnings from operations
    2,586       10,948       19,780  
 
Capital expenditures
    5,565       10,625       16,080  
Spheral Solar:
                       
 
Revenue
                 
 
Research and development(1)
                8,633  
 
Amortization
                3,428  
 
Earnings (loss) from operations(2)
          188       (110,167 )
 
Capital expenditures
    34,630       16,124       10,351  
Shared corporate costs:
                       
 
Shared corporate costs(3)
    415       589       717  
                         
    As of March 31,
     
    2004   2005   2006
             
    (U.S. dollars in thousands)
Selected Combined Balance Sheet Data:
                       
Cash and cash equivalents
  $ 3,203     $ 891     $ 1,958  
Total assets
    129,613       164,567       103,257  
Working capital(5)
    29,295       29,098       29,188  
Total debt(6)
                 
Net investment
    107,884       137,668       74,724  
Group equity
    110,725       141,308       75,182  
Selected U.S. GAAP Data:
      The following table sets forth certain information prepared in accordance with U.S. GAAP. You should read this information in conjunction with note 20 to our combined financial statements included elsewhere in this prospectus.
                           
    Fiscal Year Ended March 31,
     
    2004   2005   2006
             
    (U.S. dollars in thousands)
Revenue
  $ 65,855     $ 113,019     $ 121,916  
Research and development(1)
    7,416       18,119       20,380  
Amortization
    4,544       5,502       9,680  
Asset impairment charge
                (52,609 )
Loss from operations
    (4,087 )     (6,976 )     (59,668 )
Net loss
    (5,194 )     (10,865 )     (66,937 )
Total assets (at period end)
    117,323       132,847       103,112  
Net investment (at period end)
    96,654       108,915       77,371  
 
Selected U.S. GAAP Segment Data:
                       
 
Photowatt International earnings from operations
    2,623       10,861       19,534  
 
Spheral Solar loss from operations
    (6,295 )     (17,248 )     (78,485 )

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(1)  Net of government grants.
 
(2)  We incurred an after-tax, non-cash asset impairment charge in fiscal 2006 of $94.3 million (pre-tax $94.3 million) against our Spheral Solar technology deferred development costs and other long-lived assets in the fourth quarter of fiscal 2006 due to the current uncertainty in resolving technological challenges and resulting delays of realizing cash flows from the investment in our Spheral Solar technology.
 
(3)  Represents allocation to us of estimated costs attributable to our business for services that were provided by ATS or one of its affiliates when we were a part of ATS.
 
(4)  Based on the number of common shares to be outstanding upon completion of the corporate reorganization and the closing of this offering as described under “Our Relationship with ATS — General — ATS reorganization relating to our company.”
 
(5)  Working capital represents total current assets minus total current liabilities.
 
(6)  Total debt consists of debt under our intercompany loan from ATS, which was considered nil as at March 31, 2006 for the purposes of the combined financial statements. At the time of the closing of this offering we expect to owe approximately $      million to ATS pursuant to an intercompany loan for investment in additional manufacturing capacity at Photowatt International, further development and process engineering associated with our Spheral Solar technology, and other general corporate purposes.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
      You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the section entitled “Selected Combined Financial Data” and our combined financial statements and the notes thereto included elsewhere in this prospectus. Our combined financial statements have been prepared in accordance with Canadian GAAP, which conform in all material respects with U.S. GAAP as applied to our combined financial statements, except as presented in note 20 to our combined financial statements included in this prospectus. Amounts are stated in United States dollars unless otherwise indicated. Our fiscal year-end is March 31. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” and elsewhere in this prospectus.
Overview
Our business
      We design, manufacture and sell photovoltaic products, commonly referred to as solar cells and modules. Solar cells and modules provide clean, renewable energy by converting sunlight into electricity through a process known as the photovoltaic effect. We operate through two segments, Photowatt International and Spheral Solar.
      Photowatt International designs, manufactures and sells solar modules and installation kits, and provides solar power system design and other value-added services, principally in Western Europe. Photowatt International also manufactures wafers and solar cells, primarily for use in manufacturing its modules and for sale to third parties on an opportunistic basis. Most of Photowatt International’s products are manufactured in our Photowatt France facility outside of Lyon, France. Photowatt USA, our facility in Albuquerque, New Mexico, performs certain module assembly operations for Photowatt International. Solar modules manufactured by Photowatt International are used by businesses, institutions and homeowners to generate electric power. Photowatt International sells its products under the Photowatt and Matrix brands to a network of independent solar power systems distributors and installers. Photowatt International’s revenue for the fiscal year ended March 31, 2006 was $121.9 million.
      Spheral Solar is developing a technology for a light weight, flexible crystalline solar module designed to compete with both conventional crystalline and thin film technologies. Our Spheral Solar technology incorporates thousands of tiny silicon spheres, bonded between thin, flexible aluminum foil substrates to form solar cells. We believe that our Spheral Solar technology, if we are able to successfully develop it, would have advantages over conventional crystalline solar cells, including better aesthetics, greater durability, less use of silicon, lighter weight, multiple available colors, more applications and physical flexibility. Spheral Solar is committing significant resources to development and process engineering in an effort to commercially manufacture products using our Spheral Solar technology. Our target efficiency for our Spheral Solar technology at commercialization is approximately 11%. However, the technological challenges in achieving commercial production and this target efficiency are substantial, and there can be no assurance as to when we will be able to commercialize our Spheral Solar technology or achieve this target efficiency, if at all. Spheral Solar had no revenue for the fiscal year ended March 31, 2006.
Basis of presentation
      ATS currently owns, either directly or indirectly through its subsidiaries, substantially all of our assets and operations. Upon the completion of this offering, ATS will establish our business as a separate publicly-traded company. To accomplish the separation of our business from the other businesses of ATS, ATS will undertake, subject to ATS shareholder approval of not less than two-thirds of the votes entitled to be cast by holders of ATS shares present in person or represented by proxy at a meeting of ATS shareholders to be held prior to the date of this offering, a corporate reorganization upon the closing of this offering under which ATS will transfer our assets and operations to us. For further information on this reorganization, see “Our

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Relationship with ATS — General — ATS reorganization relating to our company.” Immediately following this offering, ATS will own of record and beneficially approximately           % of our common shares. If the underwriters exercise their over-allotment option in full, immediately following this offering ATS will own of record and beneficially approximately           % of our common shares. As long as ATS continues to control more than 50% of the voting power of our common shares, ATS will be able to direct the election of all of the members of our board and exercise a controlling influence over our business and affairs. In addition, provisions of our Shareholder Agreement with ATS provide ATS with certain rights for so long as ATS owns a significant percentage of our common shares. For more information, see “Risk Factors — As long as ATS controls us, you will have no ability to influence the outcome of matters requiring shareholder approval.”
      Our combined financial statements present our historical financial position, results of operations, changes in net investment and cash flows on a “carve-out” basis from ATS as if we had operated as a stand-alone entity. However, the combined financial statements may not necessarily be indicative of the results that would have been attained if we had operated as a stand-alone entity, or our results for any future periods.
      Our separation from ATS will affect our results of operations and financial condition in a number of ways. In particular, in the near term, we must assume certain support functions and replicate certain systems, infrastructure and support functions previously performed for or provided to us by ATS or one of its affiliates. In this regard, we have hired a number of individuals to perform these functions, and we believe we have made substantial progress in replicating the necessary systems, infrastructure and support functions utilized in our business. However, it will take significant additional management time and effort to ensure that we have successfully replicated these functions. We also must negotiate new or revised agreements with various third parties as a separate, stand-alone entity. In addition, we benefited from various economies of scale as part of ATS, including shared administrative functions. We expect that our costs in some cases will increase, including the costs of being a stand-alone publicly-traded entity and meeting the required corporate governance and reporting obligations.
Principal factors affecting our results of operations
      Our results of operations are affected by a number of factors, principally:
  •  demand for our solar products, including the effects of government incentives for photovoltaic generation;
 
  •  our production capacity and ability to produce and ship our products;
 
  •  the availability of silicon;
 
  •  technological developments;
 
  •  the impact of competition on the pricing of our products; and
 
  •  exchange rate fluctuations.
Demand for our solar products
      Growth in our business is, in part, a function of demand for solar products. Although the solar market remains at a relatively early stage of development, and the extent to which solar products will be widely adopted is uncertain, demand for solar products has grown significantly over the past decade. According to Solarbuzz, the solar market, as measured by annual photovoltaic system installations, increased from 345 MW in 2001 to 1,460 MW in 2005, representing a compound annual growth rate, or CAGR, of 43%. Solarbuzz projects that solar industry revenue will reach $18.6 billion by 2010, representing a CAGR of 14% from $9.8 billion in 2005.
      Demand for solar products is driven, in part, by government incentives that make the economic cost of solar power competitive with traditional forms of electricity. The unsubsidized cost of using solar energy is currently more expensive, on a per watt basis, than the retail cost of conventional hydroelectric, nuclear or

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fossil fuel-generated energy sources in most industrialized regions of the world. To the extent that government incentives increase, decrease or otherwise change, demand for our solar products and our results of operations may be materially affected.
Our production capacity and ability to produce and ship our products
      Demand for our solar products is currently greater than our capacity to produce them. As a result, we need to increase our production capacity to continue to grow. We plan to increase our annual solar module production capacity to approximately 390 MW by the end of calendar 2010. We intend to increase Photowatt International’s annual integrated manufacturing capacity to approximately 250 MW and, assuming we are able to successfully complete the process engineering necessary to commercialize our Spheral Solar technology, we intend to increase our Spheral Solar technology annual manufacturing capacity to approximately 140 MW.
      We intend to implement our Photowatt International capacity expansion plan in three phases. In May 2006, we announced the first phase of our capacity expansion plan, which includes the expansion of Photowatt International’s annual ingot, wafer, cell and module manufacturing capacity at our facility near Lyon, France from approximately 31 MW, 32 MW, 40 MW and 54 MW, respectively, to approximately 60 MW of integrated manufacturing capacity by March 2007. The second phase of our capacity expansion plan provides for construction of a second facility near Lyon, France on land immediately adjacent to our existing facility and for construction of a module assembly facility in Eastern Europe or another low-cost region that will increase our annual integrated manufacturing capacity to approximately 100 MW. We plan to begin this phase of our expansion in calendar 2006 and complete it in calendar 2008. In addition, we also intend to increase our annual integrated manufacturing capacity in calendar 2008 by 50 MW. In connection with this, we are considering a joint venture with a mandate to develop a new manufacturing facility for the production of high efficiency solar cells and constructing module assembly facilities in low-cost regions. The third phase of our expansion plan provides for an additional 100 MW of annual integrated manufacturing capacity in calendar 2009 and 2010 either through the expansion of existing facilities or construction of new facilities.
      If we are successful in completing the development and process engineering required to commercialize our Spheral Solar technology, we plan to expand Spheral Solar’s existing production line to an annual capacity of 20 MW and build a second line to add another 20 MW of annual production capacity. We would also build a 100 MW Spheral Solar technology facility by the end of 2010, which would bring our annual capacity for Spheral Solar technology products to 140 MW.
      We plan to use proceeds from this offering to finance the first and second phases of our Photowatt International capacity expansion plan and the development and process engineering for our Spheral Solar technology. We will need to raise additional capital to fund the third phase of our Photowatt International capacity expansion plan and the expansion of our Spheral Solar technology manufacturing capacity, assuming we successfully complete our development and process engineering.
Availability of silicon
      Polysilicon is a specially processed form of silicon and is the primary raw material used to make crystalline solar cells. The increase in demand for solar cells has led to an industry-wide silicon shortage and to significant price increases in polysilicon that have increased our manufacturing costs in the past and are expected to impact our manufacturing costs and net income in the future. Polysilicon prices more than doubled during fiscal 2006, and we believe that supply shortages for polysilicon will continue throughout fiscal 2007 and possibly for some time thereafter. Photowatt France was able to partially offset the impact in fiscal 2006 of higher polysilicon costs by increasing its production efficiencies and producing thinner wafers. In general, thinner wafers result in lower production costs because more wafers can be produced from each polysilicon ingot. In addition, Photowatt France has also developed the ability to use a wide variety of silicon feedstock including powders and fines using OFP and refined metallurgical silicon which broadens our sources of supply.

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      Access to a secure supply of all the relevant forms of silicon continues to be a critical factor that could limit the production of wafers, cells and modules and the growth of solar power business. We have secured sources of silicon at Photowatt France that we believe satisfy our planned capacity until the end of fiscal 2007. We are continuing to devote resources to securing additional supply to enable our operations to grow without interruption. We plan to:
  •  enter into long term supply agreements for refined metallurgical silicon and polysilicon;
 
  •  secure a supply of polysilicon powder and fines through agreements with companies that produce these by-products, and use our OFP technology to process the powder and fines into polysilicon feedstock for use in our Photowatt International operations; we also intend to explore the possibility of licensing this technology to third-parties in exchange for long-term polysilicon supply agreements; and
 
  •  purchase silicon, including polysilicon ingots and wafers, on the spot market, to the extent available and subject to appropriate pricing.
Technological developments
      The solar industry is rapidly evolving and is characterized by continually improving technology providing more efficient and higher power output and improved aesthetics at competitive prices. These changes can positively impact demand for solar products generally, but also require us to continue to invest significant financial resources in research and development to remain competitive. Our advanced process technologies have significantly improved our productivity and increased the efficiency of our raw material usage, both of which have led to the lowering of the cost per watt of our products and improved our operating margins.
      Photowatt International. Photowatt International is engaged in the production and sale of solar modules and installation kits and provides solar power system design services. We have a long successful history of technological development at Photowatt International. We believe our strong capabilities in research and development and our vertically integrated production process are the key factors driving our ability to further develop our manufacturing process technology. Our integrated production process allows us to test different forms of silicon feedstock and make refinements to the manufacturing process and immediately determine and study the impact on solar cell and solar module efficiency. We are then able to implement changes to optimize and enhance the manufacturing process to reduce costs and improve cell quality. Specifically, the primary areas of technological improvement in Photowatt International have focused on:
  •  expanding the types of silicon feedstock that we can use to manufacture solar cells;
 
  •  developing capabilities that will allow us to reduce silicon usage per watt, such as enhancing our wire saw technology to reduce wafer thickness;
 
  •  improving production yields; and
 
  •  increasing cell efficiency levels.
      During the past several years we have achieved significant improvements in each of these areas. In addition, we expect to be able to mitigate in part the supply shortage and higher cost of polysilicon by producing commercially saleable cells from a wide variety of silicon feedstock including refined metallurgical silicon and polysilicon powder and fines. Our technological capabilities are also demonstrated by our reduction in silicon usage per watt. Silicon usage per watt decreased by 30% from 2004 to 2006 and our wafer thickness decreased during the same period from approximately 320 to 340 microns to approximately 180 to 220 microns. Photowatt International’s research and development and process improvements continue to achieve year-over-year improvements in production yields and cell efficiency levels.
      Spheral Solar. Spheral Solar is developing a technology for a light weight, flexible crystalline solar module. To successfully commercialize this technology, we must also develop new production processes which are able to achieve yield, power efficiency and manufacturing throughput for this proprietary solar product. This development and process engineering work is taking longer than originally expected, and

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significant challenges and risks remain in achieving our development and process engineering goals. As a result of challenges in achieving our development and process engineering goals, we announced in May 2006 that we would concentrate our efforts on further development and process engineering to overcome problem manufacturing areas, rather than focusing on production ramp-up. We incurred an after-tax, non-cash asset impairment charge in fiscal 2006 of $94.3 million (pre-tax $94.3 million) against our Spheral Solar technology deferred development costs and other long-lived assets due to the current uncertainty in resolving technological challenges and resulting delays of realizing cash flows from the investment in our Spheral Solar technology. The time required to complete the development and process engineering work is not possible to determine precisely, and a preliminary assessment of the future development path is planned to be delivered by the end of September 2006, and a more comprehensive report is due in January 2007. We expect to finance our development, process engineering and, if successful, production increase at Spheral Solar with a portion of the proceeds from this offering. Spheral Solar is expected to continue to incur losses during the development period as a result of the costs of maintaining the factory and equipment and performing the development and engineering work.
      Our Spheral Solar technology development and process engineering work involves significant start up, technology development and commercialization risks and there remains uncertainty as to the ability and timing to achieve successful commercialization. In the event our Spheral Solar technology development work is not successful, Spheral Solar may be discontinued or we may adopt a different strategy. However, management remains committed to the commercialization of Spheral Solar technology, provided that a manufacturing process can be established that demonstrates commercially acceptable costs and yields, and is focusing substantial internal and external resources to establish such a manufacturing process.
      Concurrent with this development and process engineering activity, we intend to continue to use proprietary production processes at Spheral Solar to convert certain forms of silicon into silicon feedstock for Photowatt International to use in its production, and to seek licensing opportunities for this technology.
Impact of competition on the pricing of our products
      The market for solar power products is intensely competitive and continually evolving. Although we experienced increased selling prices in fiscal 2005 and 2006 primarily due to strong end-market demand during those years and increases in silicon feedstock costs, we experienced price reductions for our solar products in fiscal 2004. When our competitors have historically lowered their product prices or increased them less than we otherwise would, competitive pressures have generally caused us to do the same. We expect that our results of operations will remain subject to market-driven pricing pressures of this nature, which are largely outside of our control.
Foreign exchange fluctuations
      For a discussion of the effects of foreign exchange fluctuations on our business, see “— Quantitative and Qualitative Disclosure About Market Risk — Foreign exchange risk.”
Revenue
      In fiscal 2004, 2005 and 2006, all of our revenue from third parties was generated by our Photowatt International business segment, which includes Photowatt France and Photowatt USA. Our revenue is generated primarily from sales to solar product distributors and installers. In each of fiscal 2004, 2005 and 2006, our revenue was almost entirely from the sale of solar modules and cells. In fiscal 2006, we began to sell additional components of solar power systems in the form of kits and to provide certain design and project management services and contracting for installation services. We expect that these products and services will account for an increasing proportion of our revenue in the future.
      Our revenue is affected by our unit volumes shipped, average selling prices per watt and product mix. We have experienced year-over-year unit volume increases in our solar power products for the past three years, as we have continued to increase our production. We experienced price reductions for our solar products in fiscal 2004 and increased selling prices in fiscal 2005 and 2006. Average selling prices were

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approximately 15% higher in fiscal 2006 as compared to those in fiscal 2004, primarily due to strong end-market demand during those years and increases in silicon feedstock costs.
      Sales to our customers are typically made through non-exclusive, short-term purchase order arrangements, and our customers generally change from year-to-year. In fiscal 2004, two customers accounted for 41% of our revenue. In fiscal 2005, two customers accounted for 55% of our revenue, and in fiscal 2006, three customers accounted for 46% of our revenue. We cannot be certain that our existing customers will generate significant revenue for us in the future or that these customer relationships will continue. For more information, see “Risk Factors — We expect that our significant customer concentration will continue to expose us to potentially significant fluctuations or declines in our revenue” and “Risk Factors — Because we operate on a purchase order basis with our largest customers, our financial results, including gross margins, may suffer if purchase orders were changed or cancelled.”
Expenses
Cost of revenue
      Our cost of revenue primarily consists of:
  •  silicon feedstock of various types, including chunks, granules, powder and fines;
 
  •  purchases of silicon ingots, wafers and solar cells from third parties as required to balance production;
 
  •  various raw materials, including tempered glass, plastics films, tedlar, anti-reflective and aluminum coatings, metal frames, connecting systems, crucibles and aluminum foil;
 
  •  direct labor, including salaries and benefits of personnel directly involved in manufacturing activities; and
 
  •  factory overhead, including facility leasing, utility, maintenance of production equipment and other support expenses associated with the manufacturing of our solar products.
      We expect our total cost of revenue to increase as we bring on additional capacity and increase our production volumes. From fiscal 2004 to 2006, as a percentage of revenue on a per-watt basis, the cost of silicon feedstock has increased but remained at less than 20% of revenue, despite the increasing silicon feedstock prices, primarily as a result of increased economies of scale and improved internal operating efficiencies and increased market prices for our products. Increases in the price of silicon feedstock, wafers and cells charged by our suppliers will also contribute to higher cost of revenue going forward, and we will probably not be able to offset higher silicon costs with increased efficiency gains.
      Prior to the third quarter of fiscal 2006, the expenditures designed to advance the commercialization of our Spheral Solar technology were capitalized as deferred development, as they met the criteria for deferred development under Canadian GAAP. Beginning in the third quarter of fiscal 2006, these expenditures were no longer capitalized and began to be expensed, with these costs being charged to our combined statements of earnings (loss) (including cost of revenue, amortization, selling and administrative expenses, and research and development expenses), because the maximum time period during which we had determined to defer them had elapsed.
Research and development expenses
      Research and development expenses are presented net of government grants and primarily relate to raw materials used in our research and development activities, research and development personnel costs, and prototype and equipment costs related to the design, development, testing and enhancement of our products and process technologies. Research costs are expensed as incurred. Development costs that meet the Canadian GAAP criteria for deferral are deferred and amortized over the period over which we expect to benefit from the resulting product or process.
      Prior to the third quarter of fiscal 2006, we deferred the majority of the costs associated with our Spheral Solar technology as development costs. Beginning in the third quarter of fiscal 2006, we began to

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expense these costs. As at March 31, 2006, we determined that the carrying value of the Spheral Solar technology development costs was in excess of their associated estimated undiscounted future cash flows, and the associated asset was written down. For more information, see “— Results of Operations — Results of operations for fiscal year 2006 compared with fiscal year 2005 — Earnings (loss) from operations.”
Amortization
      Our amortization expense primarily relates to amortization of our manufacturing equipment, facilities and intangible assets for both Photowatt International and Spheral Solar. With the capacity that we have added over the past several years and that we plan to add, we expect the amortization expense recorded by Photowatt International to continue to increase. At the end of fiscal 2006, a significant amount of Spheral Solar’s production equipment was written down to a nominal value, and as a result, amortization costs related to Spheral Solar are expected to decrease from fiscal 2006. Further capital investments may be required, which would increase amortization. For more information, see “— Results of Operations — Results of operations for fiscal year 2006 compared with fiscal year 2005 — Earnings (loss) from operations.”
Selling and administrative expenses
      Selling and administrative expenses consist primarily of salaries, benefits, performance incentive costs, and stock-based compensation costs related to sales, marketing, administrative, finance and human resources personnel in Canada, France and the United States; travel and living expenses; marketing, trade shows and advertising; capital taxes; allowance for doubtful accounts; fees and expenses of legal, accounting, tax and other professional services; and foreign exchange gains and losses. We expect that our selling and administrative costs will increase as we increase our sales efforts, hire additional personnel, launch new business initiatives and programs, improve our information technology infrastructure and incur other costs related to the anticipated growth of our business. Furthermore, we also expect significant increases in selling and administrative costs as a result of becoming a listed public company in the United States and Canada upon completion of this offering.
Asset impairment charge
      We regularly review the net recoverable amount of our deferred development costs and long lived assets. The asset impairment charge in fiscal 2006 relates to write-downs of these costs and assets as required as a result of these reviews. See “— Results of Operations — Results of operations for fiscal year 2006 compared with fiscal year 2005 — Earnings (loss) from operations.”
Shared corporate costs
      Shared corporate costs are based on services that were in the past provided by ATS or one of its affiliates. These expenses primarily relate to providing employee-related services and benefits and corporate functions including tax, legal, compliance, finance and operational consulting. The costs included in our combined financial statements are based on certain assumptions that are intended to allocate estimated expenses directly attributable to us. The allocations and expenses do not necessarily represent the expenses that we would have incurred if we had operated on a stand-alone basis. Included in shared corporate costs is an allocation of amortization related to the building that Spheral Solar occupies that immediately prior to completion of this offering will be leased by us from ATS. See “Our Relationship with ATS — Agreements Between ATS and Us — Lease Agreement.”
Interest (income) expense
      Interest expense in the periods presented primarily arose from interest payable on an intercompany loan from ATS. At the time of the closing of this offering, we expect to owe approximately $        million to ATS pursuant to an intercompany loan to be provided by ATS that we expect to repay after the closing of this offering through the application of the net proceeds as described under “Use of Proceeds.” We expect to

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incur interest expense in future periods in relation to debt we may incur to fund our manufacturing capacity expansion plans.
Provision for income taxes
      As required by Canadian GAAP for carve-out financial statements, income taxes have been recorded at statutory rates based on income taxes as reported in the combined statements of earnings (loss) as though we were a separate tax paying entity. Income taxes payable or recoverable in respect of the components of our combined operations that were not historically separate tax paying legal entities have been included in the account recording ATS’ net investment. Future income taxes have been presented in the combined balance sheets for each temporary difference between the financial reporting and tax basis of the assets and liabilities. In addition, future income tax assets have been recognized to the extent that they would have been realized as though we were a separate tax paying entity. Future income tax assets are recognized only to the extent that management determines that it is more likely than not that the future income tax assets will be realized in the foreseeable future. No future income tax assets have been recorded for the losses related to Spheral Solar, Matrix Solar Technologies, Inc. and Spheral Solar Power Inc.
      Our provision for income taxes for the fiscal years 2004, 2005 and 2006 was $1.1 million, $3.8 million and $5.6 million, respectively. This provision for income taxes primarily reflects the income taxes payable on the net earnings of Photowatt France, as the Canadian and U.S. operations of Photowatt Technologies have tax losses for which future income tax assets have not been recognized.
Minority interest
      Minority interest primarily consists of an allocation of the net earnings and losses from one of the entities included in our carve out combined financial statements where less than 5% of the outstanding shares are held by individuals or entities other than us or a company controlled by us.
Critical accounting policies
      The preparation of our combined financial statements requires us to make estimates and judgments that affect (i) our reported amounts of assets and liabilities, (ii) revenue and expenses in the respective fiscal periods, and (iii) the disclosure of contingent liabilities and assets at the date of the combined financial statements. We base our estimates on historical experience, knowledge and assessment of current business and other conditions and our expectations regarding the future, based on available information and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates as a result of new information, future events or otherwise.
      We believe that the following accounting policies involve the most significant judgments and estimates used in the preparation of our combined financial statements:
      Revenue recognition: Revenue is recognized when earned, which is generally at the time of shipment and when title is transferred to the customer, provided that collection is reasonably assured, the sales price is fixed and determinable, and the rights and risks of ownership have passed to the customer. As of March 31, 2006, we did not have any significant post-shipment obligations, such as installation, training or customer acceptance clauses, with any of our customers that we believe would have an impact on historical revenue recognition.
      Warranty reserves: It is customary in our business and industry to warrant or guarantee the performance of traditional solar panels at certain levels of conversion efficiency for extended periods, often as long as 25 years. We provide for the costs of product warranties for the products of Photowatt International at the time revenue is recognized. Our estimates of product warranty costs are based upon our historical experience and expectations of future return rates and unit warranty repair costs. To the extent our actual product failure rates and associated costs differ from our estimates, revisions to the estimated warranty liability would be required. Based on our experience, warranty costs have been de minimis, and as a result

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we do not have any warranty reserves. If in the future our experience changes, we will take a warranty reserve to the extent appropriate.
      Allowance for doubtful accounts: We maintain an allowance for doubtful accounts primarily based on our assessment of historical bad debts, factors surrounding the credit risk of specific customers and current economic trends. If there is a deterioration of a major customer’s creditworthiness or actual defaults are higher than our historical experience, we may be required to increase our allowance for doubtful accounts.
      Foreign currency translation: The functional currencies of Photowatt France, Spheral Solar and Photowatt USA are the euro, Canadian dollar and U.S. dollar, respectively. For the purposes of our combined financial statements, the functional currency is the Canadian dollar and the reporting currency is the U.S. dollar. As our subsidiaries are self-sustaining, the accounts of our foreign subsidiaries are translated into U.S. dollars using the current rate method under which assets and liabilities are translated at the exchange rate prevailing at the year-end and revenues and expenses at average rates during the year. Gains or losses on translation are not included in the combined statements of earnings (loss) but are deferred and included in cumulative translation adjustment, a separate component of group equity.
      Other monetary assets and liabilities, including long-term monetary assets and liabilities, which are denominated in foreign currencies, are translated into the respective functional currency of each entity at year-end exchange rates, and transactions included in earnings are translated at rates prevailing during the year. Exchange gains and losses resulting from the translation of monetary assets and liabilities are included in the combined statements of earnings (loss).
      Inventories: Raw materials are valued at the lower of cost and replacement cost. Work-in-process and finished goods inventory are stated at the lower of cost and net realizable value. Cost includes the cost of materials plus direct labor applied to the product and applicable share of manufacturing overhead. Cost is determined on a first-in, first-out basis.
      Property, plant and equipment: Property, plant and equipment are recorded at cost. Amortization is computed using the following methods and annual rates:
                 
Asset   Basis   Rate
         
Buildings
    Straight-line       15 years  
Production equipment
    Straight-line       5 to 10  years  
Other equipment and furniture
    Declining-balance       20%  
      Straight-line       5 to 7 years  
      Goodwill: Goodwill represents the excess of the cost of an acquired enterprise over the net of the fair values assigned to the assets acquired and liabilities assumed, less any subsequent impairment write-down. Goodwill is subject to an impairment test on at least an annual basis or upon the occurrence of certain events or circumstances. Goodwill impairment is assessed based on a comparison of the fair value of a reporting unit to the underlying carrying value of the reporting unit’s net assets, including goodwill. When the carrying amount of the reporting unit exceeds its fair value, the implied fair value of the reporting unit’s goodwill is compared with its carrying amount to measure the amount of impairment loss, if any. Goodwill presented in the combined financial statements relates to our purchase of Photowatt France.
      Intangible assets: Intangible assets, which are patents and licenses on technologies, are recorded at cost and amortized over their estimated economic life of 10 to 17 years.
      Impairment of long-lived assets: We review long-lived assets such as property, plant and equipment and intangible assets with finite useful lives for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If the total of the expected undiscounted cash flows is less than the carrying value of the asset, a loss, if any, is recognized for the excess of the carrying value over the fair value of the asset. During the year ended March 31, 2006, we determined that the carrying value of certain property, plant and equipment and intangible assets was in excess of their associated estimated

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undiscounted future cash flows, and the assets were written down to their fair value as further described in note 15 to our combined financial statements.
      Research and development costs: Research costs are expensed as incurred. Development costs which meet generally accepted criteria for deferral are deferred and amortized over the period over which we expect to benefit from the resulting product or process. Subject to meeting the generally accepted criteria for deferral, we capitalize both direct and indirect costs with respect to ventures which are in the development stage.
      Deferred development costs are reviewed annually for recoverability or whenever events or circumstances indicate that the carrying value may not be recoverable. When the criteria that previously justified the deferral of costs are no longer met, the unamortized balance is written off as a charge to earnings in that period. When the criteria for deferral continue to be met, but the amount of deferred development costs that can reasonably be regarded as assured through recovery of related future revenue less relevant costs is exceeded by the unamortized balance of such costs, the excess is written off as a charge to earnings in that period. During the year ended March 31, 2006, we determined that the carrying value of certain deferred development costs was in excess of their associated estimated undiscounted future cash flows and the assets were written down as further described in note 15 to our combined financial statements.
      Income taxes: We use the liability method of accounting for income taxes. Under the liability method of accounting for income taxes, future income tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the substantively enacted tax rates and laws that will be in effect when the differences are expected to reverse.
      We continue to assess, on an ongoing basis, the degree of certainty regarding the realization of future income tax assets and whether a valuation allowance is required.
      Investment tax credits and government assistance: Investment tax credits and government assistance are accounted for as a reduction in the cost of the related asset or expense when there is reasonable assurance that such credits or assistance will be realized.
      Stock-based compensation plans: For all employee stock option awards granted on or after April 1, 2003, we recognize compensation using the fair value based method of accounting for stock-based compensation.
      We have accounted for all employee stock options granted before April 1, 2003 as capital transactions with the provision of pro forma disclosure for those awards granted between April 1, 2002 and March 31, 2003. Pro forma disclosures present net earnings and earnings per share as if the compensation cost for our stock option plan had been determined and recorded based on the fair value of options awarded for the year ended March 31, 2003. No pro forma disclosure is provided for stock options awarded prior to April 1, 2002.
      The fair value of stock options is estimated at the grant date using the Black-Scholes option pricing model. Although the assumptions used reflect management’s best estimates, they involve inherent uncertainties based on market conditions generally outside of our control. If other assumptions were used, stock-based compensation expense could be significantly impacted. As stock options are exercised, the proceeds received on exercise, in addition to the previously recognized expense related to those stock options, are credited to net investment.
      For those options which can be settled in cash at the holder’s option, a liability is recognized for the cash settlement value. This liability is adjusted each reporting period with the corresponding charge to the combined statements of earnings (loss).

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Results of Operations
Results of operations for fiscal year 2006 compared with fiscal year 2005
      The following table provides a comparison of our revenue and expenses for the periods indicated:
                   
    Fiscal Year Ended
    March 31,
     
    2005   2006
         
    (U.S. dollars in
    thousands)
Revenue
  $ 113,019     $ 121,916  
Operating costs and expenses:
               
 
Cost of revenue
    89,930       89,993  
 
Research and development
    678       9,252  
 
Amortization
    5,420       9,680  
 
Selling and administrative
    5,855       9,088  
 
Asset impairment charge
          94,290  
 
Shared corporate costs
    589       717  
             
      102,472       213,020  
Earnings (loss) from operations
    10,547       (91,104 )
Interest expense
    3       1,666  
Provision for income taxes
    3,761       5,610  
Minority interest
    125       (7 )
             
Net earnings (loss)
  $ 6,658     $ (98,373 )
             
      Revenue. For fiscal 2006, our revenue, which was entirely derived from Photowatt International, was $121.9 million, or 8% higher than in fiscal 2005. This increase was primarily due to higher production volumes from capacity expansion and product price increases, offset in part by the weakening euro against the U.S. dollar during fiscal 2006, compared with fiscal 2005. In euro, the functional currency of the French operations of Photowatt France, revenue for fiscal 2006 increased by 13% compared to fiscal 2005.
      The following table sets forth the geographic sources of our revenue for fiscal 2005 and 2006.
                                   
    Fiscal Year Ended March 31,
     
        Percent       Percent
    2005   in 2005   2006   in 2006
                 
Germany
  $ 87,055       77 %   $ 60,122       49 %
Spain
    7,241       6       20,142       17  
Italy
    3,511       3       7,567       6  
Rest of Europe
    7,599       7       9,676       8  
United States
    5,360       5       17,499       14  
Canada
    150       N/M       23       N/M  
Other
    2,103       2       6,887       6  
                         
 
Total
  $ 113,019       100 %   $ 121,916       100 %
      Cost of revenue. For fiscal 2006, our cost of revenue, which was almost entirely derived from Photowatt International, was $90.0 million, and represented 74% of revenue, compared to 80% in fiscal 2005. Factors affecting cost of revenue at Photowatt International were primarily improved production yields, efficiencies and economies of scale, which were partially offset by increased cost of silicon and higher production volumes. Commencing in the third quarter of fiscal 2006, the cost associated with Spheral Solar technology ceased being deferred and was included in our combined statements of earnings (loss). The

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amount included in our cost of revenue in fiscal 2006 related to the transfer of silicon from Spheral Solar to Photowatt International, net of intercompany eliminations, was not significant.
      Research and development. Research and development expenses increased from $0.7 million in fiscal 2005 to $9.3 million in fiscal 2006, primarily as a result of research and development costs associated with Spheral Solar technology being expensed in the third and fourth quarters of fiscal 2006. The following table summarizes the breakdown of research and development expenses between our segments:
                                 
    Fiscal Year Ended March 31,
     
    2005   2006
         
        R&D as a % of       R&D as a % of
        combined       combined
    R&D   revenue   R&D   revenue
                 
    (U.S. dollars in thousands)
Photowatt International
  $ 678       1 %   $ 619       1 %
Spheral Solar
                8,633       7 %
                         
Combined
  $ 678       1 %   $ 9,252       8 %
      Amortization. For fiscal 2006, our amortization was $9.7 million, or 79% higher than in fiscal 2005. This increase was primarily due to the inclusion of Spheral Solar technology amortization for the third and fourth quarters of fiscal 2006 in the combined statements of earnings (loss) and increased amortization at Photowatt France primarily related to capital expenditures made to increase capacity in fiscal 2005 and 2006. The following table summarizes the breakdown of the amortization between our segments:
                                 
    Fiscal Year Ended March 31,
     
    2005   2006
         
        Amortization as       Amortization as
        a % of       a % of
    Amortization   combined revenue   Amortization   combined revenue
                 
    (U.S. dollars in thousands)
Photowatt International
  $ 5,420       5 %   $ 6,252       5 %
Spheral Solar
                3,428       3 %
                         
Combined
  $ 5,420       5 %   $ 9,680       8 %
      Selling and administrative costs. For fiscal 2006, our selling and administrative costs were $9.1 million, or 55% higher than in fiscal 2005. This increase was primarily due to the inclusion of the Spheral Solar technology selling and administrative costs for the third and fourth quarters of fiscal 2006 in the combined statements of earnings (loss). Photowatt International selling and administrative costs increased $1.0 million from fiscal 2005 to fiscal 2006 primarily as a result of increased incentive compensation related to increased profitability. The following table summarizes the breakdown of the selling and administrative costs between our segments:
                                 
    Fiscal Year Ended March 31,
     
    2005   2006
         
        S&A as a % of       S&A as a % of
        combined       combined
    S&A Costs   revenue   S&A Costs   revenue
                 
    (U.S. dollars in thousands)
Photowatt International
  $ 6,258       5 %   $ 7,251       6 %
Spheral Solar
    (403 )     0 %     1,837       1 %
                         
Combined
  $ 5,855       5 %   $ 9,088       7 %
      Asset impairment charge. As we continued to face significant technical challenges associated with the commercialization of Spheral Solar technology and due to the current uncertainty in resolving these challenges and resulting delays in realizing cash flows from the investment in Spheral Solar technology,

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Canadian GAAP required that we recognize an after-tax, non-cash asset impairment charge of $94.3 million (pre-tax $94.3 million) against our Spheral Solar technology deferred development costs and other long-lived assets in the fourth quarter of fiscal 2006. Deferred development costs were written down by $41.0 million, property, plant and equipment was written down by $51.9 million, and intangible assets were written down by $1.4 million for a total impairment charge of $94.3 million. Total assets recorded on our combined balance sheet related to Spheral Solar after this adjustment were approximately $11.3 million at March 31, 2006, consisting of $4.6 million of current assets, $4.2 million of long-lived assets, and $2.5 million of other assets. Total assets at March 31, 2005 related to Spheral Solar technology were $86.9 million.
      Shared corporate costs. For fiscal 2006, our shared corporate costs were $0.7 million, or 22% higher than in fiscal 2005. This increase was primarily due to allocated facilities costs in Cambridge, Ontario.
Earnings (loss) from operations
                                 
    Fiscal Year Ended March 31,
     
    2005   2006
         
        Earnings (loss)       Earnings (loss)
        from       from
        operations as       operations as
    Earnings   a % of   Earnings   a % of
    (loss) from   combined   (loss) from   combined
    operations   revenue   operations   revenue
                 
    (U.S. dollars in thousands)
Photowatt International
  $ 10,948       10 %   $ 19,780       16 %
Spheral Solar
    188       0 %     (110,167 )     (90 )%
Shared corporate costs
    (589 )     (1 )%     (717 )     (1 )%
                         
Combined
  $ 10,547       9 %   $ (91,104 )     (75 )%
      For fiscal 2006, our loss from operations was $91.1 million, compared with $10.5 million of earnings from operations in fiscal 2005. This change was primarily due to the inclusion of Spheral Solar’s loss from operations in fiscal 2006, which was only partially offset by an increase in Photowatt International’s earnings from operations in fiscal 2006 compared with fiscal 2005. Spheral Solar’s loss from operations in fiscal 2006 was $110.2 million, compared with earnings from operations of $0.2 million in fiscal 2005. This change was primarily due to the after-tax, non-cash asset impairment charge of $94.3 million (pre-tax $94.3 million) against our Spheral Solar technology deferred development costs and other long-lived assets (see “— Asset impairment charge” above) and continuing expenditures in the third and fourth quarters designed to advance the commercialization plan for our Spheral Solar technology. Prior to the third quarter of fiscal 2006, these continuing expenditures were capitalized as deferred development costs. Photowatt International’s earnings from operations in fiscal 2006 were $19.8 million, or 81% higher than in fiscal 2005, and represented 16% of Photowatt International’s revenue, compared with 10% in fiscal 2005. This increase was primarily due to an increase in annual production, price increases and significant improvements in production yields, throughput gains, cost-reduction initiatives and the benefits of capital investments. These factors more than offset the impact of higher silicon costs in fiscal 2006 compared with fiscal 2005.
      Interest expense. For fiscal 2006, our interest expense was $1.7 million, compared with $3 thousand in fiscal 2005. The fiscal 2006 interest expense related primarily to interest expense on certain indebtedness owing to ATS that was included as part of ATS’ net investment in us. During fiscal 2005, no interest expense was charged related to ATS’ net investment in us.
      Provision for income taxes. For fiscal 2006, our provision for income taxes was $5.6 million, compared with $3.8 million in fiscal 2005. The provision for income taxes relates primarily to the earnings of Photowatt International, and the increase in fiscal 2006 compared with fiscal 2005 was mainly due to the increased earnings of Photowatt International.
      Minority interest. For fiscal 2006, we had nominal minority interest, compared with $0.1 million in fiscal 2005. This change resulted from the portion of the asset impairment charge assigned to minority shareholders, which offset the increased profitability of Photowatt International.

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Results of operations for fiscal year 2005 compared with fiscal year 2004
      The following table provides a comparison of our revenue and expenses for the periods indicated:
                   
    Fiscal Year Ended
    March 31,
     
    2004   2005
         
    (U.S. dollars in
    thousands)
Revenue
  $ 65,855     $ 113,019  
Operating costs and expenses:
               
 
Cost of revenue
    52,859       89,930  
 
Research and development
    1,236       678  
 
Amortization
    4,466       5,420  
 
Selling and administrative
    4,708       5,855  
 
Shared corporate costs
    415       589  
             
      63,684       102,472  
Earnings from operations
    2,171       10,547  
Interest (income) expense
    (64 )     3  
Provision for income taxes
    1,130       3,761  
Minority interest
    41       125  
             
Net earnings
  $ 1,064     $ 6,658  
             
      Revenue. For fiscal 2005, our revenue, which was entirely derived from Photowatt International, including its facility in the United States, was $113.0 million, or 72% higher than in fiscal 2004. This increase was primarily due to increasing demand for solar products and higher production volumes from capacity expansion, compared with fiscal 2004. In euros, the functional currency of Photowatt France, revenue in fiscal 2005 increased 60% compared to fiscal 2004.
      Cost of revenue. For fiscal 2005, our cost of revenue was $89.9 million, or 70% higher than in fiscal 2004, and represented 80% of revenue, consistent with fiscal 2004. This increase was primarily due to increased revenue and production volumes. In fiscal 2005 and 2004, our cost of revenue almost entirely related to Photowatt International.
      Research and development costs. For fiscal 2005, our research and development expenses were $0.7 million, or 45% lower than in fiscal 2004. The expenses in fiscal 2005 and 2004 were solely the research and development costs of Photowatt International, as the development costs associated with the Spheral Solar technology were capitalized as deferred development costs. The decrease in expense was primarily the result of increased levels of government assistance received in fiscal 2005 compared with fiscal 2004.
      Amortization. For fiscal 2005, our amortization was $5.4 million, or 21% higher than in fiscal 2004. In fiscal 2005 and fiscal 2004, amortization expense related solely to Photowatt International operations, and the increase over fiscal 2004 related to recent capital investments made at Photowatt International.
      Selling and administrative costs. For fiscal 2005, our selling and administrative costs were $5.9 million, or 24% higher than in fiscal 2004. This increase was primarily due to increased production activity and higher revenue resulting in increased selling costs and higher employee performance incentive costs in fiscal 2005 tied to improved earnings. As a percentage of revenue, selling and administrative costs decreased from 7% in fiscal 2004 to 5% in fiscal 2005.
      Shared corporate costs. For fiscal 2005, our shared corporate costs were $589 thousand, or 42% higher than in fiscal 2004. This increase was primarily due to increased ATS corporate activity in conjunction with our activities.

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      Earnings from operations. In both fiscal 2004 and fiscal 2005, earnings from operations was derived almost solely from Photowatt International’s operations. The costs associated with the development of Spheral Solar technology were capitalized and deferred during fiscal 2004 and 2005. For fiscal 2005, our earnings from operations were $10.5 million, or 386% higher than in fiscal 2004, and represented 9% of revenue, compared with 3% in fiscal 2004. This increase was primarily due to increased revenue, improved factory utilization, cost reduction initiatives, improved efficiencies and other factors mentioned above. A worldwide shortage of silicon feedstock resulted in higher industry prices for this primary raw material, which we more than offset with our ongoing silicon supply management efforts, strong market conditions and gains made in operating efficiency.
      Interest (income) expense. For fiscal 2005, our interest expense was $3 thousand, compared with income of $64 thousand in fiscal 2004. This expense fluctuates depending on cash balances and interest charges from operating facilities and intercompany charges. During fiscal 2005 and 2004, no interest expense was charged related to ATS’ net investment in us.
      Provision for income taxes. For fiscal 2005, our provision for income taxes was $3.8 million, or 233% higher than in fiscal 2004. The provision for income taxes relates primarily to the earnings of Photowatt International, and the increase in fiscal 2005 compared with fiscal 2004 was mainly due to our increased earnings.
      Minority interest. For fiscal 2005, our minority interest was $125 thousand, or 205% higher than in fiscal 2004. This change resulted primarily from increased earnings of Photowatt International.
Liquidity and Capital Resources
Liquidity
      In fiscal 2004, 2005 and 2006, cash flows provided by operating activities were $3.3 million, $3.8 million and $2.2 million, respectively. In fiscal 2004, non-cash working capital increased $3.5 million primarily related to increases in accounts receivable which offset the $6.8 million generated from the net earnings adjusted for non-cash items. In fiscal 2005, non-cash working capital increased $12.0 million primarily related to increases in accounts receivable and inventory which partially offset the $15.8 million generated from net earnings adjusted for non-cash items. In 2006, increases in non-cash working capital of $5.3 million, associated primarily with the increased silicon inventory levels at both Photowatt International and Spheral Solar, offset the $7.5 million net cash generated from net loss adjusted for non-cash items.
      Our investing activities were composed primarily of our acquisition of property, plant and equipment and development expenditures. See “— Capital expenditures” below. The development expenditures primarily related to Spheral Solar technology.
      Our financing activities consisted of proceeds from government assistance funded by Technology Partnerships Canada (“TPC”), an agency of the Canadian government, as well as other sources of government funding in fiscal 2004, 2005 and 2006, in the amounts of $5.7 million, $12.8 million, and $3.4 million, respectively and by ATS in fiscal 2004, 2005 and 2006, in the amounts of $42.1 million, $23.1 million and $35.4 million, respectively. The final TPC funding claims were recognized in fiscal 2006 and at this time there are no further amounts to be recognized by us under this program.

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Capital resources
      We have historically satisfied our capital and liquidity requirements through intercompany borrowings and the sale of equity to ATS. At the time of the closing of this offering we expect to owe approximately $           million to ATS pursuant to an intercompany loan for investment in additional manufacturing capacity at Photowatt International, further development and process engineering associated with our Spheral Solar technology, and other general corporate purposes. Upon completion of this offering and after application of the net proceeds therefrom, we expect to have no outstanding intercompany borrowings from ATS. See “Our Relationship with ATS — General — ATS reorganization relating to our company.” We plan to use proceeds from this offering to finance the first and second phases of our Photowatt International capacity expansion plan and the further development and process engineering of our Spheral Solar technology. We will need to raise additional capital to fund the third phase of our Photowatt International capacity expansion plan and the expansion of our Spheral Solar technology capacity, assuming we successfully complete our development and process engineering.
Capital expenditures
      Our property, plant and equipment acquisitions for the periods indicated were as follows:
                         
    Fiscal Year Ended March 31,
     
    2004   2005   2006
             
    (U.S. dollars in thousands)
Photowatt International
  $ 5,565     $ 10,625     $ 16,080  
Spheral Solar
    34,630       16,124       10,351  
                   
Combined
  $ 40,195     $ 26,749     $ 26,431  
      The property, plant and equipment acquisitions at Photowatt International related primarily to equipment to increase the estimated annual plant capacity, increase manufacturing efficiencies and further automate production, and reduce the quantity of silicon consumed per watt of output.
      Capital expenditures at Spheral Solar related to equipment and expenditures for the development of Spheral Solar technology and include items such as production equipment, computer equipment, software and office furniture.
      We expect that our capital expenditures will increase in the future as we expand our manufacturing capacity in line with our strategy, including with a portion of the net proceeds from this offering.
      In May 2006, we announced the first phase of our Photowatt International capacity expansion plan, which includes the expansion of our ingot, wafer, cell and module annual manufacturing capacity at our facility near Lyon, France to 60 MW of integrated manufacturing capacity by March 2007, at an expected cost of 25 million, of which at July 31, 2006, we had spent 5.1 million.
Off-Balance Sheet Arrangements
      There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

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Contractual Commitments
      The following table sets forth our contractual commitments as of March 31, 2006.
                                         
    Payment Due by Period
     
        Less than       More than
    Total   1 Year   1-3 Years   3-5 Years   5 Years
                     
        (U.S. dollars in thousands)    
Operating lease obligations
  $ 3,208     $ 771     $ 1,348     $ 976     $ 113  
Non-cancelable purchase obligations
    10,723       10,723                    
                               
Total
  $ 13,931     $ 11,494     $ 1,348     $ 976     $ 113  
      Subsequent to year-end, we issued purchase orders to acquire approximately $8.0 million of refined metallurgical silicon which will be delivered through to fiscal 2008. In May 2006, we announced the capacity expansion plan for our Photowatt France facility near Lyon, France, at an expected cost of 25 million.
      We expect to enter into a lease agreement with ATS that relates to our Spheral Solar manufacturing facility in Cambridge, Ontario which will become effective immediately prior to completion of this offering and which is not reflected in the table above. Under the lease, we will pay ATS rent at a rate of C$1 per year for two years. Thereafter, provided we are not in default and remain creditworthy, we will have the option to renew the lease for two consecutive five year renewal periods at the greater of a pre-specified minimum rate of rent and the then prevailing market rates.
      As consideration for funding that we received from TPC, commencing in our fiscal year ended March 2003, towards the development of our Spheral Solar technology, we are required to pay royalties of 1.8% on certain future Spheral Solar revenues. These royalties commence in the first year that certain future Spheral Solar annual revenues exceed C$20.0 million and continue for 10 years thereafter. If the cumulative royalties exceed C$84.5 million during this 10 year period, the royalty rate declines to 0.35% for the remaining term. If at the end of 10 years the cumulative royalties have not reached C$84.5 million, the royalty payment term is extended for the lesser of a further five years or once cumulative royalties of C$84.5 million have been reached. To date, no royalties have been accrued or paid under this obligation. For more information, see note 14 to our combined financial statements.
Quantitative and Qualitative Disclosure About Market Risk
Foreign exchange risk
      A substantial portion of our Photowatt International revenue is denominated in euros, with the remainder largely in U.S. dollars. While a substantial portion of our operating costs of Photowatt International is in euros, the majority of our silicon and wafer purchases have been in U.S. dollars. Our current Spheral Solar expenditures are largely in Canadian dollars with some capital purchases and consulting costs being in U.S. dollars. Our U.S. operations largely operate with U.S. dollar revenue and U.S. dollar costs. Fluctuations in currency exchange rates could have a significant impact on our financial stability due to a mismatch among various foreign currency denominated sales and operating costs. Fluctuations in exchange rates, particularly the euro, U.S. dollar and Canadian dollar affect our gross and operating profit margins and could result in foreign exchange losses and in operating losses.
Derivative financial instruments
      We employ derivative financial instruments, primarily forward foreign exchange rate contracts, to manage exposure to fluctuations in foreign currency exchange rates. We do not hold derivative financial instruments for trading purposes. We have in place policies and procedures with respect to the required approvals for the use of derivative financial instruments and specifically tie their use to the mitigation of foreign currency risk. When applicable, we identify relationships between our risk management objective and the strategy for undertaking a hedge transaction or derivative financial instrument.

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      Although management considers its derivative portfolio to be an effective risk management tool, we do not apply hedge accounting. Such derivative instruments are marked to market and are recorded in the combined balance sheets as either an asset or liability, with changes in fair value recognized in the combined statements of earnings (loss) in selling and administrative expenses. At March 31, 2006, no derivative financial instruments were outstanding.
      Cash flows arising in respect of hedging transactions are recognized in cash flows from operating activities.
Interest rate risk
      Our exposure to interest rate risk relates to interest expense incurred by our short-term bank borrowings and inter-company borrowings with ATS as well as interest income generated by cash or short term investments. Such interest earning instruments carry a degree of interest rate risk. We have not used any derivative financial instruments to manage our interest risk exposure. We have not been historically exposed to material risks due to changes in interest rates on any third-party debt; however, future interest expense may increase due to changes in market interest rates or changes in debt, cash or cash equivalent balances.
Related Party Transactions
      ATS has provided strategic, operational and administrative services to us. These services have been reflected in the combined financial statements at their exchange amount. Furthermore, we purchased property, plant and equipment, development expenditures, raw materials and other services from ATS or its affiliates, and these purchases have been reflected at their exchange amount.
      In fiscal 2005 and 2006, we made sales of $61 thousand and $150 thousand, respectively, to a business controlled by a senior executive, which have been reflected at their exchange amount.
      As at March 31, 2006, included in accounts payable and accrued liabilities are amounts due to other subsidiaries of ATS in the amount of $0.2 million, compared to $1.3 million as at March 31, 2005. These amounts are payable on demand and do not bear interest.
      Included in the net investment of $74.7 million are inter-company balances owed to ATS as a result of various transactions between us and ATS. There are no terms of settlement or interest charges associated with the account balance, other than that disclosed in the following table. Other transactions in the table below include intercompany purchases and sales and miscellaneous other administrative expenses incurred by ATS on behalf of us. For more information, see note 17 to our combined financial statements.
                         
    Fiscal Year Ended March 31,
     
Transactions   2004   2005   2006
             
    (U.S. dollars in thousands)
Purchase of property, plant and equipment — ATS
  $ 19,128     $ 18,691     $ 5,725  
Purchase of raw materials and other services — ATS
    240       330       343  
Development expenditures — ATS
    1,482       213       292  
Corporate services — ATS
    415       589       717  
Interest expense — ATS
                1,686  
Sale of product — other related party
          61       150  
Recently Issued Accounting Standards, Not Yet Adopted
Canadian GAAP standards
      The CICA has published three new accounting standards: “Financial Instruments — Recognition and Measurement,” “Hedges” and “Comprehensive Income.” These accounting standards introduce new requirements for the recognition and measurement of financial instruments that are designed to harmonize Canadian accounting standards with U.S. standards. These accounting standards are to be applied no later

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than the fiscal years beginning on or after October 1, 2006. Management is currently evaluating the potential implications of these new standards on our combined financial statements.
U.S. GAAP standards
      In December 2004, the FASB issued amended Statement of Financial Standards No. 123, “Accounting for Stock-Based Compensation,” (“SFAS 123R”). SFAS 123R requires all companies to use the fair value based method of accounting for stock-based compensation and is in effect for all interim reporting periods beginning in fiscal 2007. Stock compensation expense would be recognized on a prospective basis in the combined financial statements over the estimated service life. We are currently evaluating the impact of adoption on the combined financial statements.
      In June 2006, the FASB issued interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement 109. The interpretation is effective for fiscal years beginning after December 15, 2006, with earlier adoption encouraged. We are currently evaluating the impact of adoption on our combined financial statements.
      In November 2004, the FASB issued Statement of Financial Standards No. 151, “Inventory Costs, and amendment of ARB No. 43, Chapter 4,” (“SFAS 151”). SFAS 151 clarifies that abnormal amounts of idle facility expense, freight and handling costs, and wasted materials should be recognized as current period charges. This standard is effective for fiscal years beginning after June 15, 2005. We do not anticipate that there will be a significant impact on the combined financial statements on adoption of the standard.

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BUSINESS
Our Company
      We design, manufacture and sell photovoltaic products, commonly referred to as solar cells and modules. Solar cells and modules provide clean, renewable energy by converting sunlight into electricity through a process known as the photovoltaic effect. We operate through two segments, Photowatt International and Spheral Solar.
      Photowatt International designs, manufactures and sells solar modules and installation kits, and provides solar power system design and other value-added services, principally in Western Europe. Photowatt International also manufactures wafers and solar cells, primarily for use in manufacturing its modules and for sale to third parties on an opportunistic basis. Most of Photowatt International’s products are manufactured in our Photowatt France facility outside of Lyon, France. Photowatt USA, our facility in Albuquerque, New Mexico, performs certain module assembly operations for Photowatt International. Solar modules manufactured by Photowatt International are used by businesses, institutions and homeowners to generate electric power. Photowatt International sells its products under the Photowatt and Matrix brands to a network of independent solar power systems distributors and installers. Photowatt International’s revenue for the fiscal year ended March 31, 2006 was $121.9 million.
      Spheral Solar is developing a technology for a light weight, flexible crystalline solar module designed to compete with both conventional crystalline and thin film technologies. Our Spheral Solar technology incorporates thousands of tiny silicon spheres, bonded between thin, flexible aluminum foil substrates to form solar cells. We believe that our Spheral Solar technology, if we are able to successfully develop it, would have advantages over conventional crystalline solar cells, including better aesthetics, greater durability, less use of silicon, lighter weight, multiple available colors, more applications and physical flexibility. Spheral Solar is committing significant resources to development and process engineering in an effort to commercially manufacture products using our Spheral Solar technology. Our target efficiency for our Spheral Solar technology at commercialization is approximately 11%. However, the technological challenges in achieving commercial production and this target efficiency are substantial, and there can be no assurance as to when we will be able to commercialize our Spheral Solar technology or achieve this target efficiency, if at all. Spheral Solar had no revenue for the fiscal year ended March 31, 2006.
Photowatt International
      Overview. Photowatt International designs, manufactures and sells solar modules and installation kits, and provides solar power system design and other value-added services, principally in Western Europe. Photowatt International also manufactures wafers and solar cells, primarily for use in manufacturing its modules and for sale to third parties on an opportunistic basis. Most of Photowatt International’s products are manufactured in our facility outside of Lyon, France. Our facility in Albuquerque, New Mexico performs certain module assembly operations for Photowatt International.
      The first step in Photowatt International’s manufacturing process is the growth of ingots from silicon using specialized furnaces. The ingots are then cut into bricks, and the bricks are sawed into wafers using an abrasive solution and specialized wire saws. Next, the wafers are processed into solar cells, which are connected in series to form a solar module. As of March 31, 2006, Photowatt International had annual ingot, wafer, cell and module production capacity of approximately 31 MW, 32 MW, 40 MW and 54 MW, respectively. As a result, Photowatt International purchases some ingots, wafers and cells from third parties, when available, in order to utilize its additional wafer, cell and module production capacity. In May 2006, Photowatt International announced the first phase of our capacity expansion plan, which includes the expansion of our ingot, wafer, cell and module manufacturing capacity at our facility near Lyon, France to 60 MW of integrated manufacturing capacity by March 2007, at an expected cost of 25 million, of which at July 31, 2006, we had spent 5.1 million.
      Solar modules manufactured by Photowatt International are used by businesses, institutions and homeowners to generate electric power. Photowatt International sells its products predominantly in

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Western Europe under the Photowatt brand to a network of independent solar power systems distributors and installers. Photowatt International’s revenue for the fiscal year ended March 31, 2006 was $121.9 million and was generated 49%, 17%, 6% 14% and 14% in Germany, Spain, Italy, the United States and the rest of the world, respectively.
      Competitive strengths. We believe that Photowatt International has the following competitive strengths:
  •  Integrated manufacturing capabilities. We participate in each of the ingot, wafer, cell and module stages of the solar module production process. We believe that being an integrated manufacturer gives us several advantages relative to many of our competitors, including:
  —  the ability to capture a greater portion of the profits available by participating across a significant portion of the solar value chain;
 
  —  reduced dependence on third-party suppliers for ingots, wafers and cells;
 
  —  enhanced research and development capabilities to increase cell efficiency levels;
 
  —  the ability to process a wide variety of silicon feedstock; and
 
  —  improved process development capabilities by allowing us to continually evaluate the impact of changes throughout the production process.
  •  Proprietary silicon processing technologies. Polysilicon, a specially processed form of silicon, is the primary raw material used to make crystalline solar cells and currently there is not enough available to meet industry demand. The supply shortage has led to sharply higher prices for polysilicon and has adversely impacted many solar cell manufacturers’ sales growth and profitability. While all forms of silicon are in short supply, we have developed processes to make solar cells from lower grades of silicon that we believe we can acquire more easily and at lower cost per kilogram than polysilicon, including:
  —  Processing of refined metallurgical silicon. We are currently producing solar cells using refined metallurgical silicon and expect that by the fourth quarter of fiscal 2007, in excess of 25% of the solar cells we make will be produced using refined metallurgical silicon. While all forms of silicon are in short supply, we believe we can acquire refined metallurgical silicon more easily and at a lower cost per kilogram than polysilicon. Currently, solar cells that we make using refined metallurgical silicon have lower efficiencies than solar cells we make using polysilicon. However, we believe the capability to make solar cells from refined metallurgical silicon will allow us to meet customer demand and mitigate the effects on our business of the current polysilicon shortage. We believe that approximately 90% of our total silicon requirement during fiscal 2008 could be met with refined metallurgical silicon. We are also currently evaluating a further refined type of metallurgical silicon that we believe has the potential to yield solar cells that have efficiencies consistent with what we currently obtain using polysilicon. We refer to this material as enhanced metallurgical silicon.
 
  —  Processing of polysilicon powder and fines. Polysilicon powder and fines are by-products of the polysilicon production process that many manufacturers have limited use for due to their high levels of impurities. Spheral Solar has developed a proprietary process called OFP technology to convert polysilicon powder and fines into polysilicon clusters that can be used, together with conventional polysilicon, by Photowatt International to make solar cells. We purchase dry polysilicon powder and fines from polysilicon manufacturers at significantly lower prices than we purchase polysilicon on the spot market. Purchasing and converting polysilicon powder and fines is significantly less costly for us than purchasing polysilicon in the current market environment, and using polysilicon powder and fines in combination with conventional polysilicon does not decrease the efficiency of our cells. We are about to begin selling solar cells that include polysilicon clusters made using this OFP technology. We believe that polysilicon clusters produced by us from powder and fines could be used to satisfy approximately 20% of our fiscal 2007 ingot production capacity.

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  •  Advanced wafer sawing capabilities. Wafers used in solar cells are cut from polysilicon bricks using specialized wire saws. In general, thinner wafers result in lower production costs because more wafers can be produced from each brick. However, very thin wafers are difficult to process because they are more brittle, and substantial technical expertise is required to develop processes that ensure acceptable yields. Wire thickness is also important because it determines how much silicon is lost during the cutting process. Photowatt International was a pioneer of the wafer sawing process used by many wafer manufacturers today and was one of the first companies to develop saws using wire less than 200 microns thick. Today, Photowatt International produces wafers with thicknesses ranging from 180 to 220 microns using a wire 160 microns thick. Photowatt International used approximately 10 grams of polysilicon per watt of power in our solar cells in 2005, which compares to an average of approximately 12 grams for the industry in 2005 as reported by Solarbuzz. Our current usage is approximately 9 grams per watt, which we believe remains below the current industry average.
 
  •  Established market positions and relationships with key distributors and installers. We have successfully sold solar products in Europe for over 20 years. We enjoy established market positions in several Western European countries that have well developed and growing solar markets, including Germany, which is currently the world’s largest market for solar power. We are also developing a presence in emerging growth markets for solar power in Europe, including Spain, Italy and Greece, as well as in the United States and Canada. We believe we have well-established relationships with key distributors and installers and that we are differentiated from our competitors by our timely delivery as a result of our vertical integration capabilities, our technical expertise and our reputation for quality solar modules with competitive price and efficiency levels.
Spheral Solar
      Overview. Spheral Solar is developing a technology for a light weight, flexible crystalline solar module designed to compete with both conventional crystalline and thin film technologies. Our Spheral Solar technology incorporates thousands of tiny silicon spheres, bonded between thin, flexible aluminum foil substrates to form solar cells. We believe that our Spheral Solar technology, if successfully developed, would have advantages over conventional crystalline solar cells, including better aesthetics, greater durability, less use of silicon, lighter weight, multiple available colors, more applications and physical flexibility, a property historically available only in certain thin film solar cells.
      We believe that our Spheral Solar technology has potential applications in residential and commercial roofing, integrated building products and consumer/recreational products where aesthetics, physical flexibility and low weight are critical product characteristics. We believe that our Spheral Solar technology is particularly well suited for residential roofing applications where product appearance is a primary driver of purchasing decisions. Spheral Solar has a product development relationship with Elk Corporation, one of the largest North American manufacturers of roofing shingles, to develop residential solar roofing products based on our Spheral Solar technology.
      Spheral Solar continues to work to develop our Spheral Solar technology with a goal of resolving manufacturing process issues required to achieve the yield efficiencies and throughput necessary for the commercialization of our Spheral Solar technology. We still need to commit significant resources to development and process engineering in an effort to commercially manufacture products using our Spheral Solar technology. Our target efficiency for our Spheral Solar technology at commercialization is approximately 11%. However, the technological challenges in achieving commercial production and this target efficiency are substantial, and there can be no assurance as to when we will be able to commercialize our Spheral Solar technology or achieve this target efficiency, if at all. Spheral Solar’s development facility is located in Cambridge, Ontario, Canada.

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      Competitive strengths. If we are able to successfully develop and commercialize our Spheral Solar technology, we believe that it would have the following competitive strengths relative to conventional crystalline solar products:
  •  Physical flexibility and more applications. Spheral Solar technology would allow for flexible solar cells and modules that can be integrated into curved surfaces where conventional crystalline solar cells cannot be used.
 
  •  Greater durability. We believe modules using Spheral Solar technology would be more durable than conventional, glass-based solar modules. For example, they could be rolled for shipping with less risk of damaging the product.
 
  •  Better aesthetics. Unlike conventional crystalline solar cells, we believe that Spheral Solar modules would not require a metal frame and could be integrated directly with roofing materials to create a seamless appearance. Through our product development relationship with Elk Corporation, we are developing a solar shingle that has the general appearance of traditional asphalt roofing shingles. Spheral Solar technology cells could also be made in a wide range of dark colors to suit particular customer preferences without materially impacting their efficiency.
 
  •  Less use of silicon. We believe that our Spheral Solar technology cells would require less polysilicon per watt of power than conventional crystalline solar cells. In addition, we expect that our Spheral Solar technology could use various forms of silicon, including granules, fines and powder, as well as silicon with higher impurity levels than can be used in conventional crystalline solar cells.
Our Business Strategy
      Our objective is to be a market leader in the development and manufacturing of solar products. We intend to achieve this objective through the following strategies:
  •  Expand integrated annual manufacturing capacity of Photowatt International and Spheral Solar to approximately 390 MW by the end of calendar 2010. Demand for our products is currently greater than our capacity to produce them. We intend to capitalize on the demand for our products by increasing Photowatt International’s annual integrated manufacturing capacity to approximately 250 MW by the end of calendar 2010. If we are able to successfully complete the development and process engineering required to commercialize our Spheral Solar technology, we intend to increase our Spheral Solar technology manufacturing capacity to approximately 140 MW by the end of calendar 2010.
  We intend to implement our Photowatt International capacity expansion strategy in three phases:
  —  In May 2006, we announced the first phase of our capacity expansion plan, which includes the expansion of Photowatt International’s annual ingot, wafer, cell and module manufacturing capacity from approximately 31 MW, 32 MW, 40 MW and 54 MW, respectively, to approximately 60 MW of integrated manufacturing capacity by March 2007.
 
  —  The second phase of our capacity expansion plan provides for construction of a second facility near Lyon, France on land immediately adjacent to our existing facility and the construction of a module assembly facility in Eastern Europe or another low-cost region that will increase our annual integrated manufacturing capacity to 100 MW. We plan to begin this phase of our expansion in calendar 2006 and complete it in calendar 2008. In addition, we also intend to increase our annual integrated manufacturing capacity in calendar 2008 by 50 MW. In connection with this, we are considering a joint venture with a mandate to develop a new manufacturing facility for the production of high efficiency solar cells and constructing module assembly facilities in low-cost regions.

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  —  The third phase of our expansion plan provides for an additional 100 MW of annual integrated manufacturing capacity in calendar 2009 and 2010 either through the expansion of existing facilities or construction of new facilities.
  If we are successful in completing the development and process engineering required to commercialize our Spheral Solar technology, we plan to expand Spheral Solar’s existing production line to an annual capacity of 20 MW and build a second line to add another 20 MW of annual production capacity. We would also build a 100 MW Spheral Solar technology facility by the end of 2010, which would bring our annual capacity for Spheral Solar technology products to 140 MW.
 
  We plan to use proceeds from this offering to finance the first and second phases of our Photowatt International capacity expansion plan and the development and process engineering for our Spheral Solar technology. We will need to raise additional capital to fund the third phase of our Photowatt International capacity expansion plan and the expansion of our Spheral Solar technology manufacturing capacity, assuming we successfully complete our development and process engineering.
  •  Establish reliable, long-term silicon supply. The increase in demand for solar modules has led to an industry-wide silicon shortage. Continued growth in our business requires access to polysilicon or polysilicon alternatives such as refined metallurgical silicon. Our strategy is to establish a long-term supply of polysilicon and polysilicon alternatives from a variety of sources to support our continued growth. We plan to:
  —  enter into long term supply agreements for refined metallurgical silicon and polysilicon;
 
  —  secure a supply of polysilicon powder and fines through agreements with companies that produce these by-products, and use our OFP technology to process the powder and fines into polysilicon feedstock for use in our Photowatt International operations; we also intend to explore the possibility of licensing this technology to third-parties in exchange for long-term polysilicon supply agreements; and
 
  —  purchase silicon, including polysilicon ingots and wafers, on the spot market, to the extent available and subject to appropriate pricing.
  We believe that this approach will enable us to establish a long-term silicon supply sufficient to support the planned expansion of our manufacturing capacity.
  •  Continue to invest in research and development to improve cell efficiency. We expect to continue to devote substantial resources to our research and development efforts aimed at increasing the efficiency of our solar cells. We believe that higher efficiencies will enable us to produce cells that use less silicon per watt and reduce the cost of the products we manufacture and sell. In addition to our own research and development activities, we may engage in collaborative research and development activities focusing on increasing cell efficiency with leading industry participants and other research organizations. We expect to finance our research and development expenditures with internally generated cash flows, funding from government organizations and a portion of the proceeds from this offering.
 
  •  Commercialize our Spheral Solar technology and leverage synergies between our Photowatt International and Spheral Solar segments. We are working on development and process engineering in an effort to commercialize our Spheral Solar technology. We expect to use the technical expertise of internal resources as well as external consultants to assist us in commercializing Spheral Solar technology. For example, we have engaged SRI International, formerly known as Stanford Research Institute, a leading independent contract research institute, to evaluate certain process problems we are experiencing in our Spheral Solar business. However, there is uncertainty as to whether we can resolve these problems and we cannot determine when we will be able to commercialize our Spheral Solar technology or if we will be able to do so at all. We believe that if our Spheral Solar technology can be made commercially viable, there are significant market opportunities for Spheral Solar products, including commercial roofing membranes and residential applications, such as solar shingles, as well

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  as consumer/recreational applications, such as boating or recreational vehicles, or backpacking, where aesthetics, physical flexibility and low weight are critical product characteristics. Additionally, we believe that Photowatt International will benefit from developments in our Spheral Solar technology, and we intend to leverage operational synergies between our two segments with respect to marketing, sales, and the processing and sourcing of silicon feedstock.

Photowatt International Products and Services
      Our principal solar products are our cells, modules and solar installation kits. We also offer solar design and other value-added services. In fiscal 2006, our cells, modules and other value added services represented 8%, 90%, and 2% of our revenue, respectively. In fiscal 2006, we began to sell additional components of solar power systems in the form of solar installation kits and to provide solar design and project management services and contracting for installation services. We expect that these products and services will account for an increasing proportion of our revenue in the future.
Solar cells
      Our Photowatt International segment manufactures high-output mono- and multi-crystalline solar cells. Mono-crystalline cells are more expensive than multi-crystalline cells but deliver approximately 10% more power over the same surface area. Mono-crystalline solar cells represented 21% of the solar cells we produced in 2006, and we expect to produce a de minimis amount of mono-crystalline solar cells in the future, depending on the availability of mono-crystalline ingots and wafers. The quality and reliability of our cells are validated at each stage of production. The cells are primarily used in our own modules, although from time to time we have sold cells when opportunities have presented themselves, and we may do so in the future. We manufacture solar cells in three configurations: 4 inch (101.25 mm by 101.25 mm), 5 inch (125.50 mm by 125.50 mm) and 6 inch (150 mm by 150 mm).
Solar modules
      A solar module is an assembly of solar cells that have been electrically interconnected and laminated in a durable and weather-proof package. Our Photowatt International segment manufactures a wide range of modules, from 12 W to 230 W outputs, using primarily multi-crystalline cells.
Solar installation kits
      Our solar installation kits are turnkey systems that include modules, frames, inverters and other components required for easy installation. We acquire the components other than modules from third-party suppliers. These systems are specifically designed to operate on pitched and flat roofs and have gained rapid acceptance due to their quality and efficiency. Our solar installation kits are available in three package sizes: 1600 Wp, 3200 Wp and 4800 Wp.
Solar power system design and other value-added services
      A solar power system consists of one or more solar modules that are physically mounted and electrically connected, with system components such as batteries and power electronics, to produce and reserve electricity. Solar design services is one of our relatively new offerings. There are three main applications for our solar design services: industrial stand-alone systems, community and individual stand-alone systems and grid connecting systems. Grid connecting systems enable consumers to connect and sell electricity to the electrical grid.
      We also offer project management services and contracting for solar power system installation, particularly in markets where our customers do not install our products themselves.

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Photowatt International Manufacturing Process
      The raw materials required in our manufacturing process include polysilicon and other silicon feedstock, tempered glass, plastic films, anti-reflective and aluminum coatings, metal frames, connecting systems and aluminum foil. All of our silicon feedstock is currently purchased through spot market purchases. The other raw materials are obtained from major materials manufacturers in the industry.
      Our production process is composed of four stages: ingot production, wafer sawing, solar cell production and solar module assembly.
Ingot production
      Our manufacturing process begins by melting silicon in a crucible at 1500 degrees Celsius and casting it into a multi-crystalline ingot. Our approach for this casting process was developed more than 10 years ago and was adapted for large block HEM (heat exchanger method) furnaces approximately eight years ago. The growth of large columnar grains in the crucible is critical for device performance, and we produce quality crystals as a result of our many years of experience.
      As the industry continues to grow, supplies of solar and semiconductor grade polysilicon have become limited. New silicon products formed by refining molten metallurgical silicon into solar quality feedstock have recently shown success in our casting process, allowing for more flexibility in feedstock selection. We have worked with samples from most of the groups developing these refining approaches and have successfully modified our crystal growth and cell processes to attempt to minimize the impact on cell performance and silicon utilization. We believe the flexibility of our wafer manufacturing process allows us to optimize the mix of feedstock based on price and performance.
Wafer sawing
      In the next stage of the production process, the ingot is cut into bricks and the slab pieces are returned to feedstock. The bricks are sliced into wafers using a specialized wire saw from which we produce wafers in various sizes of up to six inches and as thin as 180 to 220 microns. We intend to continue to reduce wafer thickness and wire diameter for improved silicon utilization.
Solar cell production
      During the production process, the wafers enter our solar cell production line. A solar cell is a device made from a silicon wafer that converts sunlight into electricity by a process known as the photovoltaic effect. Impurities are selectively incorporated into the solar cell to create regions that are negatively or positively electrically charged, forming a p-n junction. Sunlight enters the optically textured, anti-reflective coated surface of the solar cell (for minimum back reflection) and releases electrons at the charged region. The aluminum back surface field reflects back any light which makes it past the charged region, allowing for a second opportunity to generate electrons. The front of the solar cell where sunlight enters attracts these electrons and funnels them to a metal grid that collects the current and conducts it to external wires. The circuit is completed by a contact on the back of the solar cell.
      Our solar cells are electrically tested and sorted by numerous parameters for proper matching in modules, ensuring maximum module performance and reliability. Our average solar cell efficiency of approximately 15% is competitive in the industry, and we expect our ongoing research and development effort to allow continued improvements in solar cell efficiency. When refined metallurgical silicon is used, it results in lower solar cell efficiencies requiring larger solar modules to achieve the same performance as solar modules that use solar cells made with polysilicon, but this can be offset by the fact that we believe we can acquire refined metallurgical silicon more easily and at lower cost per kilogram than polysilicon.

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Solar module assembly
      In the fourth and final process stage, the solar cells are interconnected to form solar modules. The collective voltage of these solar modules is higher than that of the individual component cells. Our trend towards producing larger wafers has allowed us to improve our product line with the addition of several large area modules in the 150 W to 230 W size range. This allows us to minimize materials and labor content in module production and system installation. We believe our high throughput automated stringing lines increase reliability of connections and improve yields. All of the solar module materials, including the plastic film back-skin and EVA (ethylene vinyl acetate) encapsulant, are obtained from major materials manufacturers in the industry. With many years of testing and field use, these materials ensure greatest environmental stability of the glass laminates throughout their life.
Key Partnerships
Collaborative research & development (CEA-LETI)
      The Laboratory of Microelectronics and Technology for Information, or LETI, of the French Atomic Energy Commission, or CEA, is one of the largest applied research laboratories in electronics in Europe. Its mission is to help companies strengthen their competitive position through technological innovation and transfer of its technical knowledge to industry. CEA establishes and coordinates joint research laboratories in partnership with industry participants. We and a large French company are negotiating a partnership with CEA for the establishment of a laboratory and production development facility that will collaborate closely with CEA, pursuing research into solar technologies and focusing on the development of high efficiency solar cells.
Elk Corporation
      We continue to work to develop and commercialize our Spheral Solar technology, and our initial focus upon commercialization will be building integrated solar cells and solar modules for roofs, facades and building structures. In fiscal 2004, we began a product development relationship and commenced development work with Elk Corporation, one of the largest North American manufacturers of roofing shingles. Our Spheral Solar technology is not yet commercialized and we expect the product development cycle for building integrated photovoltaic, or BIPV, products to be longer than for other solar cells and solar modules because of regulatory approval requirements, but we believe that if BIPV products are commercialized and gain market acceptance, these products will allow us to penetrate new markets and provide us with important competitive advantages.
Our Silicon Supply
      Polysilicon is the primary raw material used in the production of our solar cells and modules. Silicon is currently in short supply and its price has increased significantly over the past 18 months. Without an adequate supply of polysilicon or an alternative, such as refined metallurgical silicon, which we have developed the capacity to process, we are not able to manufacture our products. As of June 30, 2006, we had approximately 287 metric tonnes of polysilicon, including polysilicon fines and powder, and 23 metric tonnes of refined metallurgical silicon in inventory. At August 29, 2006, we had commitments from suppliers to deliver an additional 40 metric tonnes of polysilicon and 130 metric tonnes of refined metallurgical silicon during the remainder of fiscal 2007. At August 29, 2006, we also had commitments from suppliers to deliver 48 metric tonnes of polysilicon and 120 metric tonnes of refined metallurgical silicon during fiscal 2008. We believe that our existing inventory and supplier commitments are sufficient to satisfy our planned capacity until the end of fiscal 2007. We intend to meet our silicon requirements in fiscal 2008 through a combination of existing commitments, purchases of polysilicon on an opportunistic basis, purchases of refined metallurgical silicon and purchases of polysilicon fines and powders that we can upgrade into polysilicon clusters that can be used in combination with conventional polysilicon to make solar cells. During fiscal 2008, we believe that approximately 90% of our total silicon requirement could be met with refined metallurgical silicon.

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Customers, Sales and Marketing
Customers
      We primarily sell our solar cells and solar modules to solar product distributors and installers. In fiscal 2006, our 10 and three largest customers represented approximately 79% and 46% of our revenue, respectively. In fiscal 2006, sales in Germany represented approximately 49% of our total revenue. We intend to increase sales in Spain, Italy the United States and Canada to geographically diversify our sales and reduce our customer concentration levels.
Sales and marketing
      End-users buy our solar products primarily from our established network of distributors and installers in Europe. We currently work with a relatively small number of distributors and installers in Germany, Italy and Spain that have particular experience in their geographic market. We are actively working to expand our distribution channels by selectively adding distributors, and we market to distributors and installers by advertising in industry publications and participating in trade conventions and conferences. We believe that our relationships with our distributors enable us to:
  •  benefit from the marketing and distribution and after-sales service capabilities of other companies;
 
  •  explore opportunities for additional product development;
 
  •  enter new geographic markets more easily, quickly and cost-effectively; and
 
  •  attract additional end-users of our products.
      As well, by selling primarily to distributors and installers and not competing with them for sales to end-users in their markets, we believe we create loyalty from these distributor and installer customers. We sell to our distributor and installer customers through our team of four salespeople in Europe and intend to use the same network to sell Spheral Solar’s products to our existing and new distributor and installer customers if we are able to commercialize these products.
      We differentiate ourselves from our competitors on the basis of our timely delivery as a result of our vertical integration capabilities, our technical expertise and our reputation for quality solar modules with competitive price and efficiency levels.
      In the United States, large distributors have not been established, so we market primarily to small installers and end-users. We sell to these installers through two salespeople at our operations in the United States.
Research and Development
      We engage in research and development to develop new products and improve our manufacturing processes, with a focus on further increasing the electrical conversion efficiency of our solar cells and on the continuous reduction of production costs. We employ 20 personnel engaged in research and development activities at our operations in France. Photowatt International has several projects underway that are dedicated to improving the cell efficiency and in process improvements that are geared at cost reduction.
      We continue to invest in our Spheral Solar technology and are working to develop it for commercial use. Our Spheral Solar technology was initially developed by Texas Instruments, and we acquired it from a successor owner in 1997. Since acquiring the technology, we have been further developing it and have established a Spheral Solar technology development facility in Cambridge, Ontario, Canada. The principal advantages of our Spheral Solar technology, if developed and commercialized, compared with conventional crystalline solar cells, are expected to include more applications due to lower weight as well as physical flexibility, a property historically available only in thin film solar cells. As well, we expect that our Spheral Solar technology will have greater durability, better aesthetics and less use of silicon compared with conventional crystalline solar cells. We also believe that Photowatt International will benefit from developments in our Spheral Solar technology. For example, we intend to leverage operational synergies in

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the areas of marketing, sales, and the processing and sourcing of silicon feedstock between our established Photowatt International business and our Spheral Solar business.
      Our research and development expenses were approximately $1.2 million, $0.7 million and $9.3 million in fiscal 2004, 2005 and 2006, respectively, with approximately nil, nil and $8.6 million, respectively, attributable to our Spheral Solar technology. Until October 1, 2005, our operating costs relating to developing our Spheral Solar technology were capitalized as deferred development costs. On March 31, 2006, we determined that the carrying value of the Spheral Solar technology development costs was in excess of the estimated undiscounted future cash flows from that technology, and the associated asset was written down. For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Results of operations for fiscal year 2006 compared with fiscal year 2005 — Earnings (loss) from operations.”
Spheral Solar technology overview
      Spheral Solar is developing a technology for a light weight, flexible crystalline solar module designed to compete with both conventional crystalline and thin film technologies. Because our Spheral Solar technology is still in the development stage, we cannot assure you that we will be able to commercialize this technology or that if we do, it will gain market acceptance. Our Spheral Solar technology incorporates thousands of tiny silicon spheres, bonded between thin, flexible aluminum foil substrates to form solar cells. The manufacturing process can be broken into four main areas: sphere fabrication, sphere junction formation and finishing, cell fabrication and module assembly.
Sphere fabrication
      Our sphere fabrication process sequence accomplishes two purposes simultaneously. First, it refines the silicon, if necessary, and second, it forms spherical shapes of the proper diameter. We believe we are able to use silicon in various forms, including granules, fines and powder, and silicon with higher impurity levels than can be tolerated by conventional solar cell and solar module production methods.
Sphere junction formation and finishing
      After attaining the required purity, shape and size, the spheres go through a sequence of standard semiconductor processes designed to achieve a high-quality p-n junction.
Cell fabrication
      Our cell fabrication process is a combination of mechanical and chemical processes. We bond the spheres to two pieces of aluminum foil. The front foil defines the size and shape of the cell and is the electrical (negative) contact to the negative layer. The back foil functions solely as the electrical (positive) contact to the positive core of the spheres.
Module assembly
      Our module assembly process is unique for crystalline silicon devices in that it requires no additional materials to interconnect the cell. Only silicon and aluminum are present in the laminate. The cell’s front and back foils provide for interconnections by being ultrasonically welded together. Aluminum straps carry current out of the laminate. This technique eliminates the need for interconnecting straps and solder, both of which add assembly complexity and potential reliability problems.
Prototype Spheral Solar products
      We are currently developing prototype Spheral Solar products, focusing first on building-integrated photovoltaic, or BIPV, products. The principal advantages of our prototype products are that they are significantly lighter than conventional solar modules and are flexible, durable and aesthetically appealing.

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Potential applications for Spheral Solar technology, if commercialized, include commercial roofing membranes and residential applications, such as solar shingles, as well as consumer/recreational applications, such as boating or recreational vehicles, or backpacking, where aesthetics, physical flexibility and low weight are critical product characteristics.
      In fiscal 2004, we began a product development relationship and commenced development work with Elk Corporation, one of the largest North American manufacturers of roofing shingles, on a BIPV product. We are also developing SuperFlextm, a lightweight, durable and flexible portable power module, large, glass-free modules and custom cells and laminates for integration into original equipment manufacturer applications.
License and Royalty Agreements
      Upon the acquisition of our Spheral Solar technology in 1997, we assumed the original license obligation from the vendor on the use of Spheral Solar technology. The license fee is 2% of certain Spheral Solar net revenues, calculated annually. This obligation extends for a 17 year period, expiring on September 28, 2017, and to date, no license fees have been paid under this obligation.
      As consideration for receiving C$29.5 million of funding for the development of the Spheral Solar technology from Technology Partnerships Canada, an agency of the Canadian government, we agreed to pay royalties of 1.8% on certain Spheral Solar revenues. The royalties commence in the first year that these revenues exceed C$20.0 million and continue for 10 years thereafter. If the cumulative royalties exceed C$84.5 million during the 10 year period, the royalty rate declines to 0.35% for the remaining term. If at the end of the 10 years the cumulative royalties have not reached C$84.5 million, the royalty payment term is extended for the lesser of a further five years or once the cumulative royalties of C$84.5 million have been reached. To date, no royalties have been accrued or paid under this obligation.
Industry Overview
      Global electricity usage is expected to increase from 14.8 trillion kWh in 2003 to 27.1 trillion kWh by 2025, according to the U.S. Department of Energy’s Internal Energy Outlook 2005. Approximately 65.7% of the world’s electricity is currently produced with fossil fuels. As demand for electricity continues to increase, the electric power industry is facing several challenges:
  •  Fossil fuel supply constraints. Limited supply and escalating consumption of coal, oil, and natural gas continue to drive up wholesale electricity prices, resulting in higher electricity costs for consumers.
 
  •  Infrastructure constraints. In many parts of the world, electricity demand exceeds the capacity of existing electricity generation, transmission and distribution infrastructure.
 
  •  Desire for energy security. As political and economic instability in key oil and natural gas producing regions has increased, governments are increasingly focused on developing reliable and secure energy sources.
 
  •  Environmental concerns. Long-term use of fossil fuels is associated with a range of environmental issues including global warming, air pollution and water pollution, the increased prevalence of which is driving increased environmental awareness.
      Industry and governments are considering alternatives to traditional fossil fuels to address these challenges, including renewable energy sources and technologies.
Renewable energy industry
      The renewable energy industry includes solar, hydroelectric and wind power generation, and to a lesser extent biomass and geothermal power generation. As opposed to fossil fuels, which draw on finite resources, renewable energy is generally unlimited in its availability. Hydroelectric power generation, the use of flowing water to generate electricity, is currently the largest source of renewable energy as measured by electricity generation. However, the potential for additional hydroelectric capacity in the developed world is limited due

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to the lack of development opportunities and environmental concerns over the creation of additional large reservoirs that flood agricultural land and human and animal habitats. Wind power generation, the use of wind turbines to harness and convert kinetic energy into electricity, is one of the fastest growing sources of renewable energy. Today, large-scale wind power is becoming a cost-competitive alternative to wholesale natural gas and coal-fired power in locations with high average wind speeds and sufficient space for large wind plants. However, space constraints, wind speed availability and zoning restrictions in suburban and urban regions limit the potential of wind power systems. Additionally, peak wind availability generally does not coincide with peak seasonal or time of day electricity use.
      Due to the constraints on other sources of renewable energy, solar power has emerged as one of the fastest growing renewable energy sources. Solar power has several benefits when compared to other renewable energy technologies, including:
  •  No fuel price volatility. Unlike fossil and nuclear fuels, solar energy has no fuel price volatility. Although there is variability in the amount and timing of sunlight over the day, season and year, a properly sized and configured system can be designed for high reliability while providing a long term, fixed price electricity supply.
 
  •  High reliability. With no moving parts or regular required maintenance, solar power is one of the most reliable forms of electricity generation.
 
  •  Environmentally benign. Solar cells generate electricity without air or water emissions, noise, vibration, habitat impact or waste generation.
 
  •  Easily located with the end-user. Unlike other renewable resources such as hydroelectric and wind power, solar power can be utilized anywhere there is sunlight and directly where the power will be used. As a result, solar power limits the expense of and energy losses associated with transmission and distribution from large-scale electric plants to the end users.
 
  •  Peak energy generation corresponds with peak energy consumption. Maximum sunlight hours generally correspond with peak electricity demand when prices are highest.
 
  •  Applicable for a wide range of power requirements. Solar power products can be sized to meet the specific needs of the end-user ranging from very small consumer applications to larger commercial applications.
Solar industry trends
      Solar power systems are used for a variety of residential, commercial and industrial applications generally described as either “on-grid” or “off-grid” in nature. The market for “on-grid” applications, where solar power is used to supplement electricity purchased from the utility network, represents the largest and fastest growing segment of the market. According to Solarbuzz, in 2005, the global on-grid segment grew by 42% to 1,262 MW, and since 2001, the on-grid segment has grown at an average annual rate of approximately 55%. We believe the majority of our products are used in on-grid applications.
      “Off-grid” markets, where access to utility networks is not physically feasible or economical, offer additional opportunities for solar technology. Off-grid industrial applications include road signs, highway call boxes, communications support along remote pipelines and telecommunications equipment, as well as rural residential applications. Off-grid consumer applications include portable recreational power modules, garden lights, marine lighting and camping equipment. As reported by Solarbuzz, the off-grid market grew at 2% in 2005, to 198 MW, and has grown at an average of 12% per annum since 2001.
      According to Solarbuzz, between 2001 and 2005, total annual solar power system installations increased globally from 345 MW to 1,460 MW, representing a compound annual growth rate of 43%, and global installations of solar power systems are expected to grow at a compound annual growth rate of 17% from 1,460 MW in 2005 to 3,250 MW by 2010. Solarbuzz forecasts continued strong growth globally, with sales increasing from $9.8 billion in 2005 to an estimated $18.6 billion by 2010, a 14% compound annual growth rate. Despite this rapid growth, solar energy constitutes only a small fraction of the world’s energy output.

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      The development and increased usage of solar power is, and for the foreseeable future will be, affected by the existence of government incentives. A growing number of countries have established attractive incentive programs for the development of solar and other renewable energy sources. In 2005, two of the three largest markets for solar products, as measured by total installations per annum, were Germany and the United States, each having significant government subsidy programs for solar power. Other countries in which we sell our products such as Spain, France and Italy also have significant government subsidy programs for solar power. Certain jurisdictions, such as Germany, have subsidy programs that are designed to decline over time.
      Similar to other renewable energy sources, the solar industry currently is not cost competitive on a standalone basis and requires government incentives to be competitive with fossil based alternatives. A growing number of countries have established attractive incentive programs for the development of solar and other renewable energy sources. These programs include:
  •  Net metering laws and feed-in tariffs allowing on-grid end users to sell electricity back to the grid at retail prices;
 
  •  Direct subsidies to end users to offset costs of solar equipment and installation charges;
 
  •  Tax incentives and low interest loans to finance solar power systems; and
 
  •  Government standards mandating minimum usage levels of renewable energy sources.
      Germany. Since 2004, Germany has been the leading solar power market in terms of annual megawatt additions. Renewable energy laws in Germany require electricity transmission grid operators to connect various renewable energy sources to their electricity transmission grids and to purchase all electricity generated by such sources at guaranteed feed-in tariffs. Additional regulatory support measures include investment cost subsidies, low-interest loans and tax relief to end users of renewable energy. These programs have encouraged the development of Germany’s solar market, which has grown from annual installations of 79 MW in 2001 to 837 MW in 2005. Subsidy programs in Germany are designed to decline over time.
      France. France continues to generate significantly more electricity than it consumes. Today, renewable energy generates only approximately 15% of the country’s total energy supply. However, current plans call for an increase in national renewable energy use to 21% of electricity output by 2010. In April 2006, the government increased feed-in tariffs for solar power by 50%.
      Spain. The incentive program in Spain includes a national net metering program and favorable interest loans. The feed-in tariff for solar energy in Spain is fully guaranteed by the Spanish government for 25 years.
      Italy. Slow economic growth and increasing national debt has hindered development in Italy’s electrical generation infrastructure. The resulting inability to meet increasing demand resulted in rolling blackouts in the summer of 2003. In 2005, the government enacted legislation normalizing a system of regional solar generation subsidies which sets fixed feed-in tariffs to be paid over 20 years. In the program’s second quarter (October to December 2005) it received approximately 7,500 requests for a total output of 190 MW.
      United States. With annual growth rates of 20-30%, the U.S. solar market continues steady expansion. However, renewable energy sources currently contribute less than 9%, or 337 billion kWh, of the nation’s total energy consumption with solar providing only a fraction of that amount. The United States recently enacted a major energy bill that included federal tax credits, purchasing goals and other programs designed to accelerate the adoption of solar power. In addition, a number of states, including California, New Jersey and Nevada, have committed substantial resources to the development and implementation of renewable energy programs. For example, in early 2006, California announced a $2.9 billion, 10 year government incentive program to reach 3,000 MW of solar installations by 2017. The program, will subsidize one-third of the installation costs of all new systems. In California, a customer who has purchased solar energy products can receive a cash rebate from the California Energy Commission, a state tax credit and can take advantage of net metering. The customer’s cash rebate is based on the capital cost of the solar power system, currently set at $2.60 per watt.

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      Canada. In March 2006, Ontario became the first Canadian province to offer subsidies to homeowners or businesses installing solar power systems under a program whereby the Ontario Power Authority will purchase electricity produced by wind, biomass, small hydroelectric or solar at a fixed price. Electricity generated through solar power systems will be purchased at a rate of C$0.42/kWh compared to the current consumer rate of approximately C$0.08/kWh charged by provincial utility providers.
      Japan. Incentive programs in Japan led to the installation of more than 100,000 residential solar power systems between 2003 and 2004. Japan is forecasting the installation of 5 GW of generation capacity by 2010. The Japanese government has implemented a series of incentive programs, including a “PV 2030” roadmap. This roadmap outlines government policies designed to generate between 50 and 200 GW of solar electricity by 2030, as well as the provision of government subsidies for research and development. The program is designed to be self-sustainable for households in 2010 and for businesses and industry in 2020 and 2030, respectively. Japan eliminated its direct subsidies in 2005.
      China. In 2005, China enacted the Renewable Energy Law in order to help reach the government target of 400 MW and 1,000 MW installed by 2010 and 2020 respectively. This law authorizes relevant authorities to set favorable prices for the purchase of surplus on-grid solar-generated electricity and provides other financial incentives for the development of renewable energy projects. In addition, the State Council of China and the Ministry of Construction have recently created directives encouraging the development and use of solar energy in both urban and rural areas. For example, in October 2005, the Shanghai municipal government endorsed the “100,000 Roof Project” which calls for 300 MW of installed capacity by 2015.
Principal challenges facing solar power market growth
      The solar power industry must overcome several challenges to achieve widespread commercialization of its products.
      Secure silicon supply. The strong growth in demand for silicon for use in solar production (from 5,000 metric tonnes in 2001 to 17,000 metric tonnes in 2005 according to Solarbuzz) has led to an industry-wide shortage. This shortage is widely believed to be short-term in nature as significant new production capacity is forecast to come online in the next five years. Compounding this shortage is a resurgence in demand for electrical grade silicon from technology manufacturers. As competition for secure sources of supply increases, access to a secure supply of silicon continues to be a critical factor limiting the growth of the solar power industry. A limited supply of silicon may also create additional difficulties for solar companies as they adapt to the volatility and risk related to their principal supply component. Historically, solar companies have addressed constrained silicon supply through inventory build-up during reduced demand stages of the market cycle. However, with demand outpacing supply, inventory levels are forecast to remain at historical lows until new silicon production capacity is brought online. Further, solar cell and solar module producers must compete with growing demand from the semiconductor industry for which high-grade silicon is also a key input.
      Decrease cost per watt to customers. The cost of solar electricity is higher than the cost of retail electricity from the utility network, with solar power systems requiring relatively high up-front costs and relatively low ongoing operational costs. Government programs and consumer preference have accelerated the use of solar electricity, but product cost remains one of the largest impediments to growth. As solar has become a more mature technology, yields, cell efficiencies, manufacturing efficiencies and economies of scale have improved, but continued improvements still need to be made in these areas.
      Improve aesthetics. We believe that aesthetics are a barrier to wider adoption of solar cell and solar module products and systems among commercial and residential consumers. Historically, these consumers have resisted solar products in part for aesthetic reasons. Established solar products are heavy, rigid, fragile and non-modular. Solar cell and solar module manufacturers can improve aesthetics by developing products that can be more attractively integrated into building structures, and that are lighter, flexible and modular.

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Competition
      The market for solar power products is intensely competitive and continually evolving. Industry participants compete with each other for supplies of silicon. As well, industry participants compete for sales primarily on the basis of their products’ design, efficiency and aesthetics, the strength of their distribution networks, branding, price, reliability and capacity. Our competitors include companies such as Sharp, Q-Cells, Kyocera, Sanyo, Mitsubishi, Schott, Suntech, Sunpower and BP Solar. Many of our competitors are developing or currently producing products based on new solar technologies, including amorphous silicon, ribbon, sheet and nano technologies, which they believe will ultimately cost the same as or less than crystalline silicon technologies similar to ours on a cost per watt basis. See “Risk Factors — We face intense competition from other companies producing solar and other renewable energy products.” Many of our competitors also have established stronger market positions than ours and have larger resources and greater brand recognition than we have. However, many companies compete at different steps in the manufacturing process; we are one of the few integrated manufacturers that compete at all stages of the solar module manufacturing process chain. The solar power market in general also competes with other sources of renewable energy and conventional power generation.
Corporate Structure and Organization
      The following diagram sets forth our expected corporate structure upon the closing of this offering:
(FLOW CHART)
Legal and Regulatory Matters
      There are no pending nor, to our knowledge, threatened legal proceedings that we believe will have a material effect on our business.
Patents and Trademarks
      We rely primarily on patent, trademark, trade secret, copyright law and other contractual restrictions to protect our intellectual property. Our success and ability to compete depends to a significant degree upon obtaining patent protection for our proprietary technology. We hold a number of patents, primarily in connection with various aspects of our Spheral Solar technology and also in connection with our ability to purify polysilicon fines, which is significant to our silicon supply strategy. The patents that we consider to be of material importance to our business will expire between 2008 and 2023 and have been issued primarily in the United States, although we also have patent protection in certain jurisdictions in Europe and Asia for some of the same technology that is covered by our U.S. patents. We intend to continue to seek patent

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protection as we believe appropriate to protect our competitive advantage and for licensing opportunities of new technologies relevant to our business.
      We believe that many elements of our solar products and manufacturing processes involve proprietary know-how, technology or data that are not covered by patents or patent applications, including technical processes, equipment designs, algorithms and procedures. We generally do not require our employees (including our R&D personnel) to sign confidentiality or other agreements in respect of our intellectual property, nor do we require our contractors to sign general agreements in respect of intellectual property developed for us. This could adversely affect our ability to secure, protect and/or enforce intellectual property developed by and/or for us.
      We own a number of trademarks used in association with our products and services, some of which, are registered in the United States, Canada and a number of other countries. We are working to maintain and enforce our rights in our trademark portfolio, which is important to our reputation and branding.
Facilities
      Our corporate headquarters are located in Cambridge, Ontario, Canada, where we will lease a building from ATS with approximately 193,000 square feet of space. This building also houses our Spheral Solar technology development facility. Our Photowatt International facility occupies a total of approximately 130,000 square feet of manufacturing space in a building we own near Lyon, France. Photowatt USA leases a sales and module assembly facility in Albuquerque, New Mexico. See “— Our Business Strategy” for a discussion of our expansion plans, which include the construction of new facilities.
Environmental Matters
      We are required to comply with all foreign, national and local laws and regulations regarding the operation of industrial facilities, pollution control, the protection of natural resources and the environment and human health and safety. In addition, under some statutes and regulations, a government agency or other party may seek recovery and response costs from owners or operators of facilities where releases of hazardous substances have occurred or are ongoing, even if the owner or operator was not responsible for such release or otherwise at fault. We are also required to maintain and comply with a variety of environmental permits and authorizations. Any failure by us to comply with applicable regulations could subject us to potentially significant monetary damages or fines or otherwise result in the interruption of our business operations. In addition, should environmental regulations change or become more stringent, we could be required to incur costs that could be material to our operations or results.
      In France, our manufacturing facility is a classified installation for the protection of the environment subject to authorization by the local authorities. We are responsible for compliance with applicable environmental and health and safety regulations, including technical prescriptions imposed by environmental permits. Failure to comply with these regulations and prescriptions may result in criminal and administrative fines, or suspension or termination of our activities on the site. Pursuant to the applicable French regulations, upon voluntary or mandatory termination of the activities on the site, we may be required to undertake remediation of the site which could be costly. In addition, the implementation in the European Union of the Registry, Evaluation, Authorization and Restriction of Chemicals (“REACH”), which has been adopted in first reading on November 17, 2005 by the European Parliament and which may be adopted by the end of 2006, may result in additional costs or restrict our access to certain chemicals that are necessary for our manufacturing process.
Employees
      As of July 31, 2006, we had 711 active employees, of which 604 are located at Photowatt International near Lyon, France, approximately 90 are located at our Spheral Solar technology development facility in Cambridge, Ontario, Canada and 17 are located at our sales and module assembly operations in Albuquerque, New Mexico, United States. From time-to-time, we also employ independent contractors. We plan to hire additional employees as we expand. Certain of our non-management employees in France belong to the

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CFDT (the Confédération Française Démocratique du Travail) union, and all of our non-management employees are covered by a collective bargaining agreement with a current term lasting until January 2007, at which time it will be automatically renewed for an indefinite term subject to termination and renegotiation by either party on one month’s notice. We have had no work stoppages during the past five years, and we believe our relations with our employees are good.
      At the time of the offering, some of our services, including certain information technology, legal, tax, treasury and human resource services, will be provided by ATS pursuant to a Transitional Services Agreement between us and ATS as described under “Our Relationship with ATS — Agreements Between ATS and Us — Transitional Services Agreement.”

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OUR RELATIONSHIP WITH ATS
General
ATS reorganization relating to our company
      ATS currently owns, either directly or indirectly through its subsidiaries, substantially all of our assets and operations. Upon the completion of this offering, ATS will establish our business as a separate publicly traded company. To accomplish the separation of our business from the other businesses of ATS, ATS will undertake, subject to ATS shareholder approval of not less than two-thirds of the votes entitled to be cast by holders of ATS shares present in person or represented by proxy at a meeting of ATS shareholders to be held prior to the date of this offering, a corporate reorganization upon the closing of this offering under which ATS will transfer our assets and operations to us.
ATS as our controlling shareholder
      Immediately following this offering, ATS will own of record and beneficially approximately           % of our common shares. If the underwriters exercise their over-allotment option in full, immediately following this offering ATS will own of record and beneficially approximately           % of our common shares. As long as ATS continues to control more than 50% of the voting power of our common shares, ATS will be able to direct the election of all of the members of our board and exercise a controlling influence over our business and affairs, including any determinations with respect to mergers or other business combinations involving us, our acquisition or disposition of assets, our incurrence of indebtedness, our issuance of any additional common shares or other equity securities, and the payment of dividends with respect to our common shares. Similarly, ATS will have the power to determine matters submitted to a vote of our shareholders without the consent of our other shareholders, will have the power to prevent a change in control of our company and will have the power to take other actions that might be favorable to ATS but unfavorable to us.
      In addition, pursuant to the Shareholder Agreement, the consent of ATS will be required in connection with certain corporate actions. See “Agreements Between ATS and Us — Shareholder Agreement — ATS Approval for Certain Matters.”
Agreements Between ATS and Us
      This section provides a summary description of agreements between ATS and us relating to this offering and our relationship with ATS after this offering. The description of the agreements is not complete and, with respect to each such agreement, is qualified by reference to the terms of the agreement, each of which will be filed as an exhibit to the registration statement of which this prospectus is a part and with the Canadian securities regulatory authorities. We encourage you to read the full text of these agreements. We will enter into these agreements with ATS immediately prior to the completion of this offering; accordingly, we will enter into these agreements with ATS in the context of our relationship as a wholly-owned subsidiary of ATS. The prices and other terms of these agreements may be less favorable to us than those we could have obtained in arm’s-length negotiations with unaffiliated third parties for similar services or under similar agreements.
Overview
      The Master Separation Agreement provides for our separation from ATS, and contemplates that immediately prior to the closing of this offering, we will enter into certain other separation agreements with ATS that will govern certain aspects relating to the separation and various interim and ongoing relationships between ATS and us. These other separation agreements are:
  •  Shareholder Agreement;
 
  •  Transitional Services Agreement;
 
  •  Registration Rights Agreement;

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  •  Master Supply Agreement;
 
  •  Transfer Agreements; and
 
  •  Lease Agreement.
Master Separation Agreement
      The Master Separation Agreement will contain the key provisions related to our separation from ATS in connection with this offering. All of our covenants and agreements and those of ATS in the Master Separation Agreement will survive indefinitely. Certain of the principal provisions of the Master Separation Agreement are discussed below.
Ownership of assets
      The Master Separation Agreement provides for the separation of our assets from ATS through transfer agreements that we will enter into with ATS upon the closing of this offering and a lease agreement that we will enter into with ATS immediately prior to the closing of this offering. See “Our Relationship with ATS — General — ATS reorganization relating to our company” and “Our Relationship with ATS — Agreements Between ATS and Us — Transfer Agreements” and “— Lease Agreement.” After the completion of this offering, if it is discovered that ATS has title to, or an interest in, any asset, other than an asset specifically excluded, that is used exclusively or held for use exclusively in our business, as it existed at the completion of the offering, ATS will cooperate with us to transfer such asset to us. Likewise, if it is discovered that we had at the completion of this offering title to, or an interest in, any asset other than those used or held for use exclusively in our business, as it existed at the completion of this offering, we will cooperate with ATS to transfer such asset to ATS.
Indemnification
      We have agreed to indemnify ATS from all losses suffered by ATS arising out of certain circumstances, including:
  •  all liabilities arising out of or related to our present or future business, operations or assets;
 
  •  any breach by us of any separation agreement; and
 
  •  with respect to all information contained in this prospectus, the registration statement of which it is part and any other materials distributed in connection with the transactions contemplated in the separation agreements, any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, other than with respect to statements or omissions relating exclusively to (i) ATS and its subsidiaries (other than us), and (ii) ATS and its businesses (other than ours), which (i) and (ii) are collectively referred to as the “ATS Disclosure Portions.”
      ATS will indemnify us from all losses suffered by us arising out of certain circumstances or events, including:
  •  all liabilities arising out of or related to ATS businesses, operations or assets;
 
  •  any breach by ATS of any separation agreement; and
 
  •  with respect to information contained in the ATS Disclosure Portions, any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading.
      We and ATS will each waive all special, collateral, indirect, consequential, incidental or punitive damages (including lost profits) incurred by either of us, other than those related to a third party in connection with an indemnification obligation.

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Non-competition and non-solicitation
      The Master Separation Agreement provides that we will not, for a period of three years from the date of that agreement, directly or indirectly, engage in any development, production, manufacture, marketing, distribution, promotion, sale or otherwise of products competitive with ATS products in any country in the world in which ATS conducts its business. In addition, under the Master Separation Agreement, we and ATS have agreed, for a period of five years from the date of that agreement, not to hire, employ, retain or contract for service, or offer to hire, employ, retain or contract for service, as a director, officer, employee, partner, consultant, independent contractor or otherwise, any individual employed by the other party or any of its affiliates, or solicit for employment, solicit for hire, contract for the services of, or encourage any individual to terminate his or her employment with the other party or any of its affiliates, subject in each case to certain limited exceptions.
Expenses
      We will be responsible for all costs incurred in connection with this offering. We and ATS generally will be responsible for our own costs (including all third-party costs) incurred in connection with the matters contemplated by the separation agreements.
Disputes
      Disputes under all separation agreements will be subject to a negotiation and mediation procedure.
     Assignment
      ATS will have the right to assign its rights under the Master Separation Agreement with our consent, such consent not to be unreasonably withheld, provided that if the assignee is a significant competitor of ours, we may withhold our consent in our own sole discretion. ATS will have the right to assign its rights under the Master Separation Agreement to an affiliate of ATS without our consent.
Shareholder Agreement
      The Shareholder Agreement will provide for, among other things, restrictions on the composition of our board of directors and the board of directors of our material subsidiaries, certain matters that we shall not undertake without ATS’ prior written consent, financial reporting to ATS, and certain other governance matters.
Our Board of Directors
      ATS will have certain rights in respect of our board of directors under the Shareholder Agreement. For so long as ATS owns more than 40% of our outstanding shares, ATS will be entitled to designate the number of nominees for election as directors of our board that comprise 25% of the directors of our board (rounded up to the nearest whole number, provided our board consists of at least six directors). It is expected that our board will be initially comprised of eight members. For so long as ATS owns at least 10%, but less than 40%, of our outstanding shares, ATS is entitled to appoint one director to our board of directors. ATS will initially designate two nominees for election as directors to our board.
      The ATS nominees to our board of directors may be directors, officers or employees of ATS or its affiliates or such other individuals as ATS may designate from time to time, subject to applicable director independence rules.
Quorum
      A quorum for a meeting of our board of directors shall be a majority of the number of directors, subject to the Canadian residency requirements of the Canada Business Corporations Act (the “CBCA”), and for so long as ATS holds not less than 40% of our outstanding common shares, subject to one ATS board nominee

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being in attendance. In the event that a quorum is not present for a meeting (an “initial directors’ meeting”), then any two directors may call a meeting of the directors by notice to all directors to be held on a date no earlier than the fifth business day following the initial directors’ meeting solely to address the business proposed at the initial directors’ meeting. A quorum for such further meeting shall not require one ATS board nominee to be in attendance.
Committees of our Board of Directors
      The Shareholder Agreement will provide that our board of directors establish an audit and finance committee and a compensation, corporate governance and nominating committee, each consisting of three to five members appointed by our board. Our board of directors may also establish such other committees as it may determine from time to time. Under applicable securities laws, all members of the audit and finance committee must be independent.
ATS approval for certain matters
      The Shareholder Agreement will provide that, for so long as ATS, directly or indirectly, holds not less than 50% of our outstanding common shares, we shall not, and shall not permit any subsidiary entity to, without the affirmative vote of a majority of our board of directors and the prior, written consent of ATS as a shareholder:
  •  enter into any merger, amalgamation, plan of arrangement, consolidation, business combination, joint venture or other material corporate transaction, including the acquisition of property or assets with a fair market value in excess of C$50 million;
 
  •  sell, lease, exchange, license on an exclusive basis or dispose of property or assets with a fair market value in excess of C$50 million, other than the sale or disposition of inventory in the ordinary course of business, or sell or grant an exclusive license with respect to material intellectual property;
 
  •  adopt any plan or proposal for a complete or partial liquidation or dissolution or any reorganization or commence any case, proceeding or action seeking relief under any existing laws or future laws relating to bankruptcy or insolvency;
 
  •  take any action that could reasonably be expected to lead to or result in a material change in the nature of our business;
 
  •  issue any shares of our capital stock, or any rights, warrants or options to acquire our capital stock (excluding securities issued pursuant to share compensation arrangements), if the issuance exceeds 5% of our outstanding common shares;
 
  •  take any action limiting the rights of ATS to transfer shares of our stock it owns;
 
  •  enter into a partnership or any arrangement for the sharing of profits, union of interests, joint venture or reciprocal concession with any person if the aggregate fair market value of the assets contributed and liabilities assumed by us (and our subsidiaries) in connection therewith either exceeds on formation or at any time in the future could reasonably be expected to exceed C$50 million; or
 
  •  make any commitment or agreement to do any of the foregoing.
Financial reporting
      Under the Shareholder Agreement, we have agreed that, for so long as ATS is required to consolidate our results of operations and financial position, and under certain other circumstances, we will:
  •  maintain the same fiscal year as ATS;
 
  •  deliver annual budgets, financial projections and monthly financial reports to ATS;
 
  •  provide to ATS an opportunity for preliminary review of any reports or other information that we send to our shareholders or file with Canadian securities regulatory authorities, the SEC or any securities

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  exchange or quotation system, as well as any press releases regarding annual and quarterly earnings and interim financial guidance;
 
  •  cooperate, and use commercially reasonable efforts to cause our auditors to cooperate, to the extent reasonably requested by ATS, in connection with the preparation of ATS’ financial statements and other information provided to the public, Canadian securities regulatory authorities, the SEC or any securities exchange or quotation system by ATS;
 
  •  unless otherwise required by law, use the same auditors as appointed by ATS; and
 
  •  unless otherwise required by law, to the extent practicable, keep our accounting policies and practices consistent with those of ATS.

      We have also agreed that, for so long as ATS is required to consolidate our results of operations and financial position or to account for its investment in our company under the equity method of accounting, our annual financial statements and related information will be prepared in accordance with Canadian GAAP and, where practicable, consistent with ATS financial statement presentation, and that such financial statements reported in Canadian dollars will be provided to ATS prior to their inclusion in ATS’ financial statements. However, we will report our results in U.S. dollars and will include in the notes to our financial statements a reconciliation quantifying all material differences in our financial statements had they been prepared in accordance with United States generally accepted accounting principles.
     Assignment
      ATS will have the right to assign its rights under the Shareholder Agreement with our consent, such consent not to be unreasonably withheld, provided that if the assignee is a significant competitor of ours, we may withhold our consent in our own sole discretion. If assigned to a non-ATS affiliate, the rights of ATS referred to under “— ATS approval for certain matters” will expire on the 90th day following the date of assignment. ATS will have the right to assign its rights under the Shareholder Agreement to an affiliate of ATS without our consent.
Term
      The Shareholder Agreement will continue in force until ATS holds, directly or indirectly, less than 10% of our outstanding common shares.
Transitional Services Agreement
      The Transitional Services Agreement is designed to help us and ATS transition to being two separate public companies, each with its own administrative resources. Under the Transitional Services Agreement, ATS will provide services to us and/or to one or more of our subsidiaries, and include certain:
  •  communications services such as phone, cell phone and wireless devices;
 
  •  internal audit, tax, and merger and acquisition transaction services;
 
  •  payroll;
 
  •  information technology, including access to network, systems, applications and technical support;
 
  •  human resources and employee benefits;
 
  •  travel services;
 
  •  legal services;
 
  •  insurance services;
 
  •  accounting support, treasury and general administrative services; and
 
  •  other specified services.

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      ATS will use commercially reasonable efforts to perform these services at the same level of service as such services have been provided prior to the date of the Transitional Services Agreement. The use of such services generally will not be substantially greater than the level of use required prior to the completion of this offering.
      These services will be provided for a period of 12 months. ATS may terminate the provision of any service under the Transitional Services Agreement on 30 days prior written notice if the provision of the service becomes commercially impracticable for ATS. We may terminate any individual service to be provided by giving 30 days notice to ATS or if ATS fails to perform any of its material obligations and does not remedy the failure within 30 days.
      The Transitional Services Agreement will provide for fixed price billing, fixed rate billing, and pass through billing for services provided either directly or indirectly by ATS to us. The fixed price portion of the fees that we will pay ATS under the Transitional Services Agreement over its 12 month term is estimated to be approximately $                    .
Registration Rights Agreement
      Prior to the consummation of this offering, we will enter into a registration rights agreement with ATS. The registration rights agreement will include rights to require us to register the offer and sale of our common shares held by ATS on up to four different occasions. ATS may also require us to file registration statements on Form F-3 once we become eligible to use that form. We will be entitled to defer the filings of these registration statements in certain circumstances for a limited period. The registration rights agreement also will include the right to require us to include our common shares held by ATS in future registration statements that we file with the SEC. The agreement also will provide ATS with comparable rights to require us to qualify our common shares held by ATS for distribution, by prospectus or otherwise, in any province or territory of Canada in which we are a reporting issuer. These rights are subject to various conditions and limitations.
      We will bear all expenses incurred in connection with these registrations, other than any underwriting discounts and commissions. Registration of our common shares upon the exercise of these registration rights would result in such shares becoming freely tradable without restriction under the Securities Act or Canadian securities laws.
Master Supply Agreement
      Under the Master Supply Agreement, ATS will have a right of first refusal to supply us with certain Spheral Solar equipment and related services.
      The right of first refusal would be triggered where we receive an offer from a third party for the supply of certain equipment and related services. ATS would have a period of 30 days to exercise its right of first refusal and elect to supply such equipment and related services to us on the same terms and conditions of the third party’s offer with respect to price, specifications and delivery. If ATS does not exercise its right of first refusal, then we are free to accept the third party offer. However if the third party offer is subsequently revised, we must provide ATS with its right of first refusal.
      In addition, ATS will be our preferred supplier with respect to certain other equipment and related services listed in a schedule to the Master Supply Agreement. If we determine to purchase certain specified equipment and related services, we must notify ATS and provide ATS with the opportunity to bid on or make a proposal to supply such equipment and services.
      ATS would provide its standard warranty that the equipment supplied would be free from defects in workmanship and material and shall materially conform to the specifications for the equipment for a period of 12 months from the date of successful site acceptance testing of the equipment in our plant or 15 months from the date of shipment, whichever is later.

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      In addition, for an agreed charge of C$10.00 per square foot per year, ATS will agree to house at its premises two of our aluminium foil presses, known as the “Systems 1 Press” and the “AMD Press,” occupying approximately 5,000 square feet and 2,000 square feet, respectively, of ATS’ premises. ATS will allow us access to ATS’ premises in order to be able to use and operate the Systems 1 Press for research and development purposes. ATS will supply to us such quantities of aluminium foil processed by the foil presses as we may order (subject to available labor and press capacity) at a price equal to ATS’ manufacturing costs plus 12%. This foil would be used by us in the manufacture of Spheral Solar products if and when we grant firm purchase orders for these products. The supply by ATS to us of these foil products is on an “as is” basis, recognizing that we own the foil presses and will be responsible for their maintenance. The provisions of the Master Supply Agreement relating to our use of ATS’ premises for these aluminium foil presses may be terminated by ATS or us on six months notice but ATS is not permitted to exercise this termination right for a period of one year from the effective date. Upon termination, we would de-install and remove the foil presses from ATS’ premises at our sole cost.
      The term of the Master Supply Agreement is five years and would be automatically renewed for successive one year terms unless we or ATS gives notice of termination at least 30 days prior to the renewal date. If ATS materially breaches its obligations to supply equipment to us pursuant to the right of first refusal on two occasions, we may terminate the right of first refusal. In addition, we may terminate any individual project agreement provided we compensate ATS for its costs incurred or committed.
      Any liability of ATS to us under the Master Supply Agreement is limited to the amount actually received by ATS for products sold to us.
ATS solar automation know-how
      Pursuant to the Master Separation Agreement, ATS will retain its solar automation know-how, which is all information known to, and intellectual property rights owned by, ATS relating to automated solar equipment. Upon completion of the offering, we will obtain an irrevocable, personal, non-exclusive, worldwide, royalty-free, perpetual right and license to use the ATS automation know-how existing immediately prior to the completion of this offering (excluding any intellectual property rights covered by any patent or application owned by ATS), solely for our internal use in conducting our business. This license will be non-transferable and may not be sub-licensed. Such license will not entitle us to use the ATS solar automation know-how for the benefit of a competitor of ATS other than with respect to the manufacturing of equipment for us.
Transfer Agreements
      The Transfer Agreements provide for the transfer of ATS’ interest in the assets that are used exclusively in our business conducted by ATS and its subsidiaries upon the completion of this offering, subject to certain excluded assets including:
  •  the premises and building that are the subject of the Lease Agreement.
 
  •  the investment of ATS in securities of Canadian Solar Inc., a solar module assembly company in which ATS has a portfolio investment.
 
  •  ATS solar automation know-how.
      Pursuant to the Transfer Agreements, we and our subsidiaries will assume all liabilities relating to the solar business conducted by ATS and its subsidiaries immediately prior to the completion of this offering.
Lease Agreement
      The Master Separation Agreement contemplates that, immediately prior to the closing of this offering, we will enter into a lease agreement with ATS that relates to our Spheral Solar manufacturing facility at 25 Reuter Drive in Cambridge, Ontario (the “Lease Agreement”). The term of the Lease Agreement is for two years and we will pay ATS rent at a rate of C$1 per year during that period. Thereafter, provided we are

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not in default and remain creditworthy, we may renew the Lease Agreement for a five year period, and subsequently, for a further five year period. The rate of rent for each renewal period, respectively, will be the greater of a pre-specified minimum rate of rent, and the then prevailing market rate of rent as determined by a process outlined in the Lease Agreement.

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MANAGEMENT
Directors and Executive Officers
      The following table sets forth information regarding our directors and executive officers upon completion of this initial public offering.
                 
Name   Municipality of Residence   Age   Position/Title
             
Silvano Ghirardi
  Oakville, Ontario     57     President and Chief Executive Officer and Director
David Adams
  Beaconsfield, Quebec     50     Senior Vice President and Chief Financial Officer
Gary J. Seiter
  New Dundee, Ontario     50     Senior Vice President — Operations and Technology
Jean-Louis Dubien
  Ruy-Montceau, France     39     Managing Director, Photowatt France
Robert M. Franklin(2)
  Willowdale, Ontario     59     Director — Chairman
Wayne S. Hill(1)
  Toronto, Ontario     60     Director
Ronald J. Jutras(2)
  Waterloo, Ontario     50     Director
Kirk Mandy(1)
  Ottawa, Ontario     50     Director
Stewart McCuaig
  Kitchener, Ontario     43     Director
C. Ian Ross(1)
  Collingwood, Ontario     64     Director
John W. Sheridan(2)
  Vancouver, British Columbia     51     Director
 
(1)  Member of the Audit and Finance Committee
 
(2)  Member of the Compensation, Corporate Governance and Nominating Committee
      Mr. Silvano Ghirardi is our president and chief executive officer, having joined ATS in 2005, and has diverse experience in international operations, marketing and start-up business. From 2002-2005, Mr. Ghirardi was the president and chief operating officer of Hoya Opthalmics, the second largest public global manufacturer of prescription spectacle lenses. From 2000-2002, Mr. Ghirardi was the president and chief executive officer of Sartorius NA, a biotechnology and scientific instruments company. From 1996-2000, Mr. Ghirardi was the president and chief executive officer of 2C Optics Inc., a start-up company funded by venture capital, Dow Chemical, PPG Industries and Rodenstock and other industry participants for the purpose of producing plastic spectacle prescriptions, on demand, utilizing proprietary technology. Before that, Mr. Ghirardi held a variety of senior management positions at Ciba Vision, a business unit of Novartis AG focused on lenses, lens care and opthalmic pharmaceuticals, joining as an early founder in 1981, until 1995-1996 as president. Mr. Ghirardi is a graduate of Harvard University, Graduate School of Business, Executive MBA (PMD) Program and attended Atkinson College, York University, Toronto (CIM/ BA Marketing).
      Mr. David Adams is our senior vice president and chief financial officer, having joined us in June 2006. From 1999 through 2005, Mr. Adams was the senior vice president and chief financial officer at SR Telecom Inc., where he was also secretary of the corporation. From 1994 to 1998, he was Vice President Finance & Administration at CAE Electronics Ltd., and Treasurer of CAE Inc., from 1988 to 1994. Mr. Adams holds a Bachelor of Commerce and Finance from the University of Toronto, is a Chartered Accountant and has completed the Stanford Executive Program.
      Mr. Gary J. Seiter is currently the senior vice president of operations and technology, having joined us in May 2006. From 2005-2006, Mr. Seiter was senior director of operations and engineering at SUMCO USA. Prior to that, he held various engineering and management roles for Motorola, Inc. from 1980 until 2000-2004 as director of manufacturing operations. Mr. Seiter holds both a Bachelor of Science in Electrical Engineering and a Master of Science in Electrical Engineering from the University of Missouri — Rolla as well as an MBA from Western International University in Arizona.

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      Mr. Jean-Louis Dubien is the managing director of Photowatt France, having joined Photowatt France in 1991. Throughout his 15 year tenure with Photowatt France, Mr. Dubien has held several key management positions including vice president of operations and, prior to that, manufacturing manager. Mr. Dubien has made significant contributions during this time, specifically including his improvement of our innovative wire saw technology as well as having successfully implemented measures which have directly resulted in sustained yield and throughput improvements in each of our wafer, cell, ingot and module workshops. Mr. Dubien holds a degree in Mechanical Engineering from the Ecole Nationale d’Ingénieurs de Saint-Etienne France.
      Mr. Robert M. Franklin is our director and chairman. He has played a leadership role in a number of public companies over the past 30 years, including serving as chairman of the board of directors of Placer Dome Inc., from 1993-2006. Currently, Mr. Franklin is a director of Barrick Gold Corporation, of Toromont Industries, of Resolve Corporation and of Great Lakes Carbon Income Fund. He is also the founder and president of Signalta, a private investment firm. Mr. Franklin holds a Bachelor of Arts in Business Administration from Hillsdale College, Michigan.
      Mr. Wayne S. Hill is our director. He is currently a director and the executive vice president of Toromont Industries Ltd., a company listed on the Toronto Stock Exchange, having joined as vice president, finance in 1985. Prior to joining Toromont Industries Ltd., Mr. Hill served as vice president, finance at Maclean Hunter Limited, a Canadian based communications and publishing company and spent 3 years as director, planning and finance with Massey Ferguson Limited, a heavy equipment and engine manufacturer. Mr. Hill has a Bachelor of Commerce degree from Queen’s University and is a Chartered Accountant.
      Mr. Ronald J. Jutras is our director. He is currently the president and chief executive officer and a director of ATS, which he joined in 1985. Prior to being promoted to president and chief executive officer, Mr. Jutras held the positions of executive vice president, chief operating officer, and chief financial officer, and has served as an ATS director since 1993. Prior to joining ATS, he was employed for seven years by KPMG Peat Marwick Thorne as an accountant and business advisor. Mr. Jutras is an Honours Business Administration graduate of Wilfrid Laurier University and a Chartered Accountant.
      Mr. Kirk Mandy is our director. He is currently the president and chief executive officer of Zarlink Semiconductor, a company listed on the Toronto Stock Exchange and the New York Stock Exchange. From 1984-2001, Mr. Mandy held various senior management roles in Mitel Corporation, including president and chief executive officer from 1998-2001, vice president and general manager of the Business Communications Unit from 1997-1998, vice president and general manager of the Semiconductor Division from 1992-1998, and various manufacturing, product operations and research and development roles from 1984-1992. From 1976-1984, he held various roles in GTE, Gandalf Technologies Inc. and Bymanics. Mr. Mandy is currently a member of the board of Epocal Inc., Mitel Networks Corporation and chairman of the Armstrong Monitoring Corporation. He has served on the board of the Strategic Microelectronics Corporation (SMC), the Canadian Advanced Technology Association (CATA), The Canadian Microelectronics Corp. (CMC), The Ottawa Center for Research and Innovation (OCRI), and Micronet. He is also past chairman of the Telecommunications Research Center of Ontario (TRIO), past chairman of the National Research Council’s Innovation Forum, and past co-chairman of the Ottawa Partnership. Mr. Mandy is a graduate of Algonquin College.
      Mr. Stewart McCuaig is our director. He is currently vice president, general counsel and corporate secretary at ATS and has been with ATS since December 2005. From 2000-2005, Mr. McCuaig was general counsel and corporate secretary at Syndesis Limited, a private venture capital backed telecommunications software company. From 1998-2000, he was general counsel and corporate secretary at Mortice Kern Systems Inc., a Toronto Stock Exchange-listed company. From 1988-1998, Mr. McCuaig was an associate/partner at the law firm of Sims Clement Eastman. Mr. McCuaig was admitted to the Bar in Ontario in 1988. Mr. McCuaig completed undergraduate courses at the University of Western Ontario and holds an LL.B. from the University of Toronto, an LL.M. from Osgoode Hall Law School, and has taken graduate business courses at Wilfrid Laurier University.
      Mr. C. Ian Ross is our director. He is currently the chairman of the board of directors of GrowthWorks Canadian Fund Ltd., of GrowthWorks Commercialization Fund Ltd., of PetValu Inc. and of World Heart

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Corporation and is currently a director of Ontario Power Generation, Comcare Canada Limited and eJust Systems Inc. He has in the past been a senior director, administration, at the Richard Ivey School of Business, University of Western Ontario, a trustee of the McMichael Canadian Art Collection, an executive in residence at the Richard Ivey School of Business, University of Western Ontario, and a governor of Ortech Corporation. Mr. Ross served as the president and chief executive officer of Ortech Corporation from 1998-1999, the chairman, president and chief executive officer of Provincial Papers Inc. from 1993-1997, the president and chief executive officer of Paperboard Industries Corporation from 1986-1990, and executive vice president, finance and development, of Kinburn Corporation from 1979-1986. Prior to that, he held a variety of management roles with Canada’s Export Development Corporation and with the Bank of Montreal. Mr. Ross holds a B.A. from the University of Western Ontario, an LL.B. from the University of Toronto and is a Member of the Law Society of Upper Canada.
      Mr. John W. Sheridan is our director. He is currently president and chief executive officer of Ballard Power Systems, a Canadian manufacturer of fuel cells, having served as the interim president and chief executive officer from 2005 until February of 2006 and having served as chairman of the board from 2004 to February of 2006. Prior to that, Mr. Sheridan held various senior management roles in the BCE family of companies from 1979, until 2001-2003 as president and chief operating officer, Bell Canada. Mr. Sheridan’s outside directorships currently include serving as a director of Ballard Power Systems and as a director of NewPage Inc., and have in the past included directorships with Bell Canada, Aliant Inc., MTS Inc., Sun Media Inc., Bell Sygma UK and Encom Ltd. Mr. Sheridan holds a B.E.S. from the University of Waterloo, a B.A. in Economics from Wilfred Laurier University and an M.A. in Economics from Queen’s University.
      The business address of our directors and executive officers is c/o 25 Reuter Drive, Cambridge, Ontario, Canada N3E 1A9.
Other Key Personnel
      Mr. Eric Laborde is a consultant who serves as managing director, Europe (acting) of Photowatt International, having joined as general manager in 2001. His consulting agreement with us has a term of one year and is renewable annually. He has extensive technology based experience that spans over 20 years. He is currently on the board of directors and councils of Swiss and Savoy Managers and Episol as well as director of various non-profit organizations such as the ODES Group and the European Photovoltaic Industry Association (EPIA). From 1998-2000, Mr. Laborde was the president of CGL Thermoformage, a French leader in tailor made thermoformed plastic packaging. From 1990-1998, Mr. Laborde held various management positions with Adidas Salomon Group. From 1985-1989, Mr. Laborde held various management positions with Ciapem, a division of Thomson Consumer Goods. Mr. Laborde holds a degree in Mechanical Engineering from Ecole Nationale des Techniques Avancees (ENSTA) and from Ecole Polytechnique, France.
Board of Directors
      Our board of directors consists of eight members. Our board of directors has determined that the following directors are independent within the meaning of Rule 4200(a)(15) of the Nasdaq Marketplace Rules:
     
     
     
     
      After the completion of this offering, ATS will own more than           % of the total voting power of our common shares and we will be a “controlled company” within the meaning of the Nasdaq Marketplace Rules. As a controlled company, we will be exempt from the requirement that a majority of our board of directors consist of independent directors and we intend to rely on this exemption. See “Risk factors — We will be a “controlled company” within the meaning of the rules of The Nasdaq Global Market, and, as a

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result, will qualify for, and intend to rely on, exemptions from certain corporate governance requirements that provide protection to shareholders of other companies.”
Committees of the Board of Directors
      Our board of directors has established an audit and finance committee and a compensation, corporate governance and nominating committee.
Audit and finance committee
      The primary functions of the audit and finance committee will be to oversee our accounting and financial reporting practices and the auditing of our financial statements. In addition, the audit and finance committee will assist the board of directors in fulfilling its oversight responsibilities relating to financial disclosures and internal controls over financial reporting; monitoring the system of internal controls; monitoring our compliance with legal and regulatory requirements relating to financial reporting; monitoring our compliance with the applicable requirements of the Nasdaq Global Market and the Toronto Stock Exchange; selecting the external auditors for shareholder approval; reviewing the qualifications, independence and performance of the external auditors; reviewing the qualifications and performance of our financial management; and identifying, evaluating and monitoring the management of our principal risks impacting financial reporting. The committee will also assist the board of directors with the oversight of financial strategies and overall risk management.
      The audit and finance committee will be composed of Mr. Wayne S. Hill (Chair), Mr. C. Ian Ross and Mr. Kirk Mandy. The board has determined that Mr. Hill will serve as the audit committee financial expert. Every member of the audit and finance committee will be independent within the meaning of Rule 10A-3 under the Securities Exchange Act of 1934, as amended, Rule 4200(a)(15) of the Nasdaq Marketplace Rules and Multilateral Instrument 52-110 — Audit Committees of the Canadian Securities Administrators.
Compensation, corporate governance and nominating committee
      The primary functions of the compensation, corporate governance and nominating committee will be to discharge the board of director’s duties and responsibilities relating to human resource policy, to assist the board of directors in identifying, recruiting and nominating suitable candidates to serve on the board of directors and to succeed the chief executive officer and to assist the board of directors in fulfilling its corporate governance oversight responsibilities. The committee will be responsible for determining the performance goals for the chief executive officer, evaluating the chief executive officer’s performance in light of such goals, and recommending the chief executive officer’s compensation package and employment arrangements. The committee will also be responsible for recommending the compensation packages for senior management and non-employee directors. In addition, the committee is responsible for reviewing and providing recommendations on our compensation principles, policies and plans, including our equity-based compensation plans. The compensation, corporate governance and nominating committee will evaluate the effectiveness of our board of directors as a whole, each committee of our board of directors and the contribution of individual directors. The committee will also review and assess management’s compliance with our Code of Business Conduct.
      The compensation, corporate governance and nominating committee will be composed of Mr. John W. Sheridan (Chair), Mr. Robert M. Franklin and Mr. Ronald J. Jutras. After the completion of this offering, ATS will own more than           % of the total voting power of our common shares and we will be a “controlled company” within the meaning of the Nasdaq Marketplace Rules. As a controlled company, we will be exempt from the requirements that the compensation of our chief executive officer and our other executive officers be determined, or be recommended to our board of directors for determining, either by a majority of the independent directors or a compensation committee comprised solely of independent directors, that our director nominees be selected, or recommended for the board’s selection, either by a majority of the independent directors or a nominations committee comprised solely of independent directors, and that we have a written charter or board resolution addressing our director nominations process, and we intend to rely

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on these exemptions. See “Risk Factors — We will be a “controlled company” within the meaning of the rules of The Nasdaq Global Market, and, as a result, will qualify for, and intend to rely on, exemptions from certain corporate governance requirements that provide protection to shareholders of other companies.”
Terms of Directors and Executive Officers
      Our officers are elected by and serve at the discretion of the board of directors. Our directors serve for one-year terms.
Employment Agreements
      We have an employment contract effective May 20, 2005 (and amended effective                     , 2006) with Mr. Ghirardi, our president and chief executive officer. Under the contract, Mr. Ghirardi is entitled to receive an annual salary of C$357,000, may be entitled to a bonus (subject to board approval) which is currently targeted to equal           % of his annual salary but may increase to a maximum of           % of his annual salary, and is eligible to participate in our share compensation arrangements. In addition, he is entitled to participate in all of our regular employee benefit plans that he is qualified for, reimbursement of all reasonable out-of-pocket expenses incurred in the performance of his duties, reimbursement of relocation expenses to a maximum of US$55,000, reimbursement of temporary living accommodations and related expenses up to a maximum of C$2,000 per month until November 20, 2006 and an annual car allowance of C$10,000. In the event that Mr. Ghirardi’s employment is terminated with cause or he is unable to perform his services for a continuous period of 180 days, he is entitled to his salary and benefits until the effective termination date of his employment. If, however, Mr. Ghirardi’s employment is terminated without cause, he is entitled to be paid his monthly salary and have his regular employee benefits continued during a notice period of 24 months. In addition, Mr. Ghirardi can terminate his employment with us at any time upon 30 days’ notice and upon receipt of such notice, we have the right to accelerate the termination date. In this event, Mr. Ghirardi is only entitled to his salary and benefits until the effective termination date. Upon a change of control of our company, either we or Mr. Ghirardi can terminate his employment for any reason within twelve months of such change of control. In such event, Mr. Ghirardi is entitled to be paid his monthly salary and have his regular employee benefits continued for 24 months. Under the contract, Mr. Ghirardi has disclaimed any rights to all intellectual property created by him or jointly with others while employed with us. In addition, following termination of employment, Mr. Ghirardi will be subject to a one year non-competition covenant applicable worldwide and a two year non-solicitation covenant. We have agreed to review Mr. Ghirardi’s compensation package following the completion of this offering.
      We have an employment contract effective June 7, 2006 with Mr. Adams, our senior vice president and chief financial officer. Under the contract, Mr. Adams is entitled to receive an annual salary of C$250,000, may be entitled to a bonus (subject to board approval) which is currently targeted to equal           % of his annual salary but may increase to a maximum of           % of his annual salary, and is eligible to participate in our share compensation arrangements. In addition, he is entitled to participate in all of our regular employee benefit plans that he is qualified for, reimbursement of all reasonable out-of-pocket expenses incurred in the performance of his duties, reimbursement of relocation expenses to a maximum of C$55,000, supplemental monthly benefit of C$2,000 until the earlier of securing permanent relocated housing and June 30, 2007 and an annual car allowance of C$9,880. In the event that Mr. Adams’ employment is terminated with cause or he is unable to perform his services for a continuous period of 180 days, he is entitled to his salary and benefits until the effective termination date of his employment. If, however, Mr. Adams’ employment is terminated without cause, he is entitled to be paid his monthly salary and have his regular employee benefits continued during a notice period of not less than 12 months and not more than 18 months, depending on his years of service with us. In addition, Mr. Adams can terminate his employment with us at any time upon 30 days’ notice and upon receipt of such notice, we have the right to accelerate the termination date. In this event, Mr. Adams is only entitled to his salary and benefits until the effective termination date. Upon a change of control of our company, either we or Mr. Adams can terminate his employment for any reason within three months of such change of control. In such event, Mr. Adams is entitled to be paid his monthly salary and have his regular employee benefits continued for 18 months. Under the contract, Mr. Adams has

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disclaimed any rights to all intellectual property created by him or jointly with others while employed with us. In addition, following termination of employment, Mr. Adams will be subject to a one year non-competition covenant applicable worldwide and a one year non-solicitation covenant.
      We have an employment contract effective April 10, 2006 with Mr. Seiter, our senior vice president of operations and technology. Under the contract, Mr. Seiter is entitled to receive an annual salary of C$230,000, may be entitled to a bonus (subject to board approval) which is currently targeted to equal 30% of his annual salary but may increase to a maximum of 50% of his annual salary, and is eligible to participate in our share compensation arrangements. In addition, he is entitled to participate in all of our regular employee benefit plans that he is qualified for, and reimbursement of all reasonable out-of-pocket expenses incurred in the performance of his duties. In the event that Mr. Seiter’s employment is terminated with cause or he is unable to perform his duties for a continuous period of 180 days, he is entitled to his salary and benefits until the effective termination date of his employment. If, however, Mr. Seiter’s employment is terminated without cause, he is entitled to be paid his monthly salary and have his regular employee benefits continued during a notice period of not less than six months and not more than 12 months, depending on his years of service with us. In addition, Mr. Seiter can terminate his employment with us at any time upon 30 days’ notice and upon receipt of such notice, we have the right to accelerate the termination date. In this event, Mr. Seiter is only entitled to his salary and benefits until the effective termination date. Under the contract, Mr. Seiter has disclaimed any rights to all intellectual property created by him or jointly with others while employed with us. In addition, following termination of employment, Mr. Seiter will be subject to a one year non-competition covenant applicable in North America and a two year non-solicitation covenant.
      We have an employment contract effective November 13, 1991 (and amended effective July 20, 2006) with Mr. Dubien, the managing director of Photowatt France. Under the contract, Mr. Dubien is entitled to receive an annual salary of 100,000, may be entitled to a bonus (subject to board approval), and is eligible to participate in our share compensation arrangements. Additionally, in consideration of certain additional responsibilities, Mr. Dubien is entitled to a further 5,000 per year as well as the use of a company car. Mr. Dubien’s employment contract does not include provisions relating to the termination of his contract, and so if Mr. Dubien’s employment contract is terminated, French law will apply, and dismissal indemnities will have to be calculated according to the provisions of the bargaining convention of the “Ingénieurs et cadres de la métallurgie.” Under his contract, following termination of employment, Mr. Dubien will be subject to a one-year non-competition covenant applicable in Europe and renewable once. Should we want to enforce this covenant, Mr. Dubien will be entitled to be paid 50% of his monthly salary during the application of the covenant (or 60% in the absence of serious misconduct and as long as Mr. Dubien has not found a new position).
Compensation of Directors and Executive Officers
      We had no directors during fiscal 2006. We pay each of our current directors, other than ATS nominees and our chairman, (i) an annual retainer of C$17,500; (ii) an annual retainer for each committee they are on in the amount of C$2,500; (iii) an additional C$5,000 per year for serving as the chairman of the Audit and Finance Committee, and an additional C$3,000 per year for serving as the chairman of the Compensation, Corporate Governance and Nominating Committee; (iv) meeting fees of C$1,500 per day if attending in person or C$750 if by phone (with an increase to C$1,500 if a meeting by phone lasts longer than 30 minutes); (vi) an initial stock option grant of                     ; and (vii) a DSU grant of                     . Our chairman receives an annual retainer of C$150,000 and an initial stock option grant of                     .

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      The following table sets forth all compensation received during fiscal 2006 by our executive officers and other key personnel during fiscal 2006.
                         
    Fiscal 2006 Compensation
     
        Other Annual
Name   Salary   Bonus   Compensation
             
Silvano Ghirardi(1)
  C$ 296,154     C$ 45,000     C$ 93,697  
David Adams(2)
                 
Eric Laborde(3)
    257,250       80,850       11,143  
Jean-Louis Dubien
    84,700       27,373        
Gary Seiter(4)
                 
 
(1)  Mr. Ghirardi commenced employment effective June 1, 2005, and the amounts in the table reflect his compensation for the period from June 1, 2005 until March 31, 2006. Other annual compensation includes the payment of relocation costs of C$83,216, a car allowance of C$8,462 and an RRSP match of C$2,019. In addition, Mr. Ghirardi was granted options to purchase 50,000 shares of ATS in fiscal 2006 at an exercise price of C$15.45 per share.
 
(2)  Mr. Adams commenced employment effective June 7, 2006. See “— Employment Agreements” for details of his current compensation arrangements.
 
(3)  Other annual compensation for Mr. Laborde includes a car allowance and other benefits.
 
(4)  Mr. Seiter commenced employment with us effective April 10, 2006. See “— Employment Agreements” for details of his current compensation arrangements.
Share Ownership of Directors and Executive Officers
      As of July 31, 2006, and immediately after this offering, none of our directors or executive officers beneficially owned or is expected to beneficially own 1% or more of our common shares.
Share Compensation Arrangements
      Our board of directors has adopted the Stock Option Plan and intends to adopt the Executive Performance Share Unit Plan and the Directors’ Deferred Stock Unit Plan (collectively, the “Share Compensation Arrangements”). The Share Compensation Arrangements are designed to allow for several different types of equity-based compensation awards and afford our board the ability to provide incentives to employees, officers, directors and consultants to contribute to our success currently and in the future.
     Stock Option Plan
      Our board of directors has adopted a Stock Option Plan (the “Option Plan”) to provide long-term incentives to attract, motivate and retain our key employees, directors and officers, and consultants providing services to us.
      Under the Option Plan, we may, from time to time, designate any persons, including one or more of our or our affiliates’ directors, bona fide full-time employees, or consultants as “Eligible Persons” for the purposes of the Option Plan. In order to participate in the Option Plan (as an “Option Plan Participant”), Eligible Persons must deliver to us a letter agreement and thereby agree to the terms and conditions of participation required under the Option Plan and such other terms and conditions as we may deem appropriate.
      We may, from time to time, grant options (“Options”) to an Option Plan Participant to acquire our common shares in accordance with the Option Plan. When granting Options, we will designate the maximum number of shares that may be purchased under the Options, establish the exercise price of the Options, determine the expiry date for exercise of the Options, and designate the conditions under which the Options will vest. The exercise prices for Options must not be less than the fair market value of the shares, which so long as our shares are traded on a stock exchange, is defined to be the closing price for the shares, on the

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day immediately prior to the date the Options were granted to the Option Plan Participant, on the stock exchange on which the highest aggregate volume of shares have traded on such day.
      If an Option Plan Participant dies, the Option Plan Participant’s legal representatives may exercise the Option Plan Participant’s outstanding vested Options upon notice to us, within 180 days of the Option Plan Participant’s death.
      Options granted to an Option Plan Participant who is a citizen or resident of the United States may be incentive stock options within the meaning of section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), if so designated by the board of directors and/or compensation, corporate governance and nominating committee at the time of grant. Only employees are eligible to be granted incentive stock options.
      At our discretion, an Option may have connected therewith, at or after the time of grant, a number of stock appreciation rights (an “SAR” or “SARs”) equal to the number of shares to be received in respect of the Option. Each SAR will entitle the Option Plan Participant to surrender to us, unexercised, the right to subscribe for such share pursuant to the related Option and to receive cash in an amount equal to the excess of the fair market value over the exercise price of the related Option. Upon exercise of an SAR in respect of a share covered by a related Option, that Option in respect of such share will immediately terminate and be of no further force or effect. Unexercised SARs will terminate when the related Option is exercised or the Option terminates.
      We intend to grant Options to certain of our executives and employees under the Option Plan with an exercise price equal to the initial public offering price.
      For further details on the Option Plan see “Stock Option Plan and Executive Performance Share Unit Plan” below.
     Executive Performance Share Unit Plan
      We intend to adopt an Executive Performance Share Unit Plan (the “RSU Plan”) to provide medium-term incentives to certain of our executives to contribute to our success and to build and maintain a strong spirit of performance and entrepreneurship.
      Under the RSU Plan, we may grant share units (“Share Units”) to such participants (“RSU Plan Participants”) in such number and at such times as we may determine, as a bonus or similar payment. Each grant of a Share Unit will be set forth in a grant agreement (a “Grant Agreement”) containing terms and conditions, including additional conditions with respect to the vesting of Share Units, the payment of cash or the provision of common shares under the RSU Plan, and may include restrictions on the resale of common shares, including escrow arrangements.
      When vested, each Share Unit will give the RSU Plan Participant the right to receive, pursuant to the provisions of the RSU Plan and in accordance with the terms of the Grant Agreement relating to such Share Unit, one of our common shares or where the applicable Grant Agreement so provides, the fair market value of one of our common shares (less any applicable tax withholdings).
      If an RSU Plan Participant dies, the RSU Plan Participant’s beneficiary is entitled to receive cash or common shares in respect of the RSU Plan Participant’s vested Share Units. A deceased RSU Plan Participant’s unvested Share Units may only be redeemed by a beneficiary at our discretion.
      For further details on the RSU Plan see “Stock Option Plan and Executive Performance Share Unit Plan” below.
     Stock Option Plan and Executive Performance Share Unit Plan
      The Option Plan and RSU Plan (together, the “Plans”) contain similar provisions governing their execution and the granting of Options and Share Units (together, “Equity Awards”) to Option Plan Participants and RSU Plan Participants (together, the “Participants”).

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      Equity Awards will vest according to the terms of their grant, and we generally intend to provide for vesting over a         year period. Subject to some exceptions, in the event of a merger, amalgamation or plan of arrangement involving us, acquisition or take-over bid for our shares, or similar transaction, or the sale of all or substantially all of our assets, any of which results in a change of our control (a “Corporate Transaction”), Equity Awards will be deemed to be redeemed and terminate immediately prior to the specified effective date of the Corporation Transaction, unless either the Equity Awards are assumed by the successor corporation or parent thereof in connection with the Corporate Transaction or our board of directors determines otherwise. Our board or a committee of our board, as the case may be, may, subject to such conditions as the board or a committee considers appropriate, determine the acceleration, if any, of the vesting provisions for any Equity Award and permit a Participant to exercise or redeem unvested Equity Awards during such period of time as may be specified by our board of directors or a committee thereof.
      The maximum quantity of common shares which may be issued under the Plans, in aggregate, is equal to 10% of the common shares outstanding immediately following the completion of this offering. Notwithstanding any of the provisions of the Plans, the number of shares reserved for issuance to any one person, in aggregate under the Plans, will not exceed 5% of our outstanding common shares (subject to some adjustments, the “Outstanding Issue”), and the number of shares reserved for issuance pursuant to all Equity Awards granted to insiders, in aggregate, will not exceed 10% of the Outstanding Issue. In addition, the issuance of Equity Awards to any one insider and such insider’s associates, within a one year period, may not exceed 5% of the Outstanding Issue and the issuance to all insiders, within a one year period, may not exceed 10% of the Outstanding Issue.
      In the event that our common shares are changed or affected as a result of the declaration of a stock dividend or other distribution thereon or their subdivision or consolidation, the maximum quantity of shares which may be issued under the Plans, in aggregate, will be adjusted accordingly by our board, or a committee thereof, to such extent as they deem proper in their discretion. Equity Awards outstanding prior to, but exercised or redeemed after such an event will be subjected to a change in the number of shares (or cash amount) delivered upon exercise or redemption and an adjustment in the exercise price in respect of Options and the fair market value with respect to Share Units, each to such extent as our board deems proper in their discretion.
      In the event of any reclassification or reorganization of our shares, other than as specified in the preceding paragraph, or a merger, combination, entry into a plan of arrangement or amalgamation of us with another corporation, Equity Awards outstanding prior to, but exercised or redeemed after, the applicable event will be entitled to receive, in lieu of our common shares, the number and class of shares or other securities of the corporation continuing from such event, and/or other consideration, to which the holder would have been entitled if, at the effective date of the event, the holder of an Equity Award had been the holder of our common shares.
      Participants do not have the right to exercise any voting rights, receive any dividends or have any other rights as a shareholder in respect of any Equity Awards until the underlying shares have been issued. However, an RSU Plan Participant will, unless we determine otherwise, from time to time be credited with additional Share Units in respect of non-stock dividends declared that would have been paid to the RSU Plan Participant if the Share Units credited to the RSU Plan Participant, on the relevant record date for dividends, had been common shares.
      Unless we provide otherwise in a written agreement, if a Participant ceases to provide services to us or our affiliates in any capacity of employee, officer, director, or consultant (subject to certain exceptions), the Participant’s vested Options will remain outstanding and subject to exercise for 30 days (but in no event beyond the expiry date of the Options), vested Share Units will be redeemed by us as soon as practicable following the cessation of services, and unvested Equity Awards will immediately expire.
      Unless we provide otherwise in a written agreement, if a Participant ceases to be an employee or officer by reason of termination for cause, is removed as a director by our board or shareholders, or ceases to be a consultant to us for cause or breach of duty, in each case with respect to us or our affiliates (and in each case, if not otherwise remaining an employee, officer or director of us or any of our affiliates), all the

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Participant’s Equity Awards, whether vested or unvested, will immediately expire and be of no further force or effect.
      From time to time, we may amend, suspend or terminate the Plans or the terms of any outstanding Equity Awards; provided, however, that (i) any approvals required under any applicable law are obtained, (ii) except to the extent required by applicable laws, no such amendment, suspension or termination will be made to the extent that would materially adversely affect the existing rights of a Participant with respect to any outstanding Equity Awards, without the Participant’s consent in writing, and (iii) certain amendments will only become effective upon shareholder approval by a majority of the votes attaching to shares held by shareholders in attendance at a meeting of shareholders voting in person or by proxy, including (subject to some exceptions):
  •  any amendment to the maximum number of shares reserved for issue under the Plans;
 
  •  any amendment that would increase any of the percentage limits for holdings of Equity Awards by a Participant or Participants;
 
  •  any amendment to the maximum allowable term to expiry for an Equity Award (seven years);
 
  •  any amendment that would extend the term of any outstanding Equity Award granted to an insider to a date beyond the maximum allowable term to expiry for such Equity Award;
 
  •  any amendment that would reduce the exercise price at which Options may be granted below the fair market value of our shares on the date the Options are granted; and
 
  •  any amendment that would reduce the exercise price of an outstanding Option of an insider.
      We may make such rules and regulations for the administration of the Plans, and interpret the provisions thereof, as we determine to be appropriate. Our board, or a committee thereof, may from time to time delegate all or any of our powers under the Plans to one or more of our directors or officers.
     Directors’ Deferred Stock Unit Plan
      We intend to adopt a Directors’ Deferred Stock Unit Plan (the “DSU Plan”) to encourage our outside directors (being directors who are not employees of our company) to have a meaningful investment in our company, to enhance our company’s ability to attract and retain high quality individuals to serve on our board of directors and to align the interests of outside directors with those of our shareholders.
      Under the DSU Plan, outside directors of our company (“DSU Participants”) will be able to elect to receive their annual retainer fees, including annual committee fees, in the form of deferred stock units. A deferred stock unit is a bookkeeping entry, with a value on any date that is equivalent to the market value of a common share on such date (as determined in accordance with the DSU Plan), credited to an account for a DSU Participant until he or she ceases to be a member of our board of directors (and is not otherwise an employee or officer of us or an employee, officer or director of any of our affiliates). As well, the DSU Plan permits DSU Participants to receive grants of additional deferred stock units in such amounts and at such times as our board may deem advisable to provide the DSU Participant with appropriate equity-based compensation for his or her services to us. It is contemplated that DSU Participants will receive an initial grant of deferred stock units upon appointment to our board of directors. Under the DSU Plan, DSU Participants will also generally be credited with deferred stock units in respect of any non-stock dividends declared that would have been paid to the DSU Participants, on the relevant record date for dividends, if the deferred stock units credited to his or her account under the DSU Plan had been common shares. Upon a DSU Participant’s ceasing to be a member of our board of directors (provided he or she is not otherwise an employee or officer of us, or an employee, officer or director of any of our affiliates), he or she will be entitled to receive, or, in the case of a deceased DSU Participant, the DSU Participant’s beneficiary will be entitled to receive, the value of the deferred stock units credited to the DSU Participant’s account in cash (less any applicable tax withholdings).

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      Our board may amend or terminate the DSU Plan provided that no amendment or termination may adversely affect the rights of a DSU Participant with respect to fees that the DSU Participant has elected to receive in the form of deferred stock units or with respect to deferred stock units previously granted to the DSU Participant under the DSU Plan, unless the DSU Participant consents or unless such amendment or termination is required by applicable law. The DSU Plan is an unfunded obligation of ours.
Short Term Incentive Plan
      We intend to adopt a short-term incentive plan prior to the completion of this offering.
Additional Information Regarding Directors and Officers
Corporate cease trade orders or bankruptcies
      To the best of our knowledge, none of our directors or officers is, or within the last ten years prior to the date of this prospectus has been, a director or officer of any other corporation that, while that person was acting in the capacity of a director or officer of that corporation, was the subject of a cease trade order or similar order or any order that denied the corporation access to any statutory exemptions under Ontario securities law for a period of more than 30 consecutive days, was declared bankrupt or made a voluntary assignment in bankruptcy, instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold the assets of that director or officer.
Conflicts of interest
      To the best of our knowledge, other than as described below, there are no known existing or potential conflicts of interest among us, our directors and officers or any proposed director or officer as a result of their outside business interests. Certain of our directors serve as directors and/or officers of ATS, and therefore it is possible that a conflict may arise between their duties to us and their duties as directors or officers of ATS. See “Risk Factors — We may have potential disputes and business conflicts of interest with ATS regarding our past and ongoing relationships, and because of ATS’ controlling ownership in us, the resolution of these conflicts may not be favorable to us.”
Indebtedness of directors and officers
      As at the date of this prospectus, no amount was owed to us or any of our subsidiaries by any director or executive officer.

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RELATED PARTY TRANSACTIONS
      For information regarding our related-party transactions since the beginning of our preceding three fiscal years, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Related Party Transactions,” “Our Relationship with ATS,” “Management — Employment Agreements” and note 17 to our combined financial statements included in this prospectus.
      Other than the foregoing, within the three years before the date of this prospectus, neither ATS nor any director, executive officer, or any of their associates or affiliates has had any direct or indirect material interest in any transaction or proposed transaction that has materially affected or will materially affect us.

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PRINCIPAL SHAREHOLDERS
      The following table sets forth information regarding the beneficial ownership of our common shares as of July 31, 2006 and immediately after this offering by:
  •  each person or entity known to us to own or beneficially more than five percent of our outstanding shares; and
 
  •  our directors and executive officers.
      Other than as set forth below, no other person or entity owned more than five percent or more of our outstanding shares or exercised control or could exercise control over us as of the date of this prospectus.
      Beneficial ownership is determined in accordance with SEC rules, which generally attribute beneficial ownership of securities to each person or entity who possesses, either solely or shares with others, the power to vote or dispose of those securities. These rules also treat as outstanding all shares that a person would receive upon exercise of stock options or warrants, or upon conversion of convertible securities, held by that person that are exercisable or convertible within 60 days of the determination date. Shares issuable pursuant to exercisable or convertible securities are deemed to be outstanding for computing the percentage ownership of the person holding such securities but are not deemed outstanding for computing the percentage ownership of any other person. The percentage of beneficial ownership for the following table is based on one common share outstanding as of July 31, 2006 and                     common shares outstanding immediately after the completion of this offering, assuming no exercise of the underwriters’ over-allotment option. To our knowledge, except as indicated in the footnotes to this table and pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all common shares shown as beneficially owned by them.
                                 
    Common Shares   Common Shares
    Beneficially Owned   Beneficially Owned
    Prior to This   Immediately After This
    Offering   Offering
         
Name and Address of Beneficial Owner   Number   %   Number   %
                 
ATS(1)
    1       100 %                
Directors and Executive Officers
                       
 
(1)  If the over-allotment option is exercised in full, ATS will beneficially own                      shares after the offering, representing           % of our outstanding shares.
      None of our shareholders has, or after the closing of this offering will have, different voting rights from other shareholders. We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.

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DESCRIPTION OF SHARE CAPITAL
      The following is a summary description of our share capital, our certificate and articles of incorporation and by-laws and are qualified by reference to our certificate and articles of incorporation and by-laws, copies of which have been filed with the SEC as exhibits to our registration statement of which this prospectus forms a part and with Canadian provincial securities regulators.
      We are a Canadian corporation and our affairs are governed by our certificate and articles of incorporation, our by-laws and the CBCA.
      Under our articles of incorporation, we are authorized to issue an unlimited number of common shares and an unlimited number of preference shares, issuable in series, each without par value. Upon completion of this offering, we will have                      common shares outstanding (                     common shares if the underwriters exercise their over-allotment option in full) and no preference shares outstanding.
Common Shares
      As of the date of this prospectus, and before giving effect to this offering, all of our outstanding common shares were owned directly or indirectly by ATS.
      Holders of common shares are entitled to one vote per share on all matters to be voted on at all meetings of shareholders except meetings at which only holders of a specified class of shares are entitled to vote. The holders of common shares are not entitled to cumulative voting rights. In general, all matters to be voted on by shareholders must be approved by a majority of the votes cast by holders of common shares present in person or represented by proxy, voting together as a single class, at a duly called meeting of shareholders, subject to any voting rights granted to holders of any preference shares.
      Holders of common shares have no pre-emptive rights and there are no redemptive or sinking fund provisions applicable to the common shares.
      Holders of common shares will share in an equal amount per share in any dividend declared by us, subject to any preferential rights of any outstanding preference shares.
      Upon liquidation, dissolution or winding up of our affairs, our creditors and any holders of preference shares with preferential rights will be paid before any distribution to holders of common shares. The holders of common shares would be entitled to receive a pro rata distribution of any of our remaining property. All outstanding common shares are, and the common shares offered in this offering when issued and paid for will be, fully paid and non-assessable.
      The rights, preferences and privileges of holders of common shares are subject to, and may be adversely affected by, the rights of holders of shares of any series of preference shares which our board of directors may designate and issue in the future.
Preference Shares
      The preference shares may at any time and from time to time be issued in one or more series. Subject to the CBCA, the directors may fix the number of preference shares of each series, designation, rights, privileges, restrictions and conditions attaching to the preference shares of each series, including, without limitation, any voting rights, any right to receive dividends or the means for determining such dividends, the dates of payment, any terms and conditions of redemption or purchase, any conversion rights, and any rights on the liquidation, dissolution or winding up of our company, any sinking fund or other provisions. The preference shares of each series will rank on par with the preference shares of every other series and be entitled to preference over the common shares with respect to the payment of dividends and the distribution of assets in the event of liquidation, dissolution or winding up of our company. The issuance of preference shares and the terms selected by the board could decrease the amount of earnings and assets available for distribution to the holders of our common shares or adversely affect the rights and powers, including voting rights, of the holders of our common shares without any further vote or action by the common shareholders.

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There are currently no outstanding preference shares, and we have no present intention to issue any preference shares.
Certain Provisions of Our Articles of Incorporation, Our By-Laws and the CBCA
      Provisions of our articles of incorporation and by-laws and of the CBCA summarized below may be deemed to have an anti-takeover effect and may delay, deter or prevent a tender offer or takeover attempt that a shareholder might consider in its best interest, including those attempts that might result in a premium over the market price for the common shares held by shareholders.
      No cumulative voting. Under the CBCA, the right to vote cumulatively does not exist unless the articles of incorporation specifically authorize cumulative voting. Our articles of incorporation do not grant shareholders the right to vote cumulatively.
      Authorized but unissued shares. Our authorized but unissued common shares are available for future issuance without shareholder approval. These additional common shares may be utilized for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans. Our articles of incorporation authorizes our board to issue an unlimited number of preference shares and to determine the number, rights, privileges, restrictions and conditions, including voting rights, qualifications, limitations and restrictions attaching to each series of preference shares. The existence or issuance of authorized but unissued common and preference shares could have the effect of delaying, deterring or preventing an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise, or an unsolicited acquisition proposal or of making the removal of management more difficult. Additionally, the issuance of preference shares may have the effect of decreasing the market price of our common shares.
      Meeting of shareholders. The CBCA provides that meetings of our shareholders may be requisitioned or called by a shareholder or shareholders holding not less than five percent of our issued and outstanding common shares. Such a shareholder or shareholders must deliver a requisition to the directors setting out the business to be transacted at the requested meeting. The directors may refuse to call the meeting if, among other things, they determine that the shareholder or shareholders are attempting to enforce a personal claim or abusing their requisition rights to secure publicity. Unless the directors are otherwise entitled to do so, if the directors do not call a meeting of shareholders within 21 days after receiving the requisition, any shareholder who signed the requisition may call the meeting.
      Amendment to our governing documents. For so long as ATS and its subsidiaries beneficially own common shares representing at least two-thirds of the total voting power of the outstanding common shares, ATS will have enough common shares to amend our articles of incorporation, subject to certain circumstances which would permit holders of preference shares to vote as a separate class. In addition, for as long as ATS and its subsidiaries beneficially own common shares representing at least 40% of our outstanding common shares, ATS will be entitled to designate, pursuant to the Shareholder Agreement, 25% of the nominees for election to our board of directors. Our board may unilaterally amend or repeal our by-laws with the affirmative vote of a majority of the entire board. Such amendment or repeal is effective upon such board approval, but is subject to confirmation by a majority of the votes entitled to be cast by holders of our common shares present in person or represented by proxy at our next meeting.
Indemnification of Directors and Executive Officers and Limitation of Liability
      We have included in our by-laws provisions to generally eliminate the personal liability of our directors and officers to the full extent permitted by the CBCA. In addition, our by-laws provide that we are required to advance moneys to pay costs, charges and expenses to our directors and officers as incurred in connection with proceedings against them for which they may be indemnified in advance of a final determination of their entitlement to indemnification. These provisions, however, do not eliminate or limit liability of a director or officer, and will require that a director or officer repay any advanced costs, charges or expenses, if the director or officer (i) did not act honestly and in good faith with a view to our best interest, and (ii) in the

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case of a criminal or administrative action or proceeding that is enforced by monetary penalty, did not have reasonable grounds for believing that his or her conduct was lawful.
      We are not currently aware of any pending or threatened litigation or proceeding involving a director, officer, employee or agent of ours in which indemnification would be required or permitted. We believe these indemnification provisions are necessary to attract and retain qualified persons as directors and officers.
      We have entered into indemnification agreements with our directors, executive officers and with certain other officers and employees (including officers and employees of our subsidiaries). The indemnification agreements generally require that we indemnify and hold an indemnitee harmless to the greatest extent permitted by law for liabilities arising out of the indemnitee’s service to us as a director, officer or employee, if the indemnitee acted honestly and in good faith and in a manner the indemnitee reasonably believed to be in or not opposed to our best interests and, with respect to criminal and administrative actions or proceedings that are enforced by monetary penalty, if the indemnitee had no reasonable grounds to believe that his or her conduct was unlawful. The indemnification agreements also provide for the advancement of defense expenses by us.
      Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling us under these indemnification agreements, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable as a matter of United States law.
      The foregoing is a summary of the indemnification agreements and is qualified in its entirety by reference to the full text of the indemnification agreements, a sample of which is attached as exhibits to the registration statement of which this prospectus is a part and copies of which have been filed with Canadian provincial securities regulators.
Directors’ and Officers’ Fiduciary Duties
      Under the CBCA, all of our directors and officers, in exercising their powers and discharging their duties, are required to act honestly and in good faith with a view to our best interests and to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.
Ownership and Exchange Controls
      Limitations on the ability to acquire and hold our common shares may be imposed by the Competition Act (Canada). This legislation permits the Commissioner of Competition of Canada (the “Commissioner”) to review any acquisition of control over or a significant interest in us. This legislation grants the Commissioner jurisdiction, for up to three years, to challenge this type of acquisition before the Canadian Competition Tribunal on the basis that it would, or would be likely to, substantially prevent or lessen competition in any market in Canada.
      This legislation also requires any person who intends to acquire our common shares to file a notification with the Canadian Competition Bureau if certain financial thresholds are exceeded and if that person would hold more than 20% of our common shares. If a person already owns 20% or more of our common shares, a notification must be filed when the acquisition of additional common shares would bring that person’s holdings to over 50%. Where a notification is required, the legislation prohibits completion of the acquisition until the expiration of a statutory waiting period, unless the Commissioner provides written notice that she does not intend to challenge the acquisition, or waives the obligation to submit a notification.
      There is no limitation imposed by Canadian law or our articles of incorporation on the right of non-residents to hold or vote our common shares, other than those imposed by the Investment Canada Act.
Investment Canada Act
      Under the Investment Canada Act, a direct acquisition of control of an existing Canadian business by a “non-Canadian” as defined in the Investment Canada Act, is subject to review where the book value of the

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assets or the Canadian business exceeds a specified monetary threshold. A reviewable acquisition cannot be implemented unless the Minister responsible for the Investment Canada Act (the “Minister”) is satisfied that the transaction is likely to be of “net benefit to Canada” (a “Reviewable Transaction”).
      The prescribed factors of assessment to be considered by the Minister to determine whether the Reviewable Transaction is likely to be of net benefit to Canada include, among other things, the effect of the investment on the level and nature of economic activity in Canada (including the effect on employment, resource processing, utilization of Canadian products and services and exports), the degree and significance of participation by Canadians in the acquired business, the effect of the investment on productivity, industrial efficiency, technological development, product innovation and product variety in Canada, the effect of industrial, economic and cultural policies (taking into consideration corresponding provincial policies), and the contribution of the investment to Canada’s ability to compete in world markets.
      Where the acquisition of control of an existing Canadian business by a non-Canadian is not a Reviewable Transaction, a notification must be filed with the Investment Review Division of Industry Canada.
      Under the Investment Canada Act the acquisition of control of us (either through the acquisition of our common shares or all or substantially all our assets) by a non-Canadian who is a World Trade Organization member country investor, including U.S. investors, would be reviewable only if the value of our assets was equal to or greater than a specified amount. The specified amount for 2006 is C$265 million. The threshold amount is subject to an annual adjustment on the basis of a prescribed formula in the Investment Canada Act to reflect changes in Canadian gross domestic product. For non-World Trade Organization member investors, the corresponding threshold is C$5 million.
      The acquisition of a majority of the voting interests of an entity is deemed to be acquisition of control of that entity. The acquisition of less than a majority but one-third or more of the voting shares of a corporation or of an equivalent undivided ownership interest in the voting shares of the corporation is presumed to be an acquisition of control of that corporation unless it can be established that, on the acquisition, the corporation is not controlled in fact by the acquiror through the ownership of voting shares. The acquisition of less than one-third of the voting shares of a corporation is deemed not to be an acquisition of control of that corporation. Certain transactions in relation to our common shares would be exempt from review from the Investment Canada Act including:
  •  the acquisition of our common shares by a person in the ordinary course of that person’s business as a trader or dealer in securities;
 
  •  the acquisition or control of us in connection with the realization of security granted for a loan or other financial assistance and not for any purpose related to the provisions of the Investment Canada Act; and
 
  •  the acquisition or control of us by reason of an amalgamation, merger, consolidation or corporate reorganization following which the ultimate direct or indirect control in fact of us, through the ownership of voting interests, remains unchanged.
      There is no law, governmental decree or regulation in Canada that restricts the export or import of capital, or which would affect the remittance of dividends or other payments by us to non-resident holders of our common shares, other than withholding tax requirements.
Listing
      We intend to apply for quotation of our common shares on The Nasdaq Global Market and to list our common shares on the Toronto Stock Exchange. Any such listing will be subject to the approval of the relevant stock exchange, and any such approval would not be given unless all of the original listing requirements were met.

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Transfer Agent, Registrar and Auditor
                          , located in                     , Ontario is the transfer agent and registrar for our common shares in Canada.                     , located in                     ,                     , is the transfer agent and registrar for our common shares in the United States.
      KPMG LLP, located in Waterloo, Ontario is our independent auditor.

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SHARES ELIGIBLE FOR FUTURE SALE
      Prior to this offering, there has been no public market for our common shares. The sale of a substantial amount of our common shares in the public market after this offering, or the perception that such sales may occur, could adversely affect the prevailing market price of our common shares. Furthermore, because some of our shares will not be available for sale after this offering due to the contractual and legal restrictions on resale described below, the sale of a substantial amount of common shares in the public market after these restrictions lapse could adversely affect the prevailing market price of our common shares and our ability to raise equity capital in the future.
      Upon the completion of this offering, we expect to have a total of outstanding common shares, which includes the                     common shares sold by us in this offering.
      All of the common shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act or applicable Canadian securities laws, except for shares held by persons who may be deemed our “affiliates,” as that term is defined under Rule 144 of the Securities Act. An “affiliate” is a person that directly, or indirectly through one or more intermediaries, controls or is controlled by us or is under common control with us.
      The common shares held by ATS are deemed “restricted securities” as that term is defined in Rule 144 under the Securities Act. These restricted securities may be sold in the public market by ATS only if they are registered or if they qualify for an exemption from registration under Rule 144 or Rule 144(k) under the Securities Act. These rules are summarized below. For the reasons set forth below, we expect that the following common shares will be eligible for sale in the public market at the following times:
             
    Number of Shares Eligible for    
Date   Sale in U.S. Public Market   Comment
         
On the date of this prospectus
          Common shares sold in this offering
180 days after the date of this prospectus
          Lock-up agreements expire
Rule 144
      In general, under Rule 144 as currently in effect, beginning 90 days after the date of this prospectus, a person who has beneficially owned “restricted securities” for at least one year would be entitled to sell in the United States, within any three-month period, a number of shares that does not exceed the greater of:
  •  1.0% of the number of our common shares then outstanding which will equal approximately                      common shares immediately after this offering ; and
 
  •  the average weekly reported trading volume of our common shares on The Nasdaq Global Market during the four calendar weeks preceding the date on which a notice of the sale on Form 144 is filed with the SEC by such person.
      Sales under Rule 144 are also subject to manner-of-sale provisions, notice requirements and the availability of current public information about us. However, these shares would remain subject to lock-up arrangements and would only become eligible for sale when the lock-up period expires. Persons who are not our affiliates may be exempt from these restrictions under Rule 144(k) discussed below.
Rule 144(k)
      Under Rule 144(k), a person who is not deemed to have been our affiliate at any time during the three months preceding a sale, and who has beneficially owned the common shares proposed to be sold for at least two years from the later of the date these shares were acquired from us or from our affiliate, including the holding period of any prior owner other than an affiliate, is entitled to sell those shares in the United States immediately following this offering without complying with the manner-of-sale, public information, volume limitation or notice provisions of Rule 144. However, if these shares are subject to lock-up arrangements, such shares would only become eligible for sale when the lock-up period expires.

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Rule 701
      Generally, an employee, officer, director or consultant who purchased our common shares before the effective date of the registration statement of which this prospectus is a part, or who holds options as of that date, pursuant to a written compensatory plan or contract, may rely on the resale provisions of Rule 701 under the Securities Act. Under Rule 701, these persons who are not our affiliates may generally sell their eligible securities, commencing 90 days after the effective date of the registration statement of which this prospectus is a part, without having to comply with the public information, holding period, volume limitation or notice provisions of Rule 144.
Lock-up Agreements
      We, our directors and executive officers and ATS have entered into lock-up agreements with the underwriters. Under these agreements, we, our directors and executive officers and ATS may not, without the prior written approval of BMO Nesbitt Burns Inc. and UBS Securities LLC, subject to limited exceptions, offer, sell, contract to sell or otherwise dispose of or hedge our common shares or securities convertible into or exercisable or exchangeable for our common shares. These restrictions will be in effect for a period of 180 days after the date of this prospectus. At any time and without public notice, BMO Nesbitt Burns Inc. and UBS Securities LLC may, in their sole discretion, release all or some of the securities from these lock-up agreements.
Registration Rights
      After the completion of this offering and the expiration of the lock-up period described above, ATS will be entitled to certain rights with respect to the registration of our common shares under the Securities Act, under the terms of a registration rights agreement between us and ATS. See “Our Relationship with ATS — Agreements Between ATS and Us — Registration Rights Agreement.”
Additional Restrictions for Sales in Canada
      The sale of any of our common shares in the public market in Canada by ATS (as our controlling shareholder) will be subject to restrictions under applicable Canadian securities laws in addition to those restrictions noted above, unless the sale is qualified under a prospectus filed with Canadian securities regulatory authorities or if the following conditions are fulfilled:
  •  such sale occurs only after four months have lapsed from the date of a final receipt issued by Canadian securities regulatory authorities in respect of the final Canadian prospectus relating to the offering; and
 
  •  prior notice of the sale must be filed with Canadian securities regulatory authorities at least seven days before any sale.
      Sales under the procedure noted above are also subject to other requirements and restrictions regarding the manner of sale, payment of commissions, reporting and availability of current public information about us and compliance with applicable Canadian securities laws.

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TAXATION
Certain Canadian Federal Income Tax Considerations
      The following summarizes the principal Canadian federal income tax considerations under the Income Tax Act (Canada) (the “Tax Act”) generally applicable to the holding and disposition of common shares by a holder who acquires common shares in this offering.
      This summary is not applicable to a holder that is a trader or dealer in securities, tax-exempt entity, insurer, financial institution (including those to which the mark-to-market provisions of the Tax Act apply), nor is it applicable to any holder of common shares, an interest in which is a “tax shelter investment” for the purposes of the Tax Act.
      This summary is based on the current provisions of the Tax Act and the regulations thereunder, all specific proposals (the “Tax Proposals”) to amend the Tax Act and regulations publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof, the current provisions of the Canada-United States Income Tax Convention, as amended (the “Treaty”), and the administrative policies and assessing practices of the Canada Revenue Agency (“CRA”) made publicly available prior to the date hereof. While this summary assumes that the Tax Proposals will be enacted as currently proposed, no assurance can be given in this respect.
      This summary is not exhaustive of all possible Canadian federal income tax considerations and, except for any Tax Proposals, does not take into account or anticipate any changes in law, whether by legislative, governmental or judicial decision or action, or any changes in the Treaty or administrative practices of the CRA. This summary does not take into account provincial, territorial, U.S. or other foreign income tax considerations, which may differ significantly from those discussed herein. Provisions of provincial income tax legislation vary from province to province in Canada and may differ from federal income tax legislation. This summary is not intended as legal or tax advice to any particular holder of common shares and should not be so construed. The tax consequences to any particular holder of common shares will vary according to that holder’s particular circumstances. Each holder should consult the holder’s own tax advisor with respect to the income tax consequences applicable to the holder’s own particular circumstances.
      For purposes of the Tax Act, all amounts relevant in computing a holder’s liability under the Tax Act must be computed in Canadian dollars. Amounts denominated in United States dollars including adjusted cost base, proceeds of disposition and dividends must be converted into Canadian dollars based on the prevailing exchange rate at the relevant time.
Taxation of Resident Holders
      The summary under the heading “Taxation of Resident Holders” is applicable to a holder who at all relevant times for purposes of the Tax Act, is or is deemed to be resident in Canada, deals at arm’s length with and is not affiliated with us and acquires and holds the common shares as capital property (a “Resident Holder”). Generally, common shares will be considered to be capital property to a holder thereof provided that the holder does not use the common shares in the course of carrying on a business and such holder has not acquired them in one or more transactions considered to be an adventure or concern in the nature of trade. Certain Resident Holders who might not otherwise be considered to hold their common shares as capital property may, in certain circumstances, be entitled to have their common shares and all other “Canadian securities” (as defined in the Tax Act) owned by such Resident Holder, treated as capital property by making the irrevocable election permitted by subsection 39(4) of the Tax Act. Resident Holders should consult their own tax advisors for advice as to whether an election under subsection 39(4) of the Tax Act is available and/or advisable in their particular circumstances.
Dividends
      In the case of a Resident Holder who is an individual, any dividends received or deemed to be received on the common shares will be required to be included in computing the Resident Holder’s income and will be subject to the gross-up and dividend tax credit rules normally applicable to taxable dividends received

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from taxable Canadian corporations. Draft legislation released by the Minister of Finance (Canada) on June 29, 2006, proposes to enhance such gross-up and dividend tax credit for “eligible dividends” paid after 2005. Under the draft legislation, a dividend will be eligible for the enhanced gross-up and dividend tax credit if the dividend recipient receives written notice from the paying corporation designating the dividend as an eligible dividend. There may be limitations on the ability of a corporation to designate dividends as eligible dividends. Dividends received or deemed to be received by a Resident Holder that is a corporation will be included in income and normally will be deductible in computing such corporation’s taxable income. A Resident Holder that is a “private corporation” or a “subject corporation,” as such terms are defined in the Tax Act, may be liable under Part IV of the Tax Act to pay a refundable tax of 331/3% on dividends received or deemed to be received on the common shares to the extent that such dividends are deductible in computing such Resident Holder’s taxable income.
Dispositions
      A disposition, or a deemed disposition, of a common share by a Resident Holder will generally give rise to a capital gain (or a capital loss) equal to the amount by which the proceeds of disposition of the common share, net of any reasonable costs of disposition, exceed (or are less than) the adjusted cost base of the common share to the Resident Holder. For this purpose, the adjusted cost base to a Resident Holder of a common share at any particular time will be determined by averaging the cost of that common share with the adjusted cost base of all of our other common shares held as capital property at that time by the Resident Holder.
      One-half of any capital gain realized by a Resident Holder will be included in computing the Resident Holder’s income as a taxable capital gain in the year of disposition or deemed disposition. One-half of any capital loss realized by a Resident Holder may generally be deducted against taxable capital gains realized in that year, in the three preceding taxation years or in any subsequent taxation year, subject to detailed rules contained in the Tax Act in this regard. A capital loss realized by certain Resident Holders may be reduced in certain circumstances by the amount of any dividends received or deemed to have been received by such holders on the common shares to the extent and in the manner provided for in the Tax Act. A Resident Holder that is a “Canadian-controlled private corporation,” as defined in the Tax Act, may be liable to pay an additional refundable tax of 62/3% on certain investment income, including taxable capital gains. Capital gains realized by a Resident Holder that is an individual may give rise to a liability for alternative minimum tax. Resident Holders should consult their own tax advisors with respect to alternative minimum tax.
Taxation of U.S. Holders
      The summary under the heading “Taxation of U.S. Holders” is applicable to a holder who at all relevant times for purposes of the Tax Act, is not resident or deemed to be resident in Canada, deals at arm’s length with and is not affiliated with us, acquires and holds the common shares as capital property and does not use or hold the common shares in the course of carrying on, or otherwise in connection with, a business in Canada and who, for purposes of the Treaty, is a resident of the United States, has never been a resident of Canada, and has not held or used (and does not hold or use) the common shares in connection with a permanent establishment or fixed base in Canada (a “U.S. Holder”). Special rules, which are not discussed in this summary, may apply to a non-resident that is a “registered non-resident insurer” for the purposes of the Tax Act.
      The current published policy of the CRA is that certain entities (including most limited liability companies) that are treated as being fiscally transparent for United States federal income tax purposes will not qualify as residents of the United States for purposes of the Treaty.
Dividends
      Dividends paid or credited or deemed to be paid or credited to a U.S. Holder by us will be subject to Canadian withholding tax at a rate of 25% unless reduced under the provisions of an applicable income tax treaty or convention. Under the Treaty, the rate of withholding tax on dividends paid or credited to a

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U.S. Holder is generally reduced to 15% of the gross amount of the dividends (or 5% in the case of a U.S. Holder that is a corporation beneficially owning at least 10% of our voting shares).
Dispositions
      A U.S. Holder will generally not be subject to tax under the Tax Act in respect of any capital gain realized on the disposition or deemed disposition of the common shares unless, at the time of disposition, the common shares constitute “taxable Canadian property” of the U.S. Holder for the purposes of the Tax Act. Generally, the common shares will not constitute “taxable Canadian property” to a U.S. Holder provided that (i) the common shares are, at the time of disposition, listed on a prescribed stock exchange (which currently includes the Toronto Stock Exchange and The Nasdaq Global Market) for purposes of the Tax Act; and (ii) at no time during the 60-month period immediately preceding the disposition of the common shares did the U.S. Holder, persons with whom the U.S. Holder did not deal at arm’s length, or the U.S. Holder together with such persons, own 25% or more of the issued shares of any class or series of our capital stock.
      Pursuant to the Treaty, even if the common shares constitute “taxable Canadian property” of a particular U.S. Holder, any capital gain realized on the disposition of the common shares by the U.S. Holder generally will be exempt from tax under the Tax Act, unless, at the time of disposition, the common shares derive their value principally from real property situated in Canada within the meaning of the Treaty. We are of the view that the value of the common shares is not derived principally from real property situated in Canada.
      Provided the common shares are listed on a prescribed stock exchange (which currently includes the Toronto Stock Exchange and The Nasdaq Global Market) for purposes of the Tax Act, at the time of disposition the preclearance provisions of Section 116 of the Tax Act will not apply to a disposition of common shares.
Certain U.S. Federal Income Tax Considerations
      The following summary describes the U.S. federal income tax considerations generally applicable to U.S. Holders (as defined below) of the purchase, ownership, and disposition of common shares. This summary is based upon the Code, U.S. Treasury regulations under the Code, administrative rulings and judicial decisions, all as in effect as of the date of this document and all of which are subject to change (possibly with retroactive effect) or to differing interpretations. This summary applies only to holders of common shares that hold their common shares as capital assets within the meaning of Section 1221 of the Code. This summary does not discuss all aspects of U.S. federal income taxation that may be relevant to a particular holder of common shares in light of its particular circumstances or to holders of common shares subject to special treatment under the U.S. federal income tax laws, including:
  •  banks, insurance companies, trusts and financial institutions;
 
  •  tax-exempt organizations;
 
  •  mutual funds, real estate investment trusts and regulated investment companies;
 
  •  pass-through entities and investors in such entities;
 
  •  persons that have a functional currency other than the U.S. dollar;
 
  •  persons liable for the alternative minimum tax;
 
  •  traders in securities who elect to apply a mark-to-market method of accounting;
 
  •  brokers or dealers in securities or foreign currency;
 
  •  holders of common shares who hold their common shares as part of a hedge, straddle, constructive sale, conversion transaction or other integrated investment; and
 
  •  holders who own (actually or constructively) 10% or more of our common shares.

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      This summary does not discuss any state, local, non-U.S. or estate and gift tax considerations applicable to holders of common shares. Prospective purchasers of common shares should consult their tax advisors regarding the U.S. federal income tax consequences applicable to their particular circumstances.
      For purposes of this summary, a U.S. Holder is a beneficial owner of common shares that is:
  •  an individual who is a U.S. citizen or resident alien for U.S. federal income tax purposes;
 
  •  a corporation, or entity treated as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States, any state thereof, or the District of Columbia;
 
  •  an estate the income of which is subject to U.S. federal income taxation regardless of its source; or
 
  •  a trust if (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 substantial decisions of the trust or (ii) the trust has a valid election in effect to be treated as a U.S. person for U.S. federal income tax purposes.
      If a partnership holds common shares, the U.S. federal income tax treatment of a partner in the partnership generally will depend upon the status of the partner and the activities of the partnership. Partners of partnerships that hold common shares should consult their tax advisors regarding the U.S. federal income tax consequences to them of the purchase, ownership, and disposition of common shares.
Distributions on common shares
      Subject to the passive foreign investment company (“PFIC”) rules discussed below, the gross amount of any distribution with respect to common shares, before reduction for Canadian withholding tax, will be taxable to U.S. Holders of common shares as a dividend to the extent of our current and accumulated earnings and profits, as determined under U.S. federal income tax principles. To the extent that the amount of any cash exceeds our current and accumulated earnings and profits, as determined under U.S. federal income tax principles, such distribution will first be treated as a tax-free return of capital to the extent of your adjusted tax basis in the common shares causing a reduction in the adjusted basis of the common shares, (thereby increasing the amount of gain or decreasing the amount of loss that a U.S. Holder would recognize on a subsequent disposition of common shares). Any balance in excess of the adjusted basis will be subject to tax as capital gain.
      Subject to certain limitations, dividends paid to non-corporate U.S. Holders, including individuals, in taxable years beginning before January 1, 2009, may be eligible for a reduced rate of taxation if we are deemed to be a “qualified foreign corporation” for U.S. federal income tax purposes and such U.S. Holder has owned the common shares for more than 60 days in the 121-day period beginning 60 days before the date on which the common shares become ex-dividend. A qualified foreign corporation includes a non-U.S. corporation that is eligible for the benefits of a comprehensive income tax treaty with the United States that includes an exchange of information program and that the U.S. Treasury Department has determined to be satisfactory for purposes of the qualified dividend provisions of the Code. The U.S. Treasury Department has determined that the income tax treaty between the United States and Canada is satisfactory for purposes of the qualified dividend provisions of the Code. A qualified foreign corporation does not include a non-U.S. corporation that is a PFIC for the taxable year in which a dividend is paid or was a PFIC for the preceding taxable year. Distributions on the common shares should be eligible for this reduced rate of taxation as long as we are not, and was not in the preceding taxable year, a PFIC and are eligible for the benefits of the income tax treaty between the United States and Canada.
      Distributions will be includable in a U.S. Holder’s gross income on the date actually or constructively received by the U.S. Holder. These dividends will not be eligible for the dividends received deduction generally allowed to U.S. corporations in respect of dividends received from other U.S. corporations.
      If we pay dividends on the common shares in Canadian dollars, the U.S. dollar value of such dividends should be calculated by reference to the exchange rate prevailing on the date of actual or constructive receipt of the dividend, regardless of whether the Canadian dollars are converted into U.S. dollars at that time. If

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Canadian dollars are converted into U.S. dollars on the date of actual or constructive receipt of such dividends, a U.S. Holder’s tax basis in such Canadian dollars will be equal to their U.S. dollar value on that date and, as a result, the U.S. Holder generally will not be required to recognize any foreign currency exchange gain or loss. Any gain or loss recognized on a subsequent conversion or other disposition of the Canadian dollars generally will be treated as ordinary income or loss from sources within the United States for U.S. foreign tax credit limitation purposes.
      A U.S. Holder may be entitled to claim a U.S. foreign tax credit for, or deduct, Canadian taxes that are withheld on dividends received by the U.S. Holder, subject to applicable limitations in the Code. For taxable years beginning on or before December 31, 2006, dividends paid on the common shares generally will constitute “passive income” and will be treated as foreign source income for U.S. foreign tax credit limitation purposes. For taxable years beginning after December 31, 2006, dividends paid on the common shares generally will be “passive category income” or “general category income” and will be treated as foreign source income for U.S. foreign tax credit limitation purposes. The amount of foreign income taxes that may be claimed as a credit in any year is subject to complex limitations and restrictions, which must be determined on an individual basis by each holder. U.S. Holders are urged to consult their tax advisors regarding the availability of the U.S. foreign tax credit in their particular circumstances.
Sale, exchange or other disposition of common shares
      Subject to the PFIC rules discussed below, upon the sale, exchange or other disposition of common shares, a U.S. Holder generally will recognize capital gain or loss equal to the difference between the amount realized upon the sale, exchange or other disposition of common shares and the U.S. Holder’s adjusted tax basis in the common shares. The capital gain or loss generally will be long-term capital gain or loss if, at the time of sale, exchange or other disposition, the U.S. Holder has held the common shares for more than one year. Net long-term capital gains of non-corporate U.S. Holders, including individuals, are eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations. Any gain or loss that a U.S. Holder recognizes generally will be treated as gain or loss from sources within the United States for U.S. foreign tax credit limitation purposes.
PFIC rules
      Based on the projected composition on our income and our assets, we do not expect to be a PFIC for our taxable year ending March 31, 2007. Because this conclusion is a factual determination that is made annually, and is subject to change, there can be no assurance that we will not be a PFIC for our taxable year ending March 31, 2007 or any future taxable year. Special, generally adverse, U.S. federal income tax rules would apply to a U.S. Holder if we were a PFIC at any time during which a U.S. Holder held common shares. A non-U.S. corporation generally is classified as a PFIC for U.S. federal income tax purposes in any taxable year if, either (i) at least 75% of its gross income is “passive” income (the “income test”), or (ii) on average at least 50% of the gross value of its assets is attributable to assets that produce passive income or are held for the production of passive income (the “asset test”). Passive income generally includes dividends, interest, royalties, rents (other than rents and royalties derived in the active conduct of a trade or business and not derived from a related person), certain net gains from the sales of commodities, annuities and gains from assets that produce passive income. For purposes of the income test and the asset test, if a non-U.S. corporation owns directly or indirectly at least 25% (by value) of the stock of another corporation, the non-U.S. corporation will be treated as if it held its proportionate share of the assets of the latter corporation, and received directly its proportionate share of the income of the latter corporation.
      If we were a PFIC, a U.S. Holder of common shares would be taxed at ordinary income tax rates on any gain realized on the sale or exchange of the common shares and on any “excess distributions” received. Excess distributions are amounts received by a U.S. Holder with respect to its common shares in any taxable year that exceed 125% of the average distributions received by the U.S. Holder in the shorter of either the three previous years or, if shorter, the U.S. Holder’s holding period for the shares before the current taxable year. Gain and excess distributions would be allocated ratably to each day that the U.S. Holder held common shares. Amounts allocated to that taxable year and to years before we became a PFIC would be treated as

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ordinary income. In addition, amounts allocated to each taxable year beginning with the year we first became a PFIC would be taxed at the highest rate in effect for that year on ordinary income and the tax would be subject to an interest charge at the rate applicable to underpayments of income tax. If we were a PFIC, U.S. Holders would be required to file U.S. Internal Revenue Service Form 8621 for each year in which they held common shares.
      Under certain circumstances, a U.S. person may make certain elections to mitigate some of the tax consequences of holding shares of a PFIC (including a qualified electing fund election and a mark-to-market election). U.S. Holders are urged to consult their tax advisors regarding our possible classification as a PFIC and the adverse tax consequences that would result from such classification.
Information reporting and backup withholding
      In general, unless a U.S. Holder belongs to a category of certain exempt recipients (such as corporations), information reporting requirements will apply to dividends as well as proceeds of sales of common shares that are effected through the U.S. office of a broker or the non-U.S. office of a broker that has certain connections with the United States. Backup withholding may apply to these payments if a U.S. Holder fails to provide a correct taxpayer identification number or certification of exempt status, fails to report in full dividend and interest income or, in certain circumstances, fails to comply with applicable certification requirements. Any amounts withheld under the backup withholding rules will be allowed as a refund or credit against a U.S. Holder’s U.S. federal income tax, provided the U.S. Holder furnishes the required information to the U.S. Internal Revenue Service in a timely manner.

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UNDERWRITING
      We are offering the common shares described in this prospectus through the underwriters named below. BMO Nesbitt Burns Inc. and UBS Securities LLC are the joint book-running managers of this offering. We have entered into an underwriting agreement with the underwriters. Subject to the terms and conditions of the underwriting agreement, each of the underwriters has severally agreed to purchase the number of common shares listed next to its name in the following table:
         
    Number of
Underwriters   Shares
     
BMO Nesbitt Burns Inc. 
       
UBS Securities LLC
       
       
Total
       
       
      The underwriting agreement provides that the underwriters must buy all of the shares if they buy any of them. However, the underwriters are not required to take or pay for the shares covered by the underwriters’ over-allotment option described below.
      Our common shares are offered subject to a number of conditions, including:
  •  receipt and acceptance of our common shares by the underwriters, and
 
  •  the underwriters’ right to reject orders in whole or in part.
      In connection with this offering, certain of the underwriters or securities dealers may distribute prospectuses electronically.
      This offering is being made concurrently in the United States and in each of the provinces and territories of Canada. The common shares will be offered in the United States through those underwriters or their U.S. affiliates who are registered to offer the common shares for sale in the United States and such other registered dealers as may be designated by the underwriters. The common shares will be offered in each of the provinces and territories of Canada through those underwriters or their Canadian affiliates who are registered to offer the common shares for sale in such provinces and territories and such other registered dealers as may be designated by the underwriters. Subject to applicable law, the underwriters may offer the common shares outside of the United States and Canada.
Over-Allotment Option
      ATS has granted the underwriters an option to buy up to                     additional common shares. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any, made in connection with this offering. The underwriters have 30 days from the date of this prospectus to exercise this option. If the underwriters exercise this option, they will each purchase additional shares approximately in proportion to the amounts specified in the table above.
Commissions
      Shares sold by the underwriters to the public will initially be offered at the offering price set forth on the cover of this prospectus. Any shares sold by the underwriters to securities dealers may be sold at a discount of up to $           per share from the public offering price. Any of these securities dealers may resell any shares purchased from the underwriters to other brokers or dealers at a discount of up to $           per share from the public offering price. If all the shares are not sold at the public offering price, the representatives may change the offering price and the other selling terms. The public offering price for the common shares offered in the United States is payable in U.S. dollars and the public offering price for the common shares offered in Canada is payable in Canadian dollars. The Canadian dollar amount is the equivalent of the U.S. price of the common shares based on the prevailing U.S.-Canadian dollar exchange rate on the date of the underwriting agreement.

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      The following table shows the per share and total underwriting commissions we or ATS will pay to the underwriters, assuming both no exercise and full exercise of the underwriters’ option to purchase up to  common shares:
                   
        Over-
    Over-   Allotment
    Allotment not   Fully
    Exercised   Exercised
         
Per share
  $       $    
 
Total
  $       $    
      We estimate that the total expenses of this offering payable by us, not including the underwriting commissions, will be approximately $          . ATS will pay the underwriting commissions applicable to the common shares that they sell if the over-allotment option is exercised.
No Sales of Similar Securities
      We, our directors and executive officers and ATS have entered into lock-up agreements with the underwriters. Under these agreements, we, our directors and executive officers and ATS may not, without the prior written approval of BMO Nesbitt Burns Inc. and UBS Securities LLC, subject to limited exceptions, offer, sell, contract to sell or otherwise dispose of or hedge our common shares or securities convertible into or exercisable or exchangeable for our common shares. These restrictions will be in effect for a period of 180 days after the date of this prospectus. At any time and without public notice, BMO Nesbitt Burns Inc. and UBS Securities LLC may, in their sole discretion, release all or some of the securities from these lock-up agreements.
Indemnification and Contribution
      We have agreed to indemnify the underwriters and their controlling persons against certain liabilities, including liabilities under the U.S. Securities Act and applicable securities laws in Canada. If we are unable to provide this indemnification, we will contribute to payments the underwriters and their controlling persons may be required to make in respect of those liabilities.
      We intend to apply to list our common shares on The Nasdaq Global Market under the symbol “PHWT” and on the Toronto Stock Exchange under the symbol “PHW.” Any such listing will be subject to the approval of the relevant stock exchange, and any such approval would not be given unless all of the original listing requirements were met.
Price Stabilization, Short Positions and Passive Market Making
      In connection with this offering, the underwriters may engage in activities that stabilize, maintain or otherwise affect the price of our common shares, including:
  •  stabilizing transactions;
 
  •  short sales;
 
  •  purchases to cover positions created by short sales;
 
  •  imposition of penalty bids;
 
  •  syndicate covering transactions; and
 
  •  passive market making.
      Stabilizing transactions consist of bids or purchases made for the purpose of preventing or retarding a decline in the market price of our common shares while this offering is in progress. These transactions may also include making short sales of our common shares, which involve the sale by the underwriters of a greater number of common shares than they are required to purchase in this offering. Short sales may be “covered short sales,” which are short positions in an amount not greater than the underwriters’ over-

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allotment option referred to above, or may be “naked short sales,” which are short positions in excess of that amount.
      The underwriters may close out any covered short position either by exercising their over-allotment option, in whole or in part, or by purchasing shares in the open market. In making this determination, the underwriters will consider, among other things, the price of shares available for purchase in the open market compared to the price at which they may purchase shares through the over-allotment option. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common shares in the open market that could adversely affect investors who purchased in this offering.
      The underwriters also may impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of that underwriter in stabilizing or short covering transactions.
      As a result of these activities, the price of our common shares may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued by the underwriters at any time. The underwriters may carry out these transactions on The Nasdaq Global Market, the Toronto Stock Exchange, in the over-the-counter market or otherwise.
      In addition, in accordance with rules and policy statements of certain Canadian provincial securities commissions, the underwriters may not, throughout the period of distribution, bid for or purchase the common shares. Exceptions, however, exist where the bid or purchase is not made for the purpose of creating actual or apparent active trading in, or raising prices of, the common shares. These exceptions include a bid or purchase permitted under the by-laws and rules of applicable regulatory authorities, The Nasdaq Global Market and the Toronto Stock Exchange relating to market stabilization and passive market making activities and a bid or purchase made for and on behalf of a customer where the order was not solicited during the period of distribution. Subject to the foregoing and applicable laws, in connection with the offering and pursuant to the first exception mentioned above, the underwriters may overallot or effect transactions that stabilize or maintain the market price of the common shares at levels other than those which might otherwise prevail on the open market. Any of the foregoing activities may have the effect of preventing or slowing a decline in the market price of the common shares. They may also cause the price of the common shares to be higher than the price that would otherwise exist in the open market in the absence of these transactions. If the underwriters commence any of these transactions, they may discontinue them at any time. The underwriters may conduct these transactions on The Nasdaq Global Market, the Toronto Stock Exchange or in the over-the counter market, or otherwise.
Pricing of the Offering
      Prior to this offering, there was no public market for our common shares. The initial public offering price will be determined by negotiations between us, ATS and the underwriters. Among the factors considered in determining the initial public offering price will be our future prospects and future prospects of our industry in general, our sales, earnings and other financial and operating information in recent periods, and the price-earnings ratios, market prices of securities and financial and operating information of companies engaged in activities similar to ours. The estimated initial public offering price range set forth on the cover page of this prospectus is subject to change as a result of market conditions and other factors.
Directed Share Program
      At our request, the underwriters have reserved up to                     common shares, or           % of the shares offered by this prospectus, for sale under a directed share program to our and ATS’ officers, directors, employees and related parties, immediate family members and entities of which employees or family members are the sole beneficiaries. All of the persons purchasing the reserved shares must commit to purchase upon the date of this prospectus but no later than the close of business on the day following that date. The number of common shares available for sale to the general public will be reduced to the extent these persons purchase the reserved shares. Common shares committed to be purchased by directed share

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program participants which are not so purchased will be reallocated for sale to the general public in this offering. All sales of common shares pursuant to the directed share program will be made at the initial public offering price set forth on the cover page of this prospectus, and all such common shares will be subject to the 180 day restrictions described above in this section.
Affiliations
      The underwriters and their affiliates have provided and may provide certain commercial banking, financial advisory and investment banking services for us for which they receive fees.
      The underwriters and their affiliates may from time to time in the future engage in transactions with us and perform services for us in the ordinary course of their business.
Expenses Related to this Offering
      Set forth below is an itemization of the total expenses, excluding underwriting discounts and commissions, which are expected to be incurred in connection with our offer and sale of our common shares. With the exception of the SEC registration fee and the National Association of Securities Dealers, Inc. filing fee, all amounts are estimates.
         
SEC registration fee
  $ 26,750  
Nasdaq Global Market and Toronto Stock Exchange listing fees
       
Printing and engraving expenses
       
Legal fees and expenses
       
Accounting fees and expenses
       
National Association of Securities Dealers, Inc. filing fee
       
Miscellaneous
       
       
Total
  $    
       
      The address of BMO Nesbitt Burns Inc. is 1 First Canadian Place, 4th Floor, P.O. Box 150, Toronto, Ontario, Canada M5X 1H3. The address of UBS Securities LLC is One North Wacker Drive, Chicago, Illinois, 60606.

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NOTICE TO INVESTORS
European Economic Area
      With respect to each Member State of the European Economic Area which has implemented Prospectus Directive 2003/71/ EC, including any applicable implementing measures, from and including the date on which the Prospectus Directive is implemented in that Member State, the offering of our common shares in this offering is only being made:
        (1) to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;
 
        (2) to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than 43,000,000 and (3) an annual net turnover of more than 50,000,000, as shown in its last annual or consolidated accounts; or
 
        (3) in any other circumstances which do not require the publication by the Issuer of a prospectus pursuant to Article 3 of the Prospectus Directive.
United Kingdom
      Our common shares may not be offered or sold and will not be offered or sold to any persons in the United Kingdom other than to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or as agent) for the purposes of their businesses and in compliance with all applicable provisions of the FSMA with respect to anything done in relation to our common shares in, from or otherwise involving the United Kingdom. In addition, any invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) in connection with the issue or sale of our common shares may only be communicated in circumstances in which Section 21(1) of the FSMA does not apply to us. Without limitation to the other restrictions referred to herein, this offering circular is directed only at (1) persons outside the United Kingdom; (2) persons having professional experience in matters relating to investments who fall within the definition of “investment professionals” in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005; or (3) high net worth bodies corporate, unincorporated associations and partnerships and trustees of high value trusts as described in Article 49(2) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005. Without limitation to the other restrictions referred to herein, any investment or investment activity to which this offering circular relates is available only to, and will be engaged in only with, such persons, and persons within the United Kingdom who receive this communication (other than persons who fall within (2) or (3) above) should not rely or act upon this communication.
Switzerland
      Our common shares may be offered in Switzerland only on the basis of a non-public offering. This prospectus does not constitute an issuance prospectus according to articles 652a or 1156 of the Swiss Federal Code of Obligations or a listing prospectus according to article 32 of the Listing Rules of the Swiss exchange. Our common shares may not be offered or distributed on a professional basis in or from Switzerland and neither this prospectus nor any other offering material relating to our common shares may be publicly issued in connection with any such offer or distribution. The shares have not been and will not be approved by any Swiss regulatory authority. In particular, the shares are not and will not be registered with or supervised by the Swiss Federal Banking Commission, and investors may not claim protection under the Swiss Investment Fund Act.

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LEGAL MATTERS
      The validity of the issuance of the common shares will be passed upon for us by Blake, Cassels & Graydon LLP. Certain U.S. legal matters relating to this offering will be passed upon for us by Shearman & Sterling LLP. Certain legal matters relating to this offering will be passed upon for the underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, as to U.S. legal matters, and Davies Ward Phillips & Vineberg LLP, as to Canadian legal matters. The partners and associates of Blake, Cassels & Graydon LLP, collectively, beneficially own, directly and indirectly, (i) less than 1% of our outstanding common shares; and (ii) less than 1% of the outstanding common shares of ATS. The partners and associates of Davies Ward Phillips & Vineberg, collectively, beneficially own, directly and indirectly, (i) less than 1% of our outstanding common shares; and (ii) less than 1% of the outstanding common shares of ATS.
EXPERTS
      Our combined financial statements as of March 31, 2006 and 2005, and for each of the three years in the period ended March 31, 2006, included in this prospectus have been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report appearing herein and have been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
      The offices of KPMG LLP are located at 115 King Street South, Waterloo, Ontario, Canada, N2J 5A3.

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WHERE YOU CAN FIND MORE INFORMATION
      We have filed a registration statement on Form F-1 with the SEC regarding this offering. This prospectus, which is part of the registration statement, does not contain all of the information included in the registration statement, and you should refer to the registration statement and its exhibits to read that information.
      Any statement in this prospectus about any of our contracts or other documents is not necessarily complete. If the contract or document is filed as an exhibit to the registration statement, the contract or document is deemed to modify the description contained in this prospectus. You must review the exhibits themselves for a complete description of the contract or document. You may review a copy of the registration statement, including the exhibits and schedules filed with it at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington D.C. 20549. Copies of all or a part of the registration statement may be obtained from this office after payment at prescribed rates. You may call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. You may also obtain a free copy of the registration statement, including the schedules and exhibits, from the SEC website at www.sec.gov.
      We are not currently subject to the informational requirements of the Exchange Act. As a result of this offering, we will become subject to the informational requirements of the Exchange Act and, in accordance therewith, will file reports and other information with the SEC. The registration statement, such reports and other information can be inspected and copied at the public reference facilities of the SEC described above. As a foreign private issuer, we are exempt from the U.S. rules under the Exchange Act prescribing the furnishing and content of proxy statements and our officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. Under the Exchange Act, as a foreign private issuer, we may not be required to publish financial statements as frequently or as promptly as United States companies.
      We will also be subject to the full informational requirements of the securities commissions in all provinces and territories of Canada. You are invited to read and copy any reports, statements or other information, other than confidential filings, that we intend to file with the Canadian securities regulatory authorities. These filings are electronically available from the Canadian System for Electronic Document Analysis and Retrieval (SEDAR) at http://www.sedar.com, the Canadian equivalent of the SEC electronic document gathering and retrieval system.

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INDEX TO COMBINED FINANCIAL STATEMENTS
         
    Page
     
Report of Independent Registered Public Accounting Firm
    F-2  
Combined Balance Sheets
    F-3  
Combined Statements of Earnings (Loss)
    F-4  
Combined Statements of Net Investment
    F-5  
Combined Statements of Cash Flows
    F-6  
Notes to Combined Financial Statements
    F-7  

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Report of Independent Registered Public Accounting Firm
The Board of Directors of Photowatt Technologies Inc. and ATS Automation Tooling Systems Inc.:
      We have audited the accompanying combined balance sheets of Photowatt Technologies Inc. (as described in note 1), as of March 31, 2006 and 2005, and the related combined statements of earnings (loss), net investment, and cash flows for each of the years in the three-year period ended March 31, 2006. These combined financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these combined financial statements based on our audits.
      We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about 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. We believe that our audits provide a reasonable basis for our opinion.
      In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Photowatt Technologies Inc. as of March 31, 2006 and 2005, and the results of its operations and its cash flows for each of the years in the three-year period ended March 31, 2006, in conformity with Canadian generally accepted accounting principles.
      Accounting principles generally accepted in Canada vary in certain significant respects from U.S. generally accepted accounting principles. Information related to the nature and effect of such differences is presented in Note 20 to the combined financial statements.
KPMG LLP
Waterloo, Canada
July 31, 2006, except as to note 19 which is as of August 29, 2006

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Photowatt Technologies Inc.
COMBINED BALANCE SHEETS
                   
At March 31   2005   2006
         
    (In United States
    thousands of dollars)
ASSETS
Current assets:
               
 
Cash and cash equivalents
  $ 891     $ 1,958  
 
Accounts receivable (note 4)
    24,508       20,253  
 
Inventories (note 5)
    25,281       33,441  
 
Future income taxes (note 12)
    952        
 
Prepaid expenses
    132       441  
             
Total current assets
    51,764       56,093  
Property, plant and equipment (note 6)
    78,627       42,805  
Goodwill
    1,705       1,705  
Intangible assets (note 7)
    1,449        
Deferred development costs (note 8)
    31,022       123  
Other assets (note 9)
          2,531  
             
Total assets
  $ 164,567     $ 103,257  
             
 
LIABILITIES AND GROUP EQUITY
Current liabilities:
               
 
Accounts payable and accrued liabilities
  $ 22,299     $ 22,809  
 
Income taxes payable
    367       4,096  
             
Total current liabilities
    22,666       26,905  
Future income taxes (note 12)
          584  
Minority interest
    593       586  
             
Total liabilities
    23,259       28,075  
Group equity:
               
 
Net investment (note 16)
    137,668       74,724  
 
Cumulative translation adjustment (note 11)
    3,640       458  
             
      141,308       75,182  
             
Total liabilities and group equity
  $ 164,567     $ 103,257  
             
Commitments (note 13)
               
 
Subsequent event (note 19)
               
See accompanying notes to combined financial statements.

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Photowatt Technologies Inc.
COMBINED STATEMENTS OF EARNINGS (LOSS)
                           
Years Ended March 31   2004   2005   2006
             
    (In United States thousands of dollars)
Revenue
  $ 65,855     $ 113,019     $ 121,916  
Operating costs and expenses:
                       
 
Cost of revenue
    52,859       89,930       89,993  
 
Research and development
    1,236       678       9,252  
 
Amortization
    4,466       5,420       9,680  
 
Selling and administrative
    4,708       5,855       9,088  
 
Asset impairment charge (note 15)
                94,290  
 
Shared corporate costs (notes 2 and 17)
    415       589       717  
                   
      63,684       102,472       213,020  
Earnings (loss) from operations
    2,171       10,547       (91,104 )
Interest (income) expense (note 17)
    (64 )     3       1,666  
                   
Earnings (loss) before provision for income taxes and minority interest
    2,235       10,544       (92,770 )
Provision for income taxes (note 12)
    1,130       3,761       5,610  
Minority interest
    41       125       (7 )
                   
Net earnings (loss)
  $ 1,064     $ 6,658     $ (98,373 )
                   
See accompanying notes to combined financial statements.

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Photowatt Technologies Inc.
COMBINED STATEMENTS OF NET INVESTMENT
                         
Years Ended March 31   2004   2005   2006
             
    (In United States thousands of dollars)
Net investment, beginning of year
  $ 64,770     $ 107,884     $ 137,668  
Net earnings (loss)
    1,064       6,658       (98,373 )
Net contribution by ATS Automation Tooling Systems Inc. 
    42,050       23,126       35,429  
                   
Net investment, end of year (note 16)
  $ 107,884     $ 137,668     $ 74,724  
                   
See accompanying notes to combined financial statements.

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Photowatt Technologies Inc.
COMBINED STATEMENTS OF CASH FLOWS
                             
Years Ended March 31   2004   2005   2006
             
    (In United States thousands of dollars)
Cash flows from operating activities:
                       
 
Net earnings (loss)
  $ 1,064     $ 6,658     $ (98,373 )
 
Other items not involving cash
                       
   
Asset impairment charge (note 15)
                94,290  
   
Future income tax expense (note 12)
    975       3,586       1,484  
   
Amortization
    4,466       5,420       9,680  
   
Other
    277       139       399  
Change in non-cash operating working capital:
                       
 
Accounts receivable
    (12,903 )     (7,264 )     2,718  
 
Inventories
    (1,127 )     (6,623 )     (10,177 )
 
Prepaid expenses
    18       (69 )     (334 )
 
Accounts payable and accrued liabilities
    10,267       1,974       (1,088 )
 
Income taxes payable
    235       (60 )     3,576  
                   
Cash flows provided by operating activities
    3,272       3,761       2,175  
Cash flows from investing activities:
                       
 
Acquisition of property, plant and equipment
    (40,195 )     (26,749 )     (26,431 )
 
Proceeds from disposal of assets
    27       7        
 
Deferred development expenditures
    (8,685 )     (15,197 )     (13,682 )
                   
Cash flows used in investing activities
    (48,853 )     (41,939 )     (40,113 )
Cash flows from financing activities:
                       
 
Proceeds from government assistance (note 14)
    5,714       12,847       3,438  
 
Contribution by ATS Automation Tooling Systems Inc. (note 16) 
    42,050       23,126       35,429  
                   
Cash flows provided by financing activities
    47,764       35,973       38,867  
Effect of exchange rate changes on cash and cash equivalents
    (216 )     (107 )     138  
                   
Increase (decrease) in cash and cash equivalents
    1,967       (2,312 )     1,067  
Cash and cash equivalents, beginning of year
    1,236       3,203       891  
                   
Cash and cash equivalents, end of year
  $ 3,203     $ 891     $ 1,958  
                   
See accompanying notes to combined financial statements.

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Photowatt Technologies Inc.
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN UNITED STATES THOUSANDS OF DOLLARS)
1. FORMATION OF PHOTOWATT TECHNOLOGIES INC.:
      Photowatt Technologies Inc. is a wholly owned subsidiary of ATS Automation Tooling Systems Inc. (“ATS” or the “Parent”). Upon the completion of the initial public offering of Photowatt Technologies Inc. (“IPO”), ATS will transfer into Photowatt Technologies Inc. its interests in the assets and liabilities that are used in the solar business conducted by ATS and its subsidiaries, subject to certain excluded assets including the premises and building related to the Spheral Solar manufacturing facility and ATS solar automation know-how. The solar business is comprised of Spheral Solar, a division of ATS, Photowatt International S.A.S., Spheral Solar Power Inc. and Matrix Solar Technologies, Inc., all of which are divisions or subsidiaries of ATS (collectively with Photowatt Technologies Inc. known as the “Company”). For the convenience of the reader, the combined financial statements refer to Photowatt Technologies Inc. and use “the Company” even though the transfer has not been consummated at March 31, 2006. As the transfer is not consummated, the financial statements are referred to as combined financial statements. Minority interests are held by third parties in Matrix Solar Technologies, Inc., which owns a portion of Photowatt International S.A.S. and Spheral Solar Power Inc.
      The Company’s principal business activity is the design, manufacture and sale of photovoltaic products.
2. BASIS OF ACCOUNTING:
      These combined financial statements present the historical financial position, results of operations, changes in net investment and cash flows on a carve-out basis from ATS as if the Company had operated as a stand-alone entity subject to ATS’ control prior to this reorganization.
      The combined financial statements have been prepared in accordance with Canadian generally accepted accounting principles, which conform in all material respects with United States generally accepted accounting principles, except as presented in note 20. Amounts are stated in United States dollars.
      A portion of ATS’ shared selling and administrative expenses have been allocated to the Company, based on management’s estimates of expenses directly attributable to the Company. Shared services provided include strategic, operational, human resources, accounting, information systems, facility, legal, taxation and treasury services. The allocations were estimated by the management of ATS to be an approximation of the expenses that the Company may have incurred had it operated on a stand-alone basis over the periods presented. Property, plant and equipment and other services purchased from ATS are recorded at the exchange amount.
      The Company’s surplus funds are transferred to ATS and the Company’s financing requirements are provided by ATS as reflected through ATS’ net investment account. Related party interest expense recorded in the Combined Statements of Earnings (Loss) represents charges from ATS as historically reflected in the accounts of subsidiaries.
      Income taxes have been recorded at statutory rates based on income taxes as reported in the Combined Statements of Earnings (Loss) as though the Company was a separate tax paying entity. Income taxes payable or recoverable in respect of the components which were not historically separate tax paying legal entities have been included in ATS’ net investment. Future income taxes have been presented in the Combined Balance Sheets for each temporary difference between the financial reporting and tax basis of the assets and liabilities. In addition, future income tax assets have been recognized to the extent that they would have been realized as though the Company was a separate tax paying group of entities. Future income tax assets are recognized only to the extent that management determines that it is more likely than not that future income tax assets will be realized in the foreseeable future.

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Photowatt Technologies Inc.
NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)
      As a result of the basis of presentation described above, the combined financial statements may not necessarily be indicative of the results that would have been obtained if the Company had operated as a stand-alone group of entities or indicative of the results for any future periods.
3. SIGNIFICANT ACCOUNTING POLICIES:
      (a) Principles of consolidation: The combined financial statements include the accounts of the Company, as described in note 1. All significant intercompany transactions and balances between these entities have been eliminated.
      (b) Foreign currency translation: The functional currency of Photowatt International S.A.S., Spheral Solar Power Inc. and Matrix Solar Technologies, Inc. are the Euro, Canadian dollar and United States dollar respectively. The functional currency of Spheral Solar is the Canadian dollar. For the purposes of the combined financial statements, the functional currency is the Canadian dollar and the reporting currency is the United States dollar. As the subsidiaries are self-sustaining, the accounts of the Company’s foreign subsidiaries are translated into United States dollars using the current rate method under which assets and liabilities are translated at the exchange rate prevailing at the year-end and revenues and expenses at average rates during the year. Gains or losses on translation are not included in the Combined Statements of Earnings (Loss) but are deferred and included in cumulative translation adjustment, a separate component of group equity.
      Other monetary assets and liabilities, including long-term monetary assets and liabilities, which are denominated in foreign currencies, are translated into the respective functional currency of each entity at year-end exchange rates, and transactions included in earnings are translated at rates prevailing during the year. Exchange gains and losses resulting from the translation of monetary assets and liabilities are included in the Combined Statements of Earnings (Loss).
      (c) Derivative financial instruments: The Company employs derivative financial instruments, primarily forward foreign exchange rate contracts, to manage exposure to fluctuations in foreign currency exchange rates. The Company does not hold derivative financial instruments for trading purposes. The Company has in place policies and procedures with respect to the required approvals for the use of derivative financial instruments and specifically ties their use to the mitigation of foreign currency risk. When applicable, the Company identifies relationships between its risk management objective and the strategy for undertaking the hedge transaction.
      Although management considers its derivative portfolio to be an effective risk management tool, the Company does not apply hedge accounting. Such derivative instruments are marked-to-market and are recorded in the Combined Balance Sheets as either an asset or liability, with changes in fair value recognized in the Combined Statements of Earnings (Loss) in selling and administrative expenses.
      Cash flows arising in respect of hedging transactions are recognized in cash flows from operating activities.
      (d) Cash and cash equivalents: Cash and cash equivalents consist of cash and highly liquid money market instruments with maturities of three months or less at the time of acquisition.
      (e) Inventories: Raw materials are valued at the lower of cost and replacement cost. Work-in-process and finished goods inventory are stated at the lower of cost and net realizable value. Cost includes the cost of materials plus direct labor applied to the product and applicable share of manufacturing overhead. Cost is determined on a first-in, first-out basis.

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Photowatt Technologies Inc.
NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)
      (f) Property, plant and equipment: Property, plant and equipment are recorded at cost. Amortization is computed using the following methods and annual rates:
         
Asset   Basis   Rate
         
Buildings
  Straight-line   15 years
Production equipment
  Straight-line   5 to 10 years
Other equipment and furniture
  Declining-balance   20%
    Straight-line   5 to 7 years
      (g) Goodwill: Goodwill represents the excess of the cost of an acquired enterprise over the net of the fair values assigned to assets acquired and liabilities assumed, less any subsequent impairment write-down. Goodwill is subject to an impairment test on at least an annual basis or upon the occurrence of certain events or circumstances. Goodwill impairment is assessed based on a comparison of the fair value of a reporting unit to the underlying carrying value of the reporting unit’s net assets, including goodwill. When the carrying amount of the reporting unit exceeds its fair value, the implied fair value of the reporting unit’s goodwill is compared with its carrying amount to measure the amount of impairment loss, if any. Goodwill presented in the combined financial statements relates to the Company’s purchase of Photowatt International S.A.S.
      (h) Intangible assets: Intangible assets, which are patents and licences on technologies, are recorded at cost and amortized over their estimated economic life of 10 to 17 years.
      (i) Impairment of long-lived assets: The Company reviews long-lived assets such as property, plant and equipment and intangible assets with finite useful lives for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If the total of the expected undiscounted cash flows is less than the carrying value of the asset, a loss, if any, is recognized for the excess of the carrying value over the fair value of the asset. During the year ended March 31, 2006, the Company determined that the carrying value of certain property, plant and equipment and intangible assets was in excess of their associated estimated undiscounted future cash flows and the assets were written-down to their fair value as further described in note 15.
      (j) Income taxes: The Company uses the liability method of accounting for income taxes. Under the liability method of accounting for income taxes, future income tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the substantively enacted tax rates and laws that will be in effect when the differences are expected to reverse.
      The Company continues to assess, on an ongoing basis, the degree of certainty regarding the realization of future income tax assets and whether a valuation allowance is required.
      (k) Revenue recognition: Revenue is recognized when earned, which is generally at the time of shipment and when title is transferred to the customer, provided that collection is reasonably assured, the sales price is fixed and determinable, and the rights and risks of ownership have passed to the customer.
      The Company maintains an allowance for doubtful accounts primarily based on an assessment of historical bad debts, factors surrounding the credit risk of specific customers and current economic trends. If there is a deterioration of a major customer’s creditworthiness or actual defaults are higher than our historical experience, the Company may be required to increase the allowance for doubtful accounts.
      The Company provides for the costs of product warranties at the time revenue is recognized. Estimates of product warranty costs are based upon historical experience and expectations of future return rates and unit warranty repair costs. To the extent actual product failure rates and associated costs differ from our estimates, revisions to the estimated warranty liability would be required.

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Table of Contents

Photowatt Technologies Inc.
NOTES TO COMBINED FINANCIAL STATEMENTS — (Continued)
      (l) Research and development costs: Research costs are expensed as incurred. Development costs which meet generally accepted criteria for deferral are deferred and amortized over the period over which the Company expects to benefit from the resulting product or process. Subject to meeting the generally accepted criteria for deferral, the Company capitalizes both direct and indirect costs with respect to ventures which are in the development stage.
      Deferred development costs are reviewed annually for recoverability or whenever events or circumstances indicate that the carrying value may not be recoverable. When the criteria that previously justified the deferral of costs are no longer met, the unamortized balance is written-off as a charge to earnings in that period. When the criteria for deferral continue to be met, but the amount of deferred development costs that can reasonably be regarded as assured through recovery of related future revenues less relevant costs is exceeded by the unamortized balance of such costs, the excess is written-off as a charge to earnings in that period. During the year ended March 31, 2006, the Company determined that the carrying value of certain deferred development costs was in excess of their associated estimated undiscounted future cash flows and the assets were written-down as further described in note 15.
      (m) Investment tax credits and government assistance: Investment tax credits and government assistance are accounted for as a reduction in the cost of the related asset or expense when there is reasonable assurance that such credits or assistance will be realized.
      (n) Stock-based compensation plans: For all employee stock option awards granted on or after April 1, 2003, the Company recognizes compensation using the fair value based method of accounting for stock-based compensation.
      The Company has accounted for all employee stock options granted before April 1, 2003 as capital transactions with the provision of pro forma dis